South Africa [1 ed.] 9789221113966

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SOUTH AFRICA

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STUDIES ON THE SOCIAL DIMENSIONS OF GLOBALIZATION

SOUTH AFRICA Globalization affects the enterprises and workers of nearly all countries, in goods as well as services sectors.This book is part of a series of seven country studies on the social impact of globalization.

S. Hayter, G. Reinecke and R.Torres

The seven studies (covering Bangladesh, Chile, the Republic of Korea, Mauritius, Poland, South Africa and Switzerland) are accompanied by a synthesis report (Towards a socially sustainable world economy: An analysis of the social pillars of globalization, Geneva, ILO, 2001), which summarizes the main results of the ILO’s work and discusses a wide range of analytical and policy issues of relevance to all countries participating in the globalization process. The studies as a whole show that governments and the social partners must and can implement a range of labour and social policies which will improve the benefits from globalization while reducing the social costs.

SOUTH AFRICA

The study outlines some recent trends in globalization and social progress, assesses the social effects, and examines a variety of policy issues, including international integration, changing labour market conditions, protection against labour and social insecurities, and labour-management relations.

SOUTH AFRICA Susan Hayter, Gerhard Reinecke and Raymond Torres

INTERNATIONAL LABOUR OFFICE • GENEVA ISBN 92-2-111396-5

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INTERNATIONAL LABOUR OFFICE • GENEVA

SOUTH AFRICA . . .

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STUDIES ON THE SOCIAL DIMENSIONS OF GLOBALIZATION

SOUTH AFRICA

Susan Hayter, Gerhard Reinecke and Raymond Torres

INTERNATIONAL LABOUR OFFICE • GENEVA

Copyright © International Labour Organization 2001 First published 2001 Publications of the International Labour Office enjoy copyright under Protocol 2 of the Universal Copyright Convention. Nevertheless, short excerpts from them may be reproduced without authorization, on condition that the source is indicated. For rights of reproduction or translation, application should be made to the Publications Bureau (Rights and Permissions), International Labour Office, CH-1211 Geneva 22, Switzerland. The International Labour Office welcomes such applications. Libraries, institutions and other users registered in the United Kingdom with the Copyright Licensing Agency, 90 Tottenham Court Road, London W1P OLP (Fax: +44 207 631 5500), in the United States with the Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923 (Fax: +1 978 750 4470), or in other countries with associated Reproduction Rights Organizations, may make photocopies in accordance with the licences issued to them for this purpose. Hayter, S.; Reinecke, G.; Torres, R. South Africa: Studies on the social dimensions of globalization Geneva, International Labour Office, 2001 Labour market, employment, economic and social development, globalization of the economy, trade liberalization, trend, South Africa R. 13.01.2 ISBN 92-2-111396-5 ILO Cataloguing-in-Publication Data The designations employed in ILO publications, which are in conformity with United Nations practice, and the presentation of material therein do not imply the expression of any opinion whatsoever on the part of the International Labour Office concerning the legal status of any country, area or territory or of its authorities, or concerning the delimitation of its frontiers. The responsibility for opinions expressed in signed articles, studies and other contributions rests solely with their authors, and publication does not constitute an endorsement by the International Labour Office of the opinions expressed in them. Reference to names of firms and commercial products and processes does not imply their endorsement by the International Labour Office, and any failure to mention a particular firm, commercial product or process is not a sign of disapproval. ILO publications can be obtained through major booksellers or ILO local offices in many countries, or direct from ILO Publications, International Labour Office, CH-1211 Geneva 22, Switzerland. Catalogues or lists of new publications are available free of charge from the above address PDFs prepared by MAGHEROSS GRAPHICS, Switzerland & Ireland

PREFACE

The decade of the 1990s began with the end of the cold war and the first stirring of a growing preoccupation with the social impact of the emerging global economy. In the mid-1990s, with the completion of the last round of trade negotiations which gave rise to the creation of the World Trade Organization (WTO), the newly established credo was that a fresh wave of trade liberalization would translate into a substantial improvement in living standards. The risk that adjustment problems, including in the social and environmental areas, would arise was acknowledged but it was argued that these problems were small and transitory. The World Summit for Social Development in 1995 was a political expression of a more mixed sense of fear and opportunity that globalization was producing. Today the general tone of the debate has sharpened, and public attention has grown ever greater, as witnessed by the WTO Ministerial Meeting held in Seattle at the end of 1999. Concerns are fuelled by the fact that, while some have undoubtedly gained from the globalization process, the economic situation of the majority of the world population has not improved much – indeed, many millions continue to live in absolute poverty. More fundamentally, there is a feeling that many individuals who participate in the world economy are deprived of basic rights, and opportunities are therefore unequal. The creation of a level playing-field among and within countries has emerged slowly as a policy issue. The ILO addressed these controversial issues under the aegis of its Governing Body Working Party on the Social Dimensions of the Liberalization of International Trade, created in 1994. At a fairly early stage, the Working Party came to consider that before speculating on the various types of possible response to the impact of trade liberalization and the globalization of the economy, it would be advisable to gain a better empirical idea of the nature and magnitude of its effects. Hence, the decision was taken to carry out a certain number of “country studies”, chosen to offer a balanced sample of situations © ILO 2001

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and levels of development. These studies were conducted with the participation, on a tripartite basis, of the countries concerned. A synthesis study, drawing on the country studies, was also prepared. A balanced, realistic message emerges from these discussions. On the one hand, in a modern economy characterized by the diffusion of information and communication technology and rapid economic integration, it would be illusory to pursue social objectives under a protectionist trade regime. Open economies are better than closed economies. On the other hand, when implementing open trade and investment policies, governments should not only pay more attention to social issues but also recognize that strengthening the social pillar contributes to raising the economic returns from globalization. The present country study is a first reflection of these rich discussions. A more general lesson emerges from this experience as regards the usefulness of an integrated approach to this issue. All too often, there is a divide between the research communities working on different aspects of globalization. Similarly, compartmentalization exists at the policy-making level and among international organizations. Yet, in reality, economic and social phenomena are interrelated in nature. In an effort to bridge this divide, the ILO Governing Body has decided to renew the mandate of the Working Party as the Working Party on the Social Dimensions of Globalization, and broaden its work programme. This work programme should contribute to developing an integrated framework in three quite concrete ways: • first, by developing a better understanding of the interplay between social and economic factors in the global economy, not only in general terms but also through a more systematic examination and confrontation of national experiences in relation to specific aspects of social protection and rights at work; • second, by applying to this search the unique “prism” which the tripartite structure offers for grasping how apparently contrasting economic and social objectives can blend into a single and sustainable process of development; and • third, by associating more closely other international organizations, and especially those which have an economic mandate. The country studies have contributed to demonstrating that this closer association is not only possible but has great potential – without blurring the respective mandates and priorities of each organization – to help all of them, including the ILO, discharge more efficiently their specific responsibilities. The challenge is, in brief, to ensure that material progress generated by international economic integration goes in parallel with the balanced developvi

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Preface

ment of decent work opportunities both within countries and between them. The Working Party has already made a major contribution to solving this equation by initiating the process which led to the universal recognition of fundamental principles and rights at work as one of the prerequisites for such parallel development. By providing empirical evidence as regards their positive impact on sustainable economic development, it should help create a sense of common ownership of these principles and rights among all the organizations and constituents concerned. More generally, it should contribute to forging the intellectual and institutional tools necessary to make the integrated framework a reality.

Juan Somavia Director-General January 2001

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CONTENTS

Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii List of abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xv Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Part I

Trends in globalization and social progress . . . . . . . . . . . . . . . . . . . . . . . 9 A. The different dimensions of globalization . . . . . . . . . . . . . . . . . . . . . 11 B. An overview of social progress indicators . . . . . . . . . . . . . . . . . . . . 21

Part II

Assessing the social impact of globalization . . . . . . . . . . . . . . . . . . . . . . 37 A. Patterns of comparative advantage . . . . . . . . . . . . . . . . . . . . . . . . . . 39 B. Trade liberalization, employment and aggregate income . . . . . . . . . . 46 C. Globalization and income inequalities . . . . . . . . . . . . . . . . . . . . . . . 66

Part III

Policy issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 A. Industrial policy, trade reform and perspectives of regional integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 B. Improving access to education and skills development . . . . . . . . . . . 76 C. Labour market regulations and institutions . . . . . . . . . . . . . . . . . . . . 78 D. The social safety net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91

Concluding remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 Annex 1 Theoretical and empirical approaches to the assessment of the impact of trade liberalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 Annex 2 Data sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 © ILO 2001

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List of figures 1

Trends in economic growth and per capita income, 1980–98 . . . . . . . . . . 6

2

Trade flows and openness, 1980–97 . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

3

Foreign direct investment and portfolio investment flows, 1980–98 . . . . 17

4

Sectoral and geographic composition of FDI inflows, 1994–98 . . . . . . . 18

5

Non-agricultural employment, 1980–98 . . . . . . . . . . . . . . . . . . . . . . . . . 23

6

Employment variation by economic sector, 1994–97 . . . . . . . . . . . . . . . 24

7

Employment, value added and labour productivity growth in the non-agricultural sector, 1980–98 . . . . . . . . . . . . . . . . . . . . . . . . . . 25

8

Relative wages by population group and economic sector, 1980–97 . . . . 29

9

Access to electricity, water and telephone by population group . . . . . . . 32

10

Employment status by population group and sex, 1993 . . . . . . . . . . . . . 34

11

Growth of manufacturing imports by product type, 1994–97 . . . . . . . . . 40

12

Export structure by main sectors, 1980, 1993 and 1997 . . . . . . . . . . . . . 41

13

Composition of manufacturing exports and imports by factor intensity, 1993 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

14

Trade and economic performance by economic sector, 1994–97 . . . . . . . 47

15

Labour market performance in the non-agricultural sector, 1994–97 . . . . 47

16

Trade, economic and labour market performance of manufacturing sectors by trade orientation, 1994–97 . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

17

Trade, economic and labour market performance of manufacturing sectors by natural resource intensity, 1994–97 . . . . . . . . . . . . . . . . . . . . 53

18

Trade, economic and labour market performance of manufacturing sectors by capital intensity, 1994–97 . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

19

Trade, economic and labour market performance of manufacturing sectors by initial level of tariff rates, 1994–97 . . . . . . . . . . . . . . . . . . . . 54

20

Trade, economic and labour market performance of manufacturing sectors by magnitude of the decrease in tariff rates, 1994–98 . . . . . . . . . 55

21

Evolution of cost competitiveness, 1990–98 . . . . . . . . . . . . . . . . . . . . . . 59

22

Production prices by factor intensity, 1994–98 . . . . . . . . . . . . . . . . . . . . 61

23

Capital–labour ratios by economic sector, 1980–95 . . . . . . . . . . . . . . . . 63

24

Gross domestic fixed investment and gross domestic savings, 1980–98 . . . 65

25

Mean wages for elementary occupations and unemployment rates by province . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84

A1

Output and consumption effects of freer trade . . . . . . . . . . . . . . . . . . . . 97

A2

The impact of freer trade on output and employment when relative wages are fixed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

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List of tables 1

Average weighted import tariff rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

2

Foreign trading of equities, 1991–98 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

3

International comparison of number of Internet hosts for selected middle-income countries, July 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . .19

4

Poverty rate and social indicators by population group, 1993 . . . . . . . . . 22

5

International comparison of social indicators for selected middle-income countries, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

6

Unemployment and employment rates by population group and sex, 1994–97 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

7

Unemployment by education and sex, 1995 . . . . . . . . . . . . . . . . . . . . . . . 28

8

Trends in real wages and labour productivity, 1990–97 . . . . . . . . . . . . . . 28

9

Indicators of income distribution in selected middle-income countries . . 30

10

Income inequality by population group, 1990 and 1995 . . . . . . . . . . . . . . 30

11

Level of education by population group and sex, 1995 . . . . . . . . . . . . . . 31

12

Average earnings by level of education, population group and sex, 1994 . . 32

13

Employment status in a sample of manufacturing enterprises, 1996 . . . . 35

14

Main export and import products, 1985 and 1996 . . . . . . . . . . . . . . . . . . 42

15

Evolution of world markets for main export products, 1980–96 . . . . . . . 43

16

Composition of exports by geographic destination, 1996 . . . . . . . . . . . . . 45

17

Summary of classifications of manufacturing sectors . . . . . . . . . . . . . . . . 48

18

Trade orientation by economic sector, 1993 and 1997 . . . . . . . . . . . . . . . 50

19

Employment, labour productivity, wages and exports of manufacturing sectors by trade orientation, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

20

Investment and employment variation in manufacturing sectors, 1997 . . 64

21

International comparison of legislation on dismissals and fixed-term contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

22

Collective bargaining coverage in the non-agricultural sector, 1993–97 . . . 86

23

International comparison of collective bargaining systems . . . . . . . . . . . 87

24

Labour market institutions, 1993–97 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89

A1

Sectoral employment determinants: econometric results; dependent variable: employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100

A2

Statistics: Sources and definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103

Box 1 © ILO 2001

Why is South Africa a capital-intensive economy? . . . . . . . . . . . . . . . . . 56 xi

ACKNOWLEDGEMENTS

This report is one of a series of seven country studies on the social dimensions of globalization. It was written by Susan Hayter, Gerhard Reinecke and Raymond Torres, respectively consultant, researcher and head, of the ILO Task Force on the Country Studies on the Social Dimensions of Globalization. Vusi Gumede of the National Institute for Economic Policy (NIEP) provided statistical material and technical contributions. Christine Enzler was in charge of data gathering and processing. Julie Silcock and Tracy Murphy provided secretarial support. Margareta Simons edited the final version and John Dawson compiled the index. We would like to thank our counterparts at the South African Department of Labour, Guy Mhone (Chief Director of Labour Market Policies) and Cynthia Alvillar (Director of Research, Policy and Planning), for their guidance and assistance. The following people kindly provided statistical information: Debbie Budlender (Statistics South Africa); Steven Hanival (Department of Trade and Industry); Gena Krasnik (Industrial Development Corporation); Wynand Stapelberg (National Association of Bargaining Councils); David Viljoen (Development Bank of Southern Africa); and WEFA staff. Finally, we are most grateful to the officials, academics, and workers’ and employers’ representatives who assisted us during missions to South Africa in March and May 1998. A preliminary version of this study was presented at several meetings in South Africa in November 1998, and this revised version takes into account points raised during those discussions.

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LIST OF ABBREVIATIONS

ANC

African National Congress

BCEA

Basic Conditions of Employment Act

CCMA

Commission for Conciliation, Mediation and Arbitration

CGE

computable general equilibrium

CLMC

Comprehensive Labour Market Commission

COSATU

Congress of South African Trade Unions

CREFSA

Centre for Research into Economics and Finance in Southern Africa

DTI

Department of Trade and Industry

EU

European Union

FDI

foreign direct investment

GATT

General Agreement on Tariffs and Trade

GDP

gross domestic product

GEAR

Growth, Employment and Redistribution Programme

GEIS

General Export Incentive Scheme

HDI

Human Development Index

IDC

Industrial Development Corporation of South Africa

IDZ

Industrial Development Zone

ILO

International Labour Office/Organization

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South Africa: Studies on the social dimensions of globalization

IMF

International Monetary Fund

ISP

Industrial Strategy Project

JSE

Johannesburg Stock Exchange

LRA

Labour Relations Act

MEC

minerals and energy complex

MERG

Macro-economic Research Group

NABC

National Association of Bargaining Councils

NEDLAC

National Economic Development and Labour Council

NIEP

National Institute for Economic Policy

OECD

Organisation for Economic Co-operation and Development

RDP

Reconstruction and Development Programme

RSA

Republic of South Africa

SACU

Southern African Customs Union

SADC

Southern African Development Community

SALDRU

South African Labour and Development Research Unit

SARB

South African Reserve Bank

SDI

Spatial Development Initiative

SMMEs

small, medium and micro enterprises

Stats SA

Statistics South Africa (formerly Central Statistical Service)

UIF

Unemployment Insurance Fund

UNDP

United Nations Development Programmme

WTO

World Trade Organization

Note: billion refers to a thousand million.

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SUMMARY

The past few years have been a historical turning point in South African political and economic systems. In 1994, following several decades of apartheid, democratic elections were held and new institutions comprising representatives from all the major social groups emerged. The new government initiated a much-needed process of economic reform, aimed at creating an outwardlooking economy. This went hand in hand with efforts to improve social equity and income distribution. At the start of the transformation process, the challenge facing South Africa was widely regarded as immense (and the risk of political instability was considered to be high). Several decades of relative economic isolation meant that firms were ill prepared to take advantage of the opportunities arising from trade liberalization, while the potential adjustment costs were correspondingly high. A major recession during the early 1990s led to falling living standards for the majority of the population. In addition, previous economic policies had tended to favour capital-intensive sectors, to the detriment of labour-intensive ones – a rather strange policy considering the country has such an abundant, but unused, labour force. In 1994, the unemployment rate reached alarmingly high levels. More fundamentally, following several decades of segregation, the majority of the population was hoping for a rapid improvement in political rights, as well as better social and economic conditions. The main policy issue was, therefore, to satisfy these legitimate aspirations and at the same time create a stable macroeconomic framework to enhance the integration of South Africa into the international economy. Objectively, however, the initial economic conditions made the task problematic: the country was simply not prepared to take advantage of economic and trade reforms. Today, it is clear that the country’s economic performance has exceeded expectations. Economic growth has recovered slightly (from 1994 to 1998, GDP growth rose by a modest annual average of 2.7 per cent), inflation is on a © ILO 2001

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Korea: Studies on the social dimensions of globalization

downward trend and there are no major fiscal or financial imbalances. Trade liberalization has got under way, including a scheduled gradual decrease in import tariffs in force since 1994, allowing for a significant increase in trade flows. Not only have most non-tariff barriers been lifted, but tariff rates have also been brought down and are expected to be reduced further over the next few years. Export subsidies have been suppressed. South Africa has become an active member of the World Trade Organization (WTO), it is the most important member of the Southern African Development Community (SADC) and at the time of writing was engaged in trade discussions with the European Union (EU). Likewise, progress has been made in the area of foreign direct investment (FDI) liberalization. At least until the 1997 Asian financial crisis, FDI inflows were on the rise. The situation on the employment front, however, has deteriorated. Unemployment remains high and has been increasing, endangering social stability and contributing to the rise in the crime rate. Some have argued that trade and FDI liberalization have substantially aggravated the employment situation, presumably because higher imports would have caused job losses. The study examines this issue closely and comes to the following conclusions: • Since the start of trade liberalization, employment has been falling at a slower rate. • Surprisingly, relative employment losses in manufacturing importcompeting sectors taken as a whole have been less important than in export-oriented manufacturing sectors. • The study provides theoretical support and empirical evidence that trade liberalization may have shifted production in favour of capital-intensive sectors to the detriment of labour-intensive ones. This finding reflects the fact that South Africa specializes in capital-intensive products, which, according to several authors, is a legacy of past industrial policies. Further research remains to be done on why trade liberalization and changes in industrial policies have not caused a shift to a more labour-intensive development path. • Empirical analysis carried out in the study suggests that employment losses are not directly associated with greater import competition. Instead, they seem to be caused by a process of production rationalization (or “rightsizing”), which affects export-oriented sectors in particular. A key issue that needs to be resolved is to find out to what extent this process is associated with the necessity to become internationally competitive. • Empirical evidence suggests that an increase in investment is associated with higher employment levels. In other words, an insufficient stock of 2

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Summary

physical capital may lie at the heart of the unemployment problem. It is important to note that investment in South Africa represents only about 17 per cent of GDP, which is low when compared with middle-income countries that have been successful in creating employment (in these countries, investment typically exceeds one-quarter of GDP). • The South African economy suffers from a chronic shortage of skilled labour. This has negative consequences in terms of economic growth and may have hindered the development of labour-intensive sectors. In addition, it hampers the ability of the labour market to adapt to the instability often associated with globalization. In short, the legacy of protective industrial policies that favoured capitalintensive sectors, together with a shortage of real and human capital, has reduced the ability of the South African economy to benefit from trade and FDI liberalization. The Government and the social partners have taken important steps to address the underlying factors at work: • Measures to create a more competitive product market environment have been announced – international experience suggests that removing obstacles to make the creation of small businesses easier would help maximize the benefits from trade and at the same time stimulate job creation. • Education has become a major government priority. The principal aims are to improve its quality and raise school attendance levels. • Labour regulations have been reformed to increase the adaptability of the labour market, while also providing a measure of employment security. Compared with other middle-income countries, labour regulations on dismissals, fixed-term contracts and working conditions do not appear to be particularly onerous for employers, which thus dismisses the point of view that inflexible labour markets are at the heart of the employment problem. • Importantly, contained in all these measures is the explicit aim to promote the rights and working conditions of the African majority. Despite these measures, the social situation in South Africa remains bleak. Further reforms, particularly in the field of creating a more favourable environment for business start-ups, may be needed. In addition, it will be important to assist disadvantaged groups in a way that does not reduce incentives to work, invest or to take initiative. In this regard, South Africa can draw on the extensive experience of targeted active labour market policies and social benefits worldwide. While much remains to be done, social dialogue within the framework of the National Economic Development and Labour Council (NEDLAC) and © ILO 2001

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South Africa: Studies on the social dimensions of globalization

other relevant institutions appears to be an important asset and one that can contribute to maintaining the momentum of reform in a consensual and socially sustainable way.

4

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INTRODUCTION

Since the early 1990s, South Africa has witnessed profound political, social and economic change. In 1994, democratic elections were held, effectively ending the era of apartheid. The new government went on to instigate farreaching reforms within the framework of the Reconstruction and Development Programme (RDP), the main objectives being to create a stable socio-economic environment conducive to high economic growth, while also reducing the social disparities and inequalities inherited from the previous regime. Trade liberalization was regarded as an important component of this strategy, and an import liberalization scheme got under way in 1994. This included the gradual reduction of import tariffs to below WTO-binding levels. In 1996, in its Growth, Employment and Redistribution Programme (GEAR), the Government reiterated the objectives of the RDP and announced further trade liberalization measures. The need for an industrial policy that would favour labour-intensive sectors was also emphasized. The challenge facing the country was certainly sizeable. Several decades of relative economic isolation meant that firms were ill prepared to take advantage of the opportunities arising from trade liberalization, while the potential adjustment costs were correspondingly high. A major recession during the early 1990s had led to falling living standards for the majority of the population. In addition, previous economic policies had favoured capital-intensive sectors, to the detriment of labour-intensive ones – a rather strange policy for a country with such an abundant, but unused, labour force. The unemployment rate was also extremely high. More fundamentally, following several decades of segregation, the majority of the population was hoping for rapid improvements in political rights and social and economic conditions. The main policy issue, therefore, was to satisfy these legitimate aspirations, while at the same time creating a stable macroeconomic framework and enhancing the integration of South Africa into the international economy. In short, the country was not in a © ILO 2001

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South Africa: Studies on the social dimensions of globalization

Figure 1 Trends in economic growth and per capita income, 1980–98 A. Growth in GDP (as a percentage) % 6 5 4 3 2 1 0 –1 –2 –3 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

B. GDP and GDP per capita in constant 1995 prices (1980=100) Index 140 GDP index 130

GDP per capita index

120

110

100

90

80 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

Source: South African Reserve Bank (SARB): Quarterly Bulletin, Dec. 1999; World Bank (1988).

6

© ILO 2001

Introduction

favourable position to grasp the benefits from much-needed economic reforms, particularly in trade liberalization. However, only a few years into the new government, it can be asserted that economic performance has been better than expected (figure 1). Economic growth has recovered slightly: between 1994 and 1998, GDP grew by a modest 2.7 per cent per year on average (but data for 1998 predict a slowdown). Inflation has been on a downward trend and there are no major fiscal or financial imbalances. Trade liberalization has proceeded, allowing for a substantial increase in trade flows. South Africa has become an active member of the WTO, is the most important participant of the SADC and at the time of writing was engaged in trade discussions with the EU. Progress on the social front, however, has been slow. Unemployment remains high and has been increasing, endangering social stability and contributing to a rise in the crime rate. A recent job summit between the social partners highlighted concerns over unemployment and the importance of job creation in the country. The purposes of this study are: (a) to shed light on how trade and investment liberalization may have contributed to these recent trends, both positive and negative; (b) to increase understanding of the extent to which the social and economic imbalances prevailing at the start of the country’s transition period have inhibited the potential gains from globalization; and (c) to examine how policies can help achieve a better outcome in the coming years. Given the nature of recent policies, the study focuses on certain specific dimensions of the globalization process, namely trade and FDI liberalization. Part I contains a brief description of the process of economic liberalization and tracks the key labour and social developments that are taking place. Part II attempts to determine the links between trade and the country’s poor employment performance, taking the years from 1994 to 1997 as the main period of analysis. Part III assesses the policies and conditions that will be necessary to consolidate the potential gains from globalization, and at the same time make the process socially sustainable – which is particularly difficult given the extreme inequalities that remain, a legacy of South Africa’s system of apartheid.

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PART I

TRENDS IN GLOBALIZATION AND SOCIAL PROGRESS

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9

A. THE DIFFERENT DIMENSIONS OF GLOBALIZATION

Globalization is a complex and multifaceted phenomenon. This report focuses mainly on economic globalization, which can be defined as a process of evercloser economic linkages between national economies. The speed at which the process occurs and its worldwide dimensions distinguish it from previous episodes of economic integration. Trade and FDI liberalization, the fact that many new technologies can be acquired by both developed and developing countries and the progressive adoption of new work organization techniques are key factors behind globalization. Financial capital markets have become particularly integrated, and, indeed, in today’s world large amounts of short-term capital can flow almost instantaneously from one country to another. This chapter examines some of the dimensions of globalization, namely trade, investment and capital flows, leaving aside others that cannot be easily measured (or for which relevant data are unavailable).

Trade liberalization In 1925, South Africa was one of the world’s first middle-income countries to adopt an explicit policy of import-substitution industrialization. Its initial effects were rapid industrial growth and diversification. However, by the 1960s, manufacturing growth had begun to slow down. One of the first key policy shifts towards a more outward-looking trade strategy then occurred in the early 1970s. Recognition of the limitations of an import-substitution strategy, together with concerns over an anti-export bias that had developed in manufacturing, led to the establishment in 1971 of the Reynders Commission of Inquiry. The Commission’s report emphasized the need to introduce export promotion measures in order to overcome the anti-export bias and expand exports, but it made no recommendations on liberalizing the import regime. © ILO 2001

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South Africa: Studies on the social dimensions of globalization

The export incentives introduced during the 1970s were, however, limited in scope and did little to reduce the anti-export bias. Furthermore, the import regime remained protectionist, retaining and even extending a complex protective tariff and import-control structure.1 Renewed attempts were made to reform the trade regime during the 1980s. Starting in 1983, policies were introduced to reduce quantitative restrictions and, as had happened in other countries, to offset the effects on industry by increasing tariffs. In 1985, the positive list of permitted imports was replaced with a negative list of imported items requiring approval. Free trade policy, however, was not considered.2 Moreover, external events, that is, the imposition of financial sanctions by the international community, the debt standstill and the devaluation of South Africa’s currency (the rand), and strong domestic lobbying to maintain the tariff regime restricted these moves. A paradoxical situation then arose. The replacement of the quantitative restrictions with a complex, non-transparent system of import reference prices, known in South Africa as “formula duties” (as opposed to a transparent system of ad valorem tariffs), and an import surcharge of 10 per cent (introduced in 1985 in response to the debt standstill) raised rather than lowered the effective rate of protection (ERP) during this period (Jenkins and Siwisa, 1997). However, in some industries, such as clothing, the structural adjustment programme which had been adopted to boost exports had the unintended consequence of increasing duty-free manufactured imports. Permits to import duty free were sold to importers of clothing. These were estimated to have accounted for about 30 per cent of clothing imports (Altman, 1997). In 1990 another attempt was made to stimulate exports with the introduction of the General Export Incentive Scheme (GEIS). This consisted of a tax-free subsidy to exporters, depending on the value of exports, the degree of processing and local content, as well as some protection against exchange rate fluctuations. The scheme was relatively successful in that it fostered the growth of natural-resource-intensive manufacturing exports, although labour-intensive sectors took less advantage of it (Belli, Finger and Ballivian, 1993; Jenkins, Bleaney and Holden, 1995, p. 9). With political change sweeping through the country in the early 1990s, a review of both the macroeconomic and the industrial policy regimes was initiated, marking the start of the trade liberalization process.3 South Africa became a signatory of the Marrakesh Agreement of the (then) General Agreement on Tariffs and Trade (GATT) in 1994. This led to a five-year tariff reduction and rationalization programme. The programme was the fruit of a remarkable consultation process with key social actors under the auspices of the National Economic Forum.4 This programme took effect in January 1995 12

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Trends in globalization and social progress

and was aimed at reducing the number of tariff rates from over 100 to six, ranging from 0 to 30 per cent. (The tariff reduction programme envisages phasing out tariffs to below the WTO-binding level.) Parallel to this, in 1994 the authorities decided to phase out the GEIS, which was considered to be at odds with GATT and WTO regulations. Payments under GEIS became taxable from April 1995 and were gradually reduced until the programme came to an end in July 1997. The new tariff programme introduced in 1995 exceeded WTO recommendations. The new government signalled its further commitment to trade liberalization in 1996 with its GEAR macroeconomic strategy in which it stated its commitment to “trade and industrial policies [which] aim to promote an outward-oriented industrial economy, integrated into the regional and global environment and fully responsive to market trends and opportunities” (RSA, 1996a). Importantly, the liberalization process has been more gradual than in some other middle-income countries with a history of import substitution (such as Chile and Poland). The series of trade reforms which were introduced from about the 1970s were a domestic response to domestic developments, and not externally imposed in the context of a structural adjustment programme. As a result of the implementation of the import liberalization programme, the weighted average of import tariff rates for manufacturing products fell from 14 per cent in 1994 to 5.6 per cent in 1998. The only product groups for which tariff rates exceed 20 per cent are tobacco, textiles, garments, footwear, furniture and transport equipment industries (table 1). The average ERP for manufacturing products also decreased considerably, from 30 per cent in 1993 to 22 per cent in 1996, although this decline was largely limited to capital goods (Tsikata, 1998). In short, although a number of trade policy reforms were introduced in the 1970s and 1980s and the process advanced rapidly during the early 1990s, 1994 marks the real starting point of an overt programme of both import liberalization and the removal of export subsidies such as the GEIS.

The liberalization of capital flows Capital flows have also been slightly liberalized in recent years. Until 1994, these were subject to strict control measures, including a dual exchange rate system (the financial rand). Since 1994, both the financial rand and other capital controls on non-residents have been abolished (Centre for Research into Economics and Finance in Southern Africa [CREFSA], 1998). FDI has also been liberalized during the past few years and is now regarded in much the same way as domestic investment in productive enterprises. The © ILO 2001

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South Africa: Studies on the social dimensions of globalization

Table 1

Average weighted import tariff rates (updated schedule 1994–2001 and GATT binding rates)

Description

Weighted tariff rates1

1994

Agriculture, forestry and fishing Mining Total manufacturing Food processing Beverages Tobacco products Textiles Clothing Leather products Footwear Wood and wood products Furniture Pulp, paper and paper products Printing and publishing Chemical products Rubber products Plastic products Non-metallic mineral products Iron and steel basic industries Non-ferrous-metal basic industries Metal products Machinery Electrical machinery Motor vehicles and motor vehicle parts Other transport equipment Other manufacturing

1998

2001

GATT

Decrease in percentage points 1994–982

3.1 0.0 14.0 8.9 20.7 42.3 30.8 57.7 12.3 38.9 10.4 23.3 8.4 2.9 5.6 10.0 20.7 8.9 4.7 9.4 11.8 5.5 8.1

2.2 0.0 5.6 4.9 4.2 37.9 28.7 56.9 11.4 33.8 3.4 20.3 8.2 2.2 2.1 14.2 13.0 9.2 2.6 3.9 8.4 0.9 3.6

2.0 0.0 4.9 4.5 4.0 36.2 21.1 41.0 10.8 28.9 3.3 19.5 6.8 2.1 2.0 13.5 12.4 8.7 2.6 3.5 8.2 0.8 3.6

41.2 0.0 16.1 48.5 123.7 54.0 24.7 41.1 18.7 29.3 6.6 20.0 6.7 3.2 10.7 25.2 22.6 15.3 9.6 8.9 19.6 7.6 16.6

0.9 0.0 8.4 4.0 16.5 4.4 2.0 0.8 0.8 5.1 7.0 3.0 0.2 0.7 3.5 –4.2 7.7 –0.3 2.1 5.5 3.3 4.5 4.4

56.6 2.2 5.1

38.5 1.2 1.3

32.1 1.1 1.3

42.4 5.5 10.1

18.2 1.0 3.8

1 Average tariff rates are weighted by the share of imports in the total value of imports during the period 1994–97. 2 In the right-hand column, manufacturing sectors classified as sectors with an important decrease in their tariff rates from 1994 to 1998 are in bold.

Source: Industrial Development Corporation of South Africa (IDC).

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Trends in globalization and social progress

(discriminatory) non-resident shareholders’ tax and most limits on repatriation of hard currency were eliminated early in 1995. Some restrictions aimed at ensuring the adequate capitalization of foreign investment remain, though. In the macroeconomic strategy that the Government adopted in 1996, considerable reliance is placed on the capacity of international capital to complement domestic savings and finance the growing imports of capital and intermediate goods needed to foster economic growth. Other reforms include the gradual liberalization of exchange controls for South African residents, the suppression of controls on outward investments by institutional investors (with the introduction of an “asset swap” mechanism), the increase in the limits on foreign investment transactions by individual residents and the abolition of limits on the holding of foreign currency by banks serving as authorized foreign exchange dealers.

Global integration of the South African economy Trade liberalization, together with the end of trade sanctions against postapartheid policies, has led to an increase both in exports and imports as a share of GDP (figure 2). FDI flows also illustrate South Africa’s greater integration into the international economy. While the second half of the 1980s saw disinvestment campaigns leading to the withdrawal of multinational enterprises, substantial FDI inflows have occurred since 1994. At the same time, there are also substantial FDI outflows on the part of South African investors, and data for 1998 suggest that FDI inflows have slowed down considerably (figure 3).5 As for the sectoral composition of FDI between 1994 and 1998, capitalintensive sectors, such as telecommunications (18 per cent of the total inward FDI) and energy and oil (12 per cent), top the list (figure 4). Various manufacturing subsectors (especially food and beverages, as well as chemicals and plastics) and mining have also received considerable inflows of FDI. The United States accounts for more than one-third of total FDI inflows for the 1994–98 period, followed by Malaysia and the United Kingdom. One clear indicator of South Africa’s growing globalization in financial terms is the rising presence of foreign investors in the Johannesburg Stock Exchange (JSE). Foreign purchases of JSE equities increased by nearly 24 times between 1991 and 1998 (table 2). However, most of these investments are of a short-term nature; indeed, South Africa has been vulnerable to the recent volatility of international capital markets. Other dimensions of globalization can also be observed. Several South African enterprises are now listed on the major international stock exchanges. Work organization, production and management methods have been influenced by the © ILO 2001

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South Africa: Studies on the social dimensions of globalization

Figure 2 Trade flows and openness, 1980–97 (as a percentage share of GDP) A. Exports of goods and services % 40 35 30 25 Current prices

20

Constant prices (1995) 15 1980

1982

1984

1986

1988

1990

1992

1994

1996

B. Imports of goods and services % 40 Current prices 35

Constant prices (1995)

30 25 20

15 1980

1982

1984

1986

1988

1990

1992

1994

1996

C. Openness (exports plus imports) % 75 70 65 60 55

Current prices Constant prices (1995)

50 45 40 35

30 1980

1982

1984

1986

1988

1990

1992

1994

1996

Source: SARB.

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Trends in globalization and social progress

Figure 3 Foreign direct investment (FDI) and portfolio investment flows, 1980–98 (as a percentage share of GDP)

A. Foreign direct investment % 3.0 2.5

FDI inflows

2.0

FDI outflows

1.5 1.0 0.5

1992

1994

1996

1998

1992

1994

1996

1998

1992

1994

1996

1998

1990

1988

1986

1984

1982

–0.5

–1.0

1980

0.0

B. Portfolio investment inflows %

1990

1984

1988

1982

1986

Portfolio investment inflows

1980

8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 –1.0 –2.0

C. Total net capital flows1

1990

1986

1984

1982

1980

6.0 5.0 4.0 3.0 2.0 1.0 0.0 –1.0 –2.0 –3.0 –4.0 –5.0

1988

%

1 Total

net capital flows (referred to as the “financial account balance” in the balance of payments) are the net sum of the balance of direct investment, portfolio investment and other investment transactions (mainly transactions in currency and deposits, loans and trade credits). Source: IMF: International Financial Statistics, various years.

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South Africa: Studies on the social dimensions of globalization

Figure 4 Sectoral and geographic composition of FDI inflows, 1994–98 (as a percentage)

A. Sectoral composition of FDI inflows

Others 24%

Telecommunications 18%

Energy & oil 12% Other manufacturing 16%

Chemicals & plastics 8%

Food & beverages 11%

Motor & components 11%

B. Geographic distribution of FDI inflows

Others 20% United States 35%

Japan 5% Germany 7%

United Kingdom 16%

Malaysia 17%

Note: During the 1994–98 period, accumulated FDI inflows totalled R39.2 million. Source: Businessmap SA (1998a).

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Trends in globalization and social progress

Table 2

Foreign trading of equities, 1991–98 (in constant 1995 million rand) 1991

1992

1993

1994

1995

1996

1997

1998

Purchases 3 763 6 318 13 804 24 351 24 148 38 663 68 195 89 945 Sales 9 609 6 942 10 479 24 150 19 336 33 771 45 724 56 004 Net (purchases – sales) –5 846 –623 3 324 201 4 812 4 892 22 471 33 941 Note: Current price data are deflated by the consumer price index. Sources: Johannesburg Stock Exchange (JSE); Thompson and Macdonald (1997).

Table 3

1

International comparison of number of Internet hosts for selected middle-income countries, July 1998 Country

Internet hosts (per 10,000 people)

South Africa Botswana Brazil Chile Malaysia Mauritius Poland Thailand Venezuela Upper middle-income countries1

34.0 3.7 9.9 15.4 18.4 3.2 25.6 4.2 2.9 14.5

Weighted average of Internet hosts per 10,000 people in upper middle-income countries.

Source: World Bank (1999).

international standards of “best practice” and “world class manufacturing”. International franchises and multinational companies are increasingly becoming a characteristic of the business landscape. In addition, the number of people with Internet access in South Africa compares favourably with those of other middle-income countries (table 3).

Conclusion There is substantial evidence that the Government has been trying to accelerate the process of globalization. Since 1994, there has been a major shift towards outward-looking policies: with the end of apartheid, international isolation © ILO 2001

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South Africa: Studies on the social dimensions of globalization

ended, capital flows returned and a gradual trade liberalization programme got under way. Therefore, whenever data availability permits, the description and analysis of the social impact of globalization in the following sections focuses on developments since 1994.

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B. AN OVERVIEW OF SOCIAL PROGRESS INDICATORS

Indicators of the socio-economic development of the country are extremely misleading. In terms of per capita GNP, for example, South Africa is classified as an upper middle-income country.6 But this masks high unemployment, a severely skewed distribution of income and an exceedingly high incidence of poverty for a middle-income country. Ranked 101st on the latest Human Development Index (HDI), South Africa is considered to be a country with a medium level of human development (United Nations Development Programme [UNDP], 1999). This measure, however, also conceals extreme differences of development within the country. Based on the HDI for 1994 and South African data by population group, a report on poverty and inequality (May et al., 1998) comes to the conclusion that the estimated index for whites would come close to the average for Israel (ranked 19th), while for Africans the index would be somewhere between Swaziland (117th) and Lesotho (120th). Indeed, 54 per cent of the African population is considered to be poor, compared with 0.5 per cent of the white population (table 4). Other indicators of social progress point in the same direction. When compared with other middle-income countries, South Africa fares rather poorly on health indicators, such as infant mortality and life expectancy at birth (table 5). The African population has an infant mortality rate comparable with that of Zimbabwe and Kenya, while the infant mortality rate for whites is similar to that of many developed nations.

Employment and unemployment Despite a slight aggregate improvement in GDP growth rates, employment performance over the past decade has been far from satisfactory and constitutes one of the major challenges for the development of the country. Official © ILO 2001

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South Africa: Studies on the social dimensions of globalization

Table 4

Poverty rate and social indicators by population group, 1993 (as a percentage of population in each population group)

Indicator

White

Poverty rate1 0.5 Infant mortality rate 1994 (per thousand) 7.3 Male life expectancy 1990 (in years) 69 Female life expectancy 1990 (in years) 76

Coloured

Asian

African

Total population

25

8

54

n.a.

36.3 59 65

9.9 64 70

54.3 60 67

48.9 62 68

n.a. = figures not available. 1 Based on an absolute poverty line according to per capita income. Sources: May et al. (1998) based on data from the Health Systems Trust (1996); Tabatabai (1996), based on data from the South African Labour and Development Research Unit (SALDRU).

Table 5

International comparison of social indicators for selected middleincome countries, 1997

Indicator

GNP per capita (current US$) GNP per capita, PPP (current international $) Life expectancy (years) Infant mortality rate (per 1,000 live births) Adult illiteracy rate (% of people 15 years and over) Fertility rate (births per woman)

South Africa

Botswana Brazil

Chile

Malaysia

Mauritius Poland

Thailand Venezuela

3 210 3 310

4 790 4 820 4 530

3 870

3 590 2 740 3 480

7 190 7 430

6 350 12 240 7 730

9 230

6 510 6 490 8 660

65

47

67

75

72

71

73

69

73

48

58

34

11

11

20

10

33

21

16

26

16

5

14

17

0

5

8

2.8

4.3

2.3

2.4

3.2

1.9

1.5

1.7

3.0

GNP = gross national product; PPP = purchasing power parity. Source: World Bank: World Development Indicators (1999).

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Trends in globalization and social progress

Figure 5 Non-agricultural employment, 1980–98 (in thousands) '000 5900

5700

5500

5300

5100

4900

4700

1998

1997

1996

1995

1994

1993

1992

1991

1990

1989

1988

1987

1986

1985

1984

1983

1982

1981

1980

4500

Note: Data are based on establishment surveys in the formal business sector; they thus exclude non-registered enterprises and all self-employed workers. Source: SARB: Quarterly Bulletin, Dec. 1999.

employment data indicate a strong decline in total non-agricultural employment between 1990 and 1998, stagnation from 1994 to 1996 and further job losses in 1997 (figure 5). Data available indicate that employment continued to decline during 1998. The picture becomes uneven when the data are divided into sectors: the two diagrams in figure 6 show net employment creation between 1994 and 1997 in the public sector, trade and private services, and job losses in mining, manufacturing and construction. Importantly, since the 1980s the relationship between GDP and employment has changed. During the 1980s, employment appears mostly to have increased, despite negative GDP growth (with the average annual labour productivity growth between 1980 and 1990 of only 0.2 per cent). In the 1990s, however, employment growth remained below GDP growth, and labour productivity increased by an average annual rate of 3.1 per cent between 1991 and 1998 (figure 7). © ILO 2001

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South Africa: Studies on the social dimensions of globalization

Figure 6 Employment variation by economic sector, 1994–97 A. Employment variation (in thousands) 86.2

–57.6

–51.4

Total nonagricultural sectors

33.6

Other privatesector services

Trade

Construction

Manufacturing

Mining

Public sector

26.9

–56.3

–94.9

B. Employment variation (as a percentage of total change, 1994–97)

Trade

Other privatesector services

–6.4

3.9

Construction

Mining

Public sector

4.8

Total nonagricultural sectors

Manufacturing

10.5

–1.1

–9.5

–14.2 Note: Data are based on establishment surveys in the formal business sector; they thus exclude non-registered enterprises and all self-employed workers. Source: SARB: Quarterly Bulletin, various issues.

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Trends in globalization and social progress

Figure 7 Employment, value added and labour productivity growth in the nonagricultural sector, 1980–98 (as a percentage of annual change) % 6 5 4 3 2 1 0 –1 –2 –3

Employment Value added Labour productivity

–4

1998

1997

1996

1995

1994

1993

1992

1991

1990

1989

1988

1987

1986

1985

1984

1983

1982

1981

1980

–5

Notes: Labour productivity is defined as value added per employed person. Data are based on establishment surveys in the formal business sector; they thus exclude non-registered enterprises and all self-employed workers. Source: SARB: Quarterly Bulletin, various issues.

Official data have often been criticized on the grounds that they underestimate actual employment as they are based on establishment surveys conducted in the formal business sector. Therefore, non-registered enterprises and almost all the self-employed are excluded by definition.7 It has been argued that, over the past few years, small non-registered enterprises have become dynamic providers of jobs, a factor that is not adequately reflected in official statistics (an example of which has been the burgeoning informal taxi network of the 1990s). However, the recently released results from the October Household Surveys, which include informal-sector employment, also show that total employment (including agriculture) diminished during 1994–97. South Africa has very high unemployment rates, now estimated at between 23 and 38 per cent, depending on the definition used. There are two unemployment rates in use in the country. The so-called “narrow” unemployment rate © ILO 2001

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South Africa: Studies on the social dimensions of globalization

Table 6

Unemployment and employment rates by population group and sex, 1994–97

A. Unemployment rate in 1997

African Coloured Indian White Urban Non-urban Total

Narrow unemployment rate1

Expanded unemployment rate2

All

Men

Women

All

Men

Women

29.3 16.0 10.2 4.6 21.5 26.9 22.9

24.6 13.6 8.8 3.3 17.6 22.3 18.9

34.6 19.0 12.7 6.2 25.9 33.0 27.6

46.8 23.0 13.5 6.7 32.6 49.5 37.6

39.2 19.2 10.7 4.4 26.1 40.7 30.6

54.3 27.4 18.0 9.7 39.3 58.9 45.1

B. Evolution of the unemployment rate by population group

African Coloured Indian White Total

Narrow unemployment rate1

Expanded unemployment rate2

1994

1995

1996

1997

1994

1995

1996

1997

24.7 17.6 10.2 3.0 20.0

20.7 16.5 8.3 2.8 16.9

27.4 13.1 12.1 4.0 21.0

29.3 16.0 10.2 4.6 22.9

39.2 21.7 12.9 3.9 31.5

36.0 22.9 10.1 3.4 29.2

45.0 20.6 16.6 5.7 35.6

46.8 23.0 13.5 6.7 37.6

C. Evolution of the employment rate by population group Employment rate3

African Coloured Indian White Total

1994

1995

1996

1997

32.5 49.9 47.5 61.4 38.2

32.7 46.7 50.2 59.2 37.8

28.3 49.3 45.9 59.2 34.8

27.9 46.3 48.5 55.5 33.9

1 The narrow unemployment rate as defined by the Central Statistical Office (CSO) includes only those persons who are willing to accept a “suitable” job if offered one and have actively sought employment in the previous month. 2 The expanded unemployment rate includes all persons who are not currently working but would accept a suitable job. 3 The employment rate is defined as the ratio of employment to working-age population (15–65) of the corresponding population group.

Source: Statistics South Africa (Stats SA): October Household Survey, 1994–97.

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requires people not only to be available and willing to work but also to have actively sought employment during the month prior to the survey in order to be counted as unemployed. This narrow unemployment rate was 22.9 per cent in 1997 (up from 16.9 per cent in 1995), and ranged from 29.3 per cent for Africans to 4.6 per cent for whites (table 6). Although this narrow definition is in line with International Labour Organization (ILO) recommendations, it has been argued that a broader definition might be appropriate for South Africa. Indeed, in certain areas, unemployed people do not always actively look for a job, not just because of the low probability of finding one but also because transport costs to areas with lower unemployment can be high. The so-called “expanded” unemployment rate thus includes all people who are not working but are willing to work, regardless of whether or not they have actively sought employment during the reference month. This expanded unemployment rate was 37.6 per cent in 1997 (up from 29.2 per cent in 1995), again with large differences according to population group and sex. The unemployment rate for the African population in 1997 was as high as 46.8 per cent and an astonishing 54.3 per cent for African women (table 6A). There is a strong correlation between unemployment and poverty. Klasen and Woolard (1998) estimate that the unemployment rate among the 20 per cent poorest households is 53 per cent compared with 4 per cent for the 20 per cent richest households. The problem is not restricted to people with low levels of formal education. Although education reduces the likelihood of unemployment, rates are extremely high among African women, irrespective of whether they have completed secondary education or not. It should also be noted that significant differences exist in the quality of education between the different population groups, a legacy of deliberate discrimination under the apartheid system. Only completion of tertiary education seems to reduce substantially the risk of unemployment for both men and women (table 7). An important feature of the South African labour market is that it is strongly segmented by occupation. For example, in 1997 only 2.4 per cent of employed African women and 4.3 per cent of African men were employed as “legislators, senior officials and managers”, while for white women the figure was 10.6 per cent and for white men 18.9 per cent.8

Wages Despite high and rising unemployment, average real wages continued to increase between 1994 and 1997 at an average annual rate of 2.6 per cent. Average labour productivity, however, increased even faster (at an average rate © ILO 2001

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South Africa: Studies on the social dimensions of globalization

Table 7

Unemployment by education and sex, 1995

Education level1

None Grades 1–6 Grade 7 Grades 8–11 Grade 12 Tertiary

Narrow unemployment rate2 Total

Male

Female

15.0 18.7 20.6 20.5 15.6 4.5

9.6 14.7 17.8 16.0 12.1 3.9

22.9 25.0 24.6 27.2 20.5 5.2

1 Grades 1 to 7 correspond to primary education and grades 8 to 12 to secondary education. 2 The narrow unemployment rate as defined by Stats SA includes only those persons who are willing to accept a “suitable” job if offered one and have actively sought employment in the previous month.

Source: Klasen and Woolard (1998), based on data from Stats SA: October Household Survey, 1995.

Table 8

Trends in real wages and labour productivity, 1990–97 (index: 1990=100) Real wages

Labour productivity

Private sector

Public sector

Total economy

(total economy)

100.0 100.7 102.2 102.3 103.8 106.3 107.2 108.9

100.0 102.1 103.5 101.9 105.9 112.6 113.7 118.4

100.0 101.4 103.0 102.6 105.1 109.1 110.5 113.5

100.0 100.3 101.4 104.1 106.8 110.4 112.5 116.5

Average annual growth rate (%) 1990–94 0.9 1994–97 1.6

1.5 3.8

1.3 2.6

1.7 2.9

1990 1991 1992 1993 1994 1995 1996 1997

1

Data refer to the formal business sector and exclude agriculture.

Source: SARB.

of 2.9 per cent), so that unit labour costs did not increase in real terms. Average wage increases were higher in the public than in the private sector (table 8). In 1997, African workers earned, on average, 63 per cent less than white workers. This racial wage gap, though still significant, is smaller in community, social and personal services than in other sectors (figure 8). The gap has been 28

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Figure 8 Relative wages by population group and economic sector, 1980–97 (average wages of black workers as a percentage share of those of white workers) % 55 Total non-primary sectors

50

Manufacturing Community, social and personal services

45

Construction

40 35 30 25 20 15 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 Note: The data should be interpreted with caution, given that the former “homelands” have, since 1994, been gradually incorporated into the survey samples. Moreover, a change in the definition of public-sector wages took place in 1993. Source: ILO Task Force, based on data from Stats SA (Establishment Survey).

narrowing over the long run, although data should be interpreted with caution due to changes in methodology (see Hofmeyr, 1993; Crankshaw, 1997). During the past few years the gap seems to have remained unchanged. The continuing rise in the relative wages of African workers in community services may be due to policy changes in the public sector following the end of apartheid. The system of apartheid has had a profound influence on earnings distribution in South Africa. A recent study of the adjustments in the South African labour market by Fallon and Lucas (1998) found that, while education and experience are important determinants of earnings, there seems to be a connection between racial and gender discrimination and barriers to mobility (such as geographic location and formal/informal economic activity) and the larger than usual differentials that are found in South Africa, compared with other countries.9

Income distribution South Africa has one of the most unequal distributions of income in the world. While the 20 per cent poorest households account for only 3.3 per cent of total © ILO 2001

29

South Africa: Studies on the social dimensions of globalization

Table 9

Indicators of income distribution in selected middle-income countries

Country (year)

South Africa1 (1993) Botswana1 (1985/86) Brazil2 (1995) Chile2 (1994) Malaysia2 (1989) Mauritius (1996/97) Poland1 (1992) Thailand1 (1992) Venezuela2 (1995)

Gini coefficient

58.4 63.4 60.1 56.5 48.4 38.7 27.2 46.2 46.8

Share of national income or consumption 20% poorest households

20% richest households

3.3 1.4 2.5 3.5 4.6 n.a. 9.3 5.6 4.3

63.3 66.4 64.2 61.0 53.7 n.a. 36.6 52.7 51.8

n.a. = figures not available. 1 Refers to consumption shares. 2 Refers to income shares. Sources: World Bank (1998); for Mauritius: Central Statistical Office (1997); for Botswana: Tabatabai (1996).

Table 10 Income inequality by population group, 19901 and 1995 (Gini coefficient) Population group of head of household

African Coloured Asian White All households

12 main urban areas

Whole country

1990

1995

1995

0.35 0.37 0.29 0.50 0.63

0.51 0.42 0.46 0.44 0.55

0.52 0.50 0.44 0.49 0.59

1 The

coverage of the 1990 survey was restricted to 12 main urban areas. In order to make a comparison between 1990 and 1995 possible, the Gini coefficients for 1995 were calculated both for those main urban areas and for the country as a whole. Source: Stats SA: Survey of Household Expenditure 1990 and Income and Expenditure Survey 1995.

household consumption in 1993, the figure for the 20 per cent richest is 63.3 per cent. Comparison with a sample of other middle-income countries shows that only Brazil and Botswana have a more unequal income distribution (table 9). The Gini coefficient, which measures the degree of income inequality, has high values for the country as a whole, but also for individual population 30

© ILO 2001

Trends in globalization and social progress

categories, suggesting a high degree of inequality within each major ethnic group (table 10). The Gini coefficient is higher for Africans than for whites. Significantly, income distribution within population groups worsened between 1990 and 1995 (except for whites), while inequality decreased between groups. This may reflect the fact that the end of apartheid-based discrimination has created new employment opportunities for highly skilled Africans. Income is also unevenly distributed among rural and urban areas. For example, in 1995, average annual household incomes were almost twice as high for Africans living in urban areas (17,900 rand) as for Africans in rural areas (9,900 rand).10

Unequal opportunities Under apartheid, access to education and basic socio-economic infrastructure was deliberately unequal – a situation that will take time to redress. Some 50 per cent of African women and 43 per cent of African men have received little or no formal education (see the first three lines of table 11). The figure is a mere 1 per cent for whites, the majority of whom have completed higher levels of education. Moreover, the quality of education has been systematically poorer for Africans than for whites. For example, in 1993 the average pupil– teacher ratio in African schools (41.7) was more than double that of white

Table 11 Level of education by population group and sex, 1995 (as a percentage of population 20 years and over) Level of education1

None Grades 1–5 Grades 6–7 Grades 8–11 Grade 12 Tertiary Total

African

Coloured

Asian

White

Men

Women

Men

Women

Men

Women

Men

Women

14 15 14 36 15 6 100

20 15 15 33 12 6 100

9 14 17 40 15 5 100

9 13 22 40 12 5 100

2 2 6 40 36 15 100

9 7 11 35 29 9 100

0 0 1 26 42 30 100

0 0 1 33 42 24 100

1 Grades

1 to 7 correspond to primary education and grades 8 to 12 to secondary education. Totals may not add up exactly to 100 because of rounding.

Source: Stats SA: October Household Survey, 1995.

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South Africa: Studies on the social dimensions of globalization

Table 12 Average earnings by level of education, population group and sex, 1994 (percentage of average earnings for African men) Level of education1

None Grades 1–4 Grades 5–7 Grades 8–11 Grade 12 Tertiary

African

Coloured

Asian

White

Men

Women

Men

Women

Men

Women

Men

Women

100 100 100 100 100 100

82 74 72 73 81 85

97 102 112 118 107 106

83 88 93 91 87 91

n.a.2 n.a.2 149 131 122 130

n.a.2 162 141 115 86 101

n.a.2 n.a.2 n.a.2 n.a.2 n.a.2 n.a.2 200 133 122 177 203 117

n.a. = figures not available. 1 Grades 1 to 7 correspond to primary education and grades 8 to 12 to secondary education. 2 Sample size is not sufficient. Source: Department of Labour (1996), based on data from Stats SA: October Household Survey, 1994.

Figure 9 Access to electricity, water and telephone by population group (as a percentage of households in each population group) African Coloured Asian White 98.5 98.9

98.4 96.6 90.4

85.9

83.6

89.9

58.2 43.7

47.1

11.3

Access to electricity for lighting 1

Access to piped water1

Possession of private telephone

Access to piped water in dwelling, on site or in yard.

Source: Stats SA (1998b).

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Trends in globalization and social progress

schools (18.9). In 1960, public expenditure per year on white secondary education was reportedly five times larger than spending on African secondary education; in 1990, the differential was still 2:1 (Case and Deaton, 1998; Schultz and Mwabu, 1998). These factors, together with labour market discrimination, explain why white earnings are significantly higher than African earnings, even for the same level of formal education (table 12). According to the 1996 Population Census, less than half the households with an African head of household have access to electricity, while it is virtually universal for whites. Only 11 per cent of African households compared with 90 per cent of white households have a telephone (figure 9). Ownership of productive assets in South Africa is heavily skewed along racial lines. Although “Black Economic Empowerment” transactions have been dynamic, African ownership, influence or control of companies represent only 10.3 per cent of all companies listed on the Johannesburg Stock Exchange (JSE) (McGregor Index, 1998; Businessmap SA, 1998a).

Employment quality Employment creation is the key labour market issue for South Africa, where unemployment rates are extremely high. However, other dimensions such as employment stability, social protection and occupational health and safety are also important for the well-being of workers. The discussion on the issue of employment quality involves the use of the so-called “non-standard” or “atypical” forms of employment, including employment under fixed-term contracts, subcontracting arrangements and home work. These non-standard forms of employment may, to some extent, result from the need to adapt to fluctuations in the market environment by varying the number of workers according to changing conditions (numerical flexibility). According to 1993 data, the share of casual wage workers in total employment was 9 per cent. This share was larger in the case of African women (figure 10). The ILO Labour Flexibility Survey conducted in 1995 and 1996 examined various elements of “flexibility” in the manufacturing sector. The results suggest that, although most workers are still engaged in full-time, permanent employment, non-standard forms of employment are on the rise (table 13), although there are, as yet, no data available to measure these changes precisely. Most firms reported that they had made use of temporary/casual employees (85.5 per cent), as well as contract labour (43.5 per cent). Subcontracting arrangements and casual work fall disproportionately on African workers (Crankshaw and Macun, 1997). © ILO 2001

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South Africa: Studies on the social dimensions of globalization

Figure 10

Employment status by population group and sex, 1993 (as a percentage of employment)

% 100 9.4

10.7

9.9

3.6

80

9.2

18.4

8.4

11.4 9.1

10.9

60 61.1

53.0

64.1

58.8 52.0

40

20 19.3

21.6

18.4

29.3

20.5

African men

White men

African men

White women

Total

0

Self-employed

Casual employees

Private-sector regular employees

Public-sector workers

Source: Fallon and Lucas (1998), based on data from the South African Labour and Development Research Unit (SALDRU).

For various reasons, certain individuals may choose to work for a fixed period of time or under a non-standard form of employment. An increase in non-standard forms of employment can thus not automatically be equated with labour market instability or an increase in precarious employment. However, casual workers in the South African labour market receive substantially lower wages than other workers, even after other relevant factors have been taken into consideration (Fallon and Lucas, 1998, p. 14). Data from the Labour Flexibility Survey also suggest that people in non-standard forms of employment have worse working conditions than regular employees.11 There is also anecdotal evidence on the growth of the number of independent contractors12 and a shift to more flexible work arrangements in the building industry13 and the forestry sector.14 Although the evidence available is far from conclusive, it seems that the increased emphasis on numerical flexibility involves a multiplication of non-regular forms of employment accompanied by a decline in employment quality. Increased income and employment insecurity seems to be especially widespread for low-skilled workers. 34

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Trends in globalization and social progress

Table 13

Employment status in a sample of manufacturing enterprises,1 1996

Employment status

Employment

Share of employment (%)

Regular full time Regular part time Temporary/casual Contract Homeworkers/outworkers Total

54 583 1 002 1 491 1 535 34 58 645

93.1 1.7 2.5 2.6 0.1 100.0

1 The

sample was composed of 243 manufacturing enterprises.

Source: Crankshaw and Macun (1997, p. 2), based on ILO data (Second South African Enterprise Labour Flexibility Survey).

Conclusion The indicators of social progress in South Africa can be summarized as follows: • Although the country has recovered from the recession and negative growth rates of the early 1990s, increases in economic growth and labour productivity have been moderate, and have been associated with the country’s weak employment performance in the period 1994–97. • As a result of the country’s poor employment performance, the already high unemployment rate continued to increase between 1994 and 1997. Employment creation is thus a priority in South Africa; analysis conducted in Part II focuses on this issue. • The high degree of social inequality also requires urgent attention. Recent trends show a slight drop in overall and inter-group income inequality (in part due to the slowly increasing education level of the African population), while at the same time intra-group inequalities have increased. • Other striking features of social development in South Africa include the mediocre indicators of social development (such as public health and poverty), compared with other middle-income countries.

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South Africa: Studies on the social dimensions of globalization

Notes See Holden (1992), Bell (1993) and Jenkins and Siwisa (1997) for a description of this period and the effects of the export promotion measures. 2 In 1985, a Government White Paper stated: “The Government wishes to make it very clear that it has never espoused any so-called ‘free trade’ policy. On the contrary, like previous South African governments since 1924, and indeed earlier, it has decisively implemented a policy of protection for industry. Like previous governments, it has accorded protective customs duties, where justified, against competition from abnormally priced imports. This has continued to be done on a moderate and selective basis” (Republic of South Africa [RSA], 1985, p. 14). 3 The newly formed Department of Economic Policy of the African National Congress (ANC) was influential in establishing the Macro-economic Research Group (MERG), which in 1993 produced its macroeconomic proposal called “Making democracy work”. An Industrial Strategy Project (ISP) initiated by the Congress of South African Trade Unions (COSATU) investigated and reported on industrial strategy and the identification of appropriate industrial policy. 4 The National Economic Forum included government (the outgoing regime, on the one hand, and key ANC policymakers, on the other), labour and organized business that had begun a series of discussions on the future of economic policy. It was replaced by the NEDLAC after the 1994 elections. 5 This is in part due to the fact that 1997 figures were particularly high because they recorded the privatization of Telkom (the country’s telecommunications service provider). If this investment were excluded from the 1997 FDI figure (R5.5 billion), then private-sector investment for 1997 would have been at a similar level to 1996 (R8.2 billion) (Businessmap, 1998a). 6 The World Bank rates upper middle-income countries as those with a per capita GNP (1997) between US$3,125 and US$9,656. South Africa ranks 89th out of 209 countries with a per capita GNP of US$3,210 (World Bank: World Bank Development Indicators 1999). 7 For a more detailed discussion of South African employment data, see Standing, Sender and Weeks (1996) and Klasen and Woolard (1998). 8 Source: Statistics South Africa (Stats SA): October Household Survey, 1997. 9 Part of these unusually large differentials, however, may be explained by differences in the quality of education (see section “unequal opportunities”, below). 10 Source: May et al. (1998), based on data from Stats SA (Income and Expenditure Survey). 11 For example, one-third of all enterprises reported that they paid temporary workers lower wages than regular workers, in 42.4 per cent of firms temporary workers had fewer benefits, and in a further 13.3 per cent the value of the benefits provided was lower (Standing, 1997, p. 8). In addition, workers in non-standard forms of employment also had very little job security. Many firms did not use written contracts of employment and most reported using temporary labour without any intention of transferring such workers to regular employment. Over half of the firms did not renew temporary contracts in any form (Standing, 1997). 12 Cofesa, an independent contracting organization created in 1990, claims to have 120,000 members countrywide who employ some 2.4 million workers. The organization provides consulting services to enterprises, often recommending that employees be converted into “independent contractors”. It has already assisted more than 6,000 companies and changed the contracts of 300,000 workers from full-time employees to “independent contractors”. 13 In the building industry, competitive pressures have caused larger companies increasingly to switch to “core staff” arrangements, leaving the remainder to subcontractual, labour broker, unregistered worker and independent contractortype arrangements. These shifts have been accompanied by a decline in income and employment security. Subcontractors and labour brokers not only tend to pay lower wages, but they also do not provide benefits such as pensions and medical facilities. It is estimated that as many workers now fall outside the collective agreement which regulates the industry as are covered by it. The “market rate” for those falling outside the regulatory net is estimated to be 50 to 60 per cent of the negotiated industry rates (Baskin, 1998b). 14 In the forestry sector, a shift toward small growers and subcontractors has resulted in increasingly flexible forms of employment, with consequences for employment security. Workers are often retrenched by large commercial forestry companies and re-employed by a contractor at a much lower wage and with a loss of social benefits. It is estimated that these same employees, subcontracted back, earn only 50 to 70 per cent of the wage rate for the industry (Bethlehem, 1994). 1

36

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PART II

ASSESSING THE SOCIAL IMPACT OF GLOBALIZATION Part II examines the possible links between the social and labour developments described in Part I, on the one hand, and the specific dimensions of the process of globalization, on the other. More specifically, it analyses whether the trade liberalization process initiated in 1994 may have contributed to the job losses recorded since then. Of course, employment is not the only variable that may be affected by globalization; other social issues and problems may also be directly or indirectly affected. However, the focus on employment performance can be justified on the grounds that unemployment appears to be the most urgent social problem in South Africa. Moreover, sustainable improvements in other social indicators depend to a large extent on the country’s employment performance. There are a number of reasons why analysis of this type is particularly difficult in South Africa. Firstly, the period under consideration (1994 to 1997) is relatively short and trade liberalization is expected to continue in the next few years, which makes the analysis somewhat preliminary in nature. Secondly, it is difficult to isolate the effects that can be specifically attributed to globalization from the effects of other processes which have been taking place at the same time, such as macroeconomic changes, the end of apartheid, the creation of democratic institutions and the adoption of new labour regulations. For example, South Africa did not escape the turbulence of the financial markets in the late 1990s. Despite the improved economic fundamentals of the country and the hopeful signs of economic recovery in the first quarter of 1998, international portfolio-in-investment bonds were abruptly reversed in May 1998 (South African Reserve Bank [SARB], 1998). The Government’s commitment to sound macroeconomic and fiscal policies could not protect the country from the sudden shift in international investors’ © ILO 2001

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South Africa: Studies on the social dimensions of globalization

confidence in emerging markets. The exchange rate depreciated and there were signs of mounting inflationary pressures during the second half of 1998. However, inflation was rapidly brought under control and, since July 1999, monthly consumer price increases have returned to their previous low levels. Although there are certainly advantages in the depreciation of the rand for exporters, the rapid changes in financial conditions have had a negative impact on real economic activity and GDP growth has slowed down. This has also placed additional pressure on government revenues, thus constraining policy choices. While there is no easy solution to the problem of rapid fluctuations in the financial markets, the South African case makes it clear that adequate institutional mechanisms need to be found at an international level to deal with short-term capital flows.1 Although this is an important area of inquiry, the remit of this study focuses on the impact of trade flows and technological changes associated with globalization, and does not offer a detailed analysis of the impact of financial globalization. Thirdly, the statistics available do not always allow the kind of detailed empirical analysis needed to examine the issues of trade and employment. Many labour surveys had to be redesigned after apartheid, and the country’s former “homeland” territories have gradually been incorporated into the national statistical system, which makes the use of time series rather problematic. Moreover, disaggregated employment data, which enable one to establish a link between the trade orientation of sectors and their employment performance, cover only the formal business sector, which means that unregistered enterprises and self-employed workers are excluded. This part of the study starts with a description of trade patterns (section A), before arriving at a tentative conclusion on the possible links between trade, employment and aggregate income (section B). Income distribution is examined in section C. .

38

© ILO 2001

A. PATTERNS OF COMPARATIVE ADVANTAGE

The rapid increase in imports is one of the most conspicuous consequences of import liberalization. Interestingly, imports of non-durable consumer goods have been the main driving force in South Africa, while imports of capital goods have grown at a slightly slower rate (figure 11). As a result, import liberalization could be considered to have favoured consumers rather than having contributed to the expansion of the capital base of the economy. As to the composition of exports, the share of manufacturing products increased from 27 per cent in 1980 to 47 per cent in 1993 and 55 per cent in 1997, while the share of mining diminished (figure 12). Natural-resource-based sectors accounted for more than 60 per cent of manufacturing exports. However, exports of more elaborated (non-natural-resource-based) manufacturing products have also been on the rise (Laubscher, 1997; Tsikata, 1998). Gold, South Africa’s main export product, still accounted for more than 20 per cent of total exports in the period 1995–96, down from more than 35 per cent in 1988–89 (Laubscher, 1997, p. 2). On the whole, South Africa’s export base is fairly diversified – its ten main export products accounted for one-third of total exports in 1996 (table 14). Most of the main export products are produced either in the mining sector or in mining’s immediate downstream industries. The ten main import products, in turn, account for roughly onequarter of total imports.2 On average, world markets for South Africa’s main export products are growing at a slightly slower pace than total world exports (table 15). This suggests that future export growth may be slightly inhibited because of South Africa’s export specialization. A peculiar feature of the country’s trade orientation (given the abundance of labour) is that those subsectors that are classified as most capital intensive account for more than 50 per cent of all manufacturing exports. Within

© ILO 2001

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South Africa: Studies on the social dimensions of globalization

Figure 11

Growth of manufacturing imports by product type, 1994–97 (as a percentage of total change)

% 35

30

29.4 26.2

25

23.4 21.5

20

15 10.4

10

5

0 Consumer non-durables

Intermediate products

Capital goods

Other manufacturing

Total manufacturing

Sources: ILO Task Force; DTI, based on data from Stats SA and SARB.

manufacturing imports, by contrast, less than one-quarter falls into this category. Little change has occurred in this respect since 1993 (figure 13). In 1996, the EU was the main destination of South African exports, followed by Asia and then Africa (table 16). Roughly one-quarter of manufacturing exports went to African countries, one-quarter to the EU and one-quarter to the Far Eastern countries, with North America and the rest of the world making up the final quarter. In recent years, manufacturing exports to the EU have grown less than those to African countries. African countries may indeed be an interesting market for South African enterprises. However, most of these countries still have extremely low incomes and are already running trade deficits with South Africa. Legitimate doubts have, therefore, been raised as to whether the current path of export expansion in Africa is sustainable without significant development within the region as a whole.

40

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Assessing the social impact of globalization

Figure 12

Export structure by main sectors, 1980, 1993 and 1997 (as a percentage of total exports of goods)

1980 (US$ 24.7 billion) Agriculture, forestry and fishing 6% Manufacturing 27%

Mining and quarrying 67%

1993 (US$ 24.2 billion)

Agriculture, forestry and fishing 2%

Manufacturing 47%

Mining and quarrying 52%

1997 (US$ 28.5 billion) Agriculture, forestry and fishing 2%

Manufacturing 55%

Mining and quarrying 40%

Note: Totals may not add up exactly because of rounding. Sources: WEFA, based on Customs and Excise nominal trade data; IMF: International Financial Statistics; for 1997, ILO Task Force and DTI, based on data from Stats SA. © ILO 2001

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South Africa: Studies on the social dimensions of globalization

Table 14

Main export and import products, 1985 and 1996

A. Main export products (as a percentage of total exports) SITC code

Group of products

9310 Special transactions and commodities, not classified to kind 3221 Anthracite, whether/not pulverized, not agglomerated 0440 Maize (corn), unmilled 2879 Ores and concentrates of other non-ferrous base metals 5224 Metallic oxides of zinc, chromium, manganese, iron 2816 Iron-ore agglomerates (sinters, pellets, briquettes) 7849 Other parts and accessories of motor vehicles 9710 Gold, non-monetary 0611 Sugars, beet and cane, raw, solid 2872 Nickel ores and concentrates; nickel mattes, etc. 6821 Copper and copper alloys, refined or not, unwrought 6812 Platinum and other metals of the platinum group 2815 Iron ore and concentrates, not agglomerated 6716 Ferro-alloys 6672 Diamonds, unworked, cut/otherwise worked, not mounted/set 667X Pearls, precious and semi-precious stones, unworked/worked Top 10 products1 1The

1985

1996

1.6 12.9 0.2 3.7 0.0 0.0 0.1 13.3 1.1 0.5 2.2 7.7 2.3 4.5 3.3 2.3 53.7

12.8 8.3 2.0 1.9 1.9 1.6 1.5 1.3 1.2 1.2 0.6 0.0 0.0 0.0 0.0 0.0 33.8

1985

1996

5.6 2.8 1.7 1.8 1.8 2.4 2.1 0.9 1.7 1.2 1.8 1.3 22.8

5.5 3.3 3.2 2.1 2.0 1.8 1.6 1.6 1.6 1.4 1.2 1.1 24.1

figures for the top ten export products for each year are indicated in bold.

B. Main import products (as a percentage of total imports) SITC code

Group of products

7849 Other parts and accessories of motor vehicles 7649 Parts of apparatus of division 76– 7810 Passenger motor cars, for transport of passengers and goods 7139 Parts of internal combustion piston engines of 713.2–/713.8– 7284 Machinery and appliances for specialized particular industries 7821 Motor vehicles for transport of goods/materials 7512 Calculating machines, cash registers, ticket and similar 5417 Medicaments (including veterinary medicaments) 5989 Chemical products and preparations, n.e.s. 9310 Special transactions and commodities, not classified to kind 8748 Electrical measuring, checking, analysing instruments 7641 Electric line telephonic and telegraphic apparatus Top 10 products1 n.e.s. = not elsewhere specified. 1 The figures for the top ten import products for each year are indicated in bold. Source: Statistics Canada World Trade Analyzer CD-Rom, 1998.

42

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Assessing the social impact of globalization

Table 15

Evolution of the world markets for main export products, 1980–96 (average annual percentage change)

SITC code

Product1

9310

Special transactions and commodities, not classified to kind (12.8) 7.48 Anthracite, whether/not pulverized, not agglomerated (8.3) 1.77 Maize (corn), unmilled (2.0) 1.18 Ores and concentrates of other non-ferrous base metals (1.9) –0.25 Metallic oxides of zinc, chromium, manganese, iron (1.9) 5.09 Iron-ore agglomerates (sinters, pellets, briquettes) (1.6) 0.74 Other parts and accessories of motor vehicles (1.5) 7.08 Gold, non-monetary (1.3) 9.12 Sugars, beet and cane, raw, solid (1.2) –0.80 Nickel ores and concentrates; nickel mattes, etc. (1.2) 6.26

3221 0440 2879 5224 2816 7849 9710 0611 2872

Weighted average of the above2 Total world exports

1980–96 1980–90 1990–96

4.52 4.87

5.90

10.11

2.33 –1.06

0.85 4.91

–1.23

1.38

4.87 –1.95 7.46 6.65 –6.49 6.17

5.46 5.22 6.45 13.24 8.68 6.43

3.44 3.55

6.31 7.08

The figures in parentheses indicate the share of each product in South Africa’s total exports in 1996. 2 Average annual changes in the world markets for South Africa’s ten main export products, weighted by their share in South Africa’s top ten exports in 1996.

1

Source: Statistics Canada World Trade Analyzer CD-Rom, 1998.

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South Africa: Studies on the social dimensions of globalization

Figure 13

Composition of manufacturing exports and imports by factor intensity, 1993 and 1997 (as a percentage share)

A. Composition of manufacturing exports 1993

1997

Labour-intensive 22%

Labour-intensive 24% Capital-intensive 51%

Intermediate capital-intensive 27%

Capital-intensive 52%

Intermediate capital-intensive 24%

B. Composition of manufacturing imports 1993

1997

Capital-intensive 22% Labour-intensive 49%

Capital-intensive 23% Labour-intensive 48%

Intermediate capital-intensive 29%

Intermediate capital-intensive 29%

Note: For a classification of sectors, see table 19. Sources: ILO Task Force; DTI, based on data from Stats SA.

44

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Assessing the social impact of globalization

Table 16

Composition of exports by geographic destination, 1996

A. Total exports Region

1996 US$ million

Africa Asia European Union North America Total

3.6 5.0 5.8 2.2 16.6

Average annual variation, 1992–96 (%)

% of total

19.3 26.6 30.7 11.7 88.3

29.5 10.4 –4.2 4.0 3.4

Source: Statistics Canada World Trade Analyzer CD-Rom, 1998.

B. Manufacturing exports1 Region

Share of manufacturing exports in 1996 (%)

Southern Africa 17.8 Rest of Africa 8.5 European Union 24.3 Far East 23.1 North America 10.1 Rest of the world 16.2 Total manufacturing exports 100.0

Average annual variation, 1992–96 (%)

15.4 24.3 4.7 11.9 11.6 n.a. 11.1

n.a. = figures not available. 1 “Other manufacturing” (mainly diamonds) has been excluded. Source: Laubscher (1997, p. 3), based on data from the IDC.

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45

B. TRADE LIBERALIZATION, EMPLOYMENT AND AGGREGATE INCOME

It is clear from Part I of this report that one of South Africa’s main problems is its disappointing employment performance. It has been suggested that trade liberalization and labour-saving technological change are the main reasons for this. This section examines the validity of this argument, from both the theoretical and empirical points of view.

Comparisons between sectors It is useful to make some simple comparisons between four main groups of sectors, namely those of agriculture (including fishing and silviculture), mining, manufacturing, and the rest of the economy, which refers to all other sectors, largely non-tradables. The economic and labour market performance of these sectors during the period 1994–97 can be described as follows: • While production in mining and agriculture fell slightly during the 1994–97 period, increased production in the other sectors contributed to the general increase of GDP during this period. The strongest increase was registered by the manufacturing sector (figure 14). • The extent of relative employment losses varied across the different sectors. They were largest in mining (–9.5 per cent), followed by the manufacturing sector (–6.0 per cent), while employment in the rest of the economy (mainly non-tradables) increased by 3.0 per cent (figure 15). It is important to note that since the start of trade liberalization, labour productivity in South Africa has increased substantially in all non-agricultural sectors, especially in manufacturing (figure 15). Within manufacturing, which accounts for more than one-fifth of total employment, it is useful to classify the sectors according to different criteria (tables 16 and 17). Firstly, export-oriented and import-competing subsectors 46

© ILO 2001

Assessing the social impact of globalization

Figure 14

Trade and economic performance by economic sector, 1994–97 (as a percentage of total change) 68.6

47.7

44.9 31.2

30.9

25.4 9.4

8.5 5.5 4.0 –5.0

–6.7

Agriculture

–1.8 –0.5

Mining Manufacturing Rest of the economy Total

–60.4

The index of physical production has been used instead of value added in order to exclude the impact of short-term price fluctuations for mining products.

1

Sources: ILO Task Force; WEFA, based on data from Stats SA and SARB.

Figure 15

Labour market performance in the non-agricultural sector, 1994–97 (as a percentage of total change) 18.1

Mining Manufacturing

14.6

Rest of the economy 9.9

3.0 0.2

1.6

2.5

–6.0 –9.5 Employment, 1994–97 1

Average real wages, 1994–96

Productivity, 1994–972

1 Employment

variation has been corrected for the break in January 1996 following the inclusion of TBVC (Republics of Transkei, Bophuthatswana, Venda and Ciskei) data for the manufacturing sector. The cumulated variation of employment was calculated from a composite of employment variation from 1994 to December 1995, and employment variation from January 1996 to 1997. 2 Productivity is defined as value added per employed person for manufacturing and the rest of the economy. In the case of mining, the index of physical production was used instead of value added in order to exclude the impact of short-term price fluctuations for mining products. Sources: ILO Task Force; WEFA, based on data from Stats SA and SARB. © ILO 2001

47

South Africa: Studies on the social dimensions of globalization

Table 17 Sector1

Summary of classifications of manufacturing sectors Exportoriented sectors2

Food processing Beverages x Textiles Clothing Leather x Footwear Wood Furniture x Paper x Printing and publishing Industrial chemicals Other chemical products Products of petroleum x Rubber Plastics Glass Non-metallic mineral products Basic iron and steel x Non-ferrous metals x Metal products Machinery Electrical machinery Motor vehicles Other transport Professional equipment

NaturalFactor resource-based intensity4 3 sectors

Initial tariff rates5

Important decrease in tariff rates6

x

Low High High High Low High Low High Low Low Low Low Low Low High n.a. Low Low Low Low Low Low High Low Low

x x

x x x x

x x x x x x x x

Intermediate Capital Labour Labour Labour Labour Labour Labour Intermediate Labour Capital Capital Capital Intermediate Labour Intermediate Intermediate Capital Capital Labour Labour Labour Intermediate Intermediate Labour

x x

x x x x n.a.

x x x x x

n.a. = figures not available. 1 “Other manufacturing” (including tobacco and ceramics) has been excluded from the classifications. When data were not available separately for “industrial chemicals”, “other chemicals” and “products of petroleum”, these three groups have been classified according to the data available for “total chemicals”. When there were no data for “professional equipment”, the group has been classified in the same category as “electrical machinery”. 2 Revealed comparative advantage is measured as the ratio of net trade flows to total trade (imports plus exports). Manufacturing sectors with a positive revealed comparative advantage in 1997 have been classified as “export-oriented”, while those with a negative revealed comparative advantage have been classified as “import-competing” (see table 18). 3 Natural-resource-based manufacturing sectors demanding a minimum of 20 per cent of total inputs from natural resource sectors, largely agriculture and mining. The classification is based on input–output tables for 1995. 4 Sectors were classified according to their capital/labour ratio (defined as capital stock in million rand over employment) in 1995. Capital-intensive sectors are defined as sectors with a capital/labour ratio for 1995 superior to 15. Intermediate capital-intensive sectors, referred to as “intermediate” in the table, had a capital/labour ratio in 1995 of between 5 and 15. Finally, labour-intensive sectors are sectors with a capital/labour ratio in 1995 inferior to 5. 5 Sectors with high (respectively low) initial tariff rates are defined as sectors for which the weighted import tariff rate at the start of the import liberalization programme in 1994 (as reported in table 1) was higher (respectively lower) than the import tariff rate of total manufacturing (14 per cent). 6 Sectors were ranked according to the magnitude of the decrease in their tariff rates from 1994 to 1998 (as shown in table 1). The sectors were then divided into two groups (one with the sectors showing the largest decrease, the other with the sectors showing the smallest decrease). The 13 sectors with the most important reductions in tariff rates are classified as sectors with a significant decrease in tariff rates. Source: ILO Task Force, based on data from Stats SA, the DTI, IDC and Customs data.

48

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have been identified according to an index of revealed comparative advantage for 1997 (table 18).3 According to this indicator, the manufacturing export-oriented sectors are: beverages, leather, furniture, paper, petroleum, basic iron and steel and non-ferrous metals, while all the other sectors are import competing. Secondly, natural-resource-based sectors have been identified from the data from input–output tables. Most of the export-oriented manufacturing sectors are natural resource based. Thirdly, manufacturing sectors have been classified by factor intensity, based on their capital–labour ratio in 1995. Finally, sectors have been classified according to: (a) whether they were relatively protected at the start of import liberalization in 1994; and (b) whether they have faced a relatively large reduction in import protection. The main results that emerge from these comparisons are as follows: • Manufacturing export-oriented sectors have higher labour productivity levels and higher average wages than import-competing sectors. Moreover, in both types of manufacturing sectors, productivity and wages are higher than elsewhere in the economy (table 19). Production has increased dramatically in export-oriented manufacturing sectors (at an average annual rate of more than 5 per cent) while the rise in the import-competing manufacturing sectors has been moderate (figure 16).4 Relative employment losses have been larger in export-oriented sectors (–7.7 per cent) than in import-competing ones (–5.5 per cent).5 • The natural-resource-based sectors have performed better than the other sectors in production, labour productivity and average wages. In terms of employment, however, heavier job losses have occurred in naturalresource-based sectors than in the other manufacturing sectors (figure 17). • Capital-intensive sectors performed better in gross output, average real wages and labour productivity than intermediate capital-intensive sectors, and these in turn performed better than labour-intensive sectors. But employment performance followed the opposite pattern: while employment in the capital-intensive sectors fell by 9.7 per cent between 1994 and 1997, it fell by 6.9 per cent and 4.1 per cent in the intermediate and labourintensive sectors, respectively (figure 18). • Since 1994 sectors with relatively low initial tariff rates have performed better in production, productivity and real wages than sectors with relatively high initial rates (figure 19). Surprisingly, however, the sectors with a significant reduction in tariff rates performed better, on average, than sectors with only slight or no rises in tariff rates. The performance in trade and employment is also surprising: sectors that were more strongly protected in 1994 and those with a significant reduction in tariff rates © ILO 2001

49

50

148

Products of petroleum

339

5 107

Other chemical products

741

4 704

Industrial chemicals

Printing and publishing

1 424

Furniture

Paper

359

574

Wood

430

Leather

Footwear

675

Clothing

422

2 107

Textiles

Beverages

941

7 446

7 014

733

1 785

346

758

573

642

1 040

2 612

673

4 480

94 165

2 102

61 635

Food processing

Total manufacturing2

8 111

4 598

13 060

3 200

Mining

3.1

25.0

11.4

6.6

8.4

4.2

13.8

8.5

27.9

8.4

22.7

2.7

3.8

17.8

57.9

30.3

14.0

6.9

10.1

10.9

14.2

14.9

37.5

11.4

27.7

3.7

7.3

23.7

40.6

7.7

19976

217

1 066

3 590

90

2 084

269

341

56

393

754

969

477

2 712

35 023

47 660

3 599

1993

3 049

2 122

6 725

180

2 827

1 758

318

61

700

805

1 610

1 006

3 797

61 412

39 958

5 600

19973

1993

1993

19973

(rand million, 1995)

(% of domestic demand)4,5

(rand million, 1995)

6.5

8.9

0.9

11.9

7.4

8.7

1.4

26.1

9.3

11.9

3.0

4.8

10.9

79.7

6.3

1993

11.0

13.5

1.8

15.1

38.3

6.5

1.8

39.5

9.1

19.1

5.4

6.2

16.9

71.6

14.3

19976

(% of gross output)4

Exports of goods and services

Imports of goods and services

Trade orientation by economic sector, 1993 and 1997

Agriculture

Sector1

Table 18

–21.97

–65.46

–13.43

–78.31

18.81

28.94

–25.46

–72.85

–4.52

5.48

–36.99

6.12

12.68

–27.53

70.91

5.87

1993

52.82

–55.64

–2.10

–60.50

22.59

67.08

–40.83

–80.88

4.26

–12.76

–23.74

19.86

–8.25

–21.05

50.73

9.83

19973

Revealed comparative advantage7

Export-oriented

Import-competing

Import-competing

Import-competing

Export-oriented

Export-oriented

Import-competing

Import-competing

Export-oriented

Import-competing

Import-competing

Export-oriented

Import-competing

Import-competing

Export-oriented

Export-oriented

Trade orientation in 1997

South Africa: Studies on the social dimensions of globalization

© ILO 2001

© ILO 2001

526

3 424

3 861

18 118

Professional equipment 3 095

Other manufacturing

Rest of the economy

2.5

78.4

53.2

28.3

17.4

48.6

9.0

10.9

10.1

10.4

9.8

7.2

15.2

3.0

88.9

83.1

32.6

21.0

62.6

12.3

14.8

12.0

14.0

13.0

9.4

22.4

35 191

408

829

2 792

568

2 561

839

3 702

8 404

511

207

188

234

14 277

916

598

1 974

4 338

862

1 083

5 900

1 752

7 588

10 720

599

279

431

508

3.8

32.4

28.5

11.1

3.9

14.7

4.5

46.1

45.4

7.8

6.0

2.3

5.6

4.0

58.4

71.9

14.7

6.6

29.2

8.2

52.3

48.0

8.7

6.6

4.9

11.5

68.89

–66.49

–76.72

–48.05

–51.91

–76.87

–67.61

–69.17

–35.19

75.13

76.18

–15.64

–25.80

–53.15

–50.05

–11.86

–61.66

–70.25

–31.36

–47.43

–81.96

–57.85

–60.42

–22.05

72.63

74.32

–26.56

–35.60

–33.62

–37.75

Import-competing

Import-competing

Import-competing

Import-competing

Import-competing

Import-competing

Import-competing

Import-competing

Import-competing

Export-oriented

Export-oriented

Import-competing

Import-competing

Import-competing

Import-competing

Source: ILO Task Force, based on data from Stats SA, the DTI, IDC and Customs data.

and ceramics are included in “other manufacturing”. 2 Manufacturing sectors with a positive revealed comparative advantage have been classified as “export-oriented”, while those with a negative revealed comparative advantage have been classified as “import-competing”. 3 Data for the rest of the economy refer to 1996. 4 “Radio, TV and other equipment” and “professional equipment” are included in “electrical machinery”. “Other chemical products” includes “products of petroleum”. 5 Domestic demand is defined as gross output less exports plus imports. 6 Data for agriculture, mining and the rest of the economy refer to 1995. 7 Revealed comparative advantage is measured as the ratio of net trade flows to total trade (imports plus exports).

1 Tobacco

3 778

2 361

Other transport

6 483

8 691

12 167

8 820

4 058

23 915

Motor vehicles

2 941

14 053

2 743

1 203

1 579

1 032

587

868

1 124

Radio, TV and other equipment

Electrical machinery

Machinery

1 749

Non-ferrous metals

Metal products

701

1 136

352

Glass

Basic iron and steel

614

Plastics

Non-metallic mineral products

704

Rubber

Assessing the social impact of globalization

51

South Africa: Studies on the social dimensions of globalization

Table 19

Employment, labour productivity, wages and exports of manufacturing sectors by trade orientation, 19971

Employment Share of manufacturing employment (%) Labour productivity2 (rand) Average monthly wages (rand) Exports (% of manufacturing exports) 1 2

Export-oriented manufacturing

Importcompeting manufacturing

Total manufacturing

215 123 15.6 434 899 4 707 44.8

1 134 983 82.4 288 792 3 355 52.5

1 377 500 100.0 310 690 3 539 100.0

Data cover the formal business sector only. For a classification of manufacturing sectors, see tables 17 and 18. Defined as gross output in rand per person employed.

Source: ILO Task Force, based on data from Stats SA, the DTI, IDC and SARB.

Figure 16

Trade, economic and labour market performance of manufacturing sectors by trade orientation, 1994–971 (as a percentage of total change) 55.7

Export-oriented manufacturing

52.7

Import-competing manufacturing

49.6

Total manufacturing

29.3 26.1

23.8 23.4

16.4

17.0

18.1

10.6 11.0

7.2 2.6 2.7

–7.7

Production2

Imports

Exports

–5.5 –6.0

Employment3

Average real wages

Productivity4

1 For a definition of export-oriented and import-competing manufacturing sectors, see table 17, note 2. 2 The indicator of production refers to gross output. 3 Employment variation is corrected for the break in January 1996 following the inclusion of TBVC data for the manufacturing sector. The cumulated variation of employment was calculated from a composite of employment variation from 1994 to December 1995, and employment variation from January 1996 to 1997. 4 Calculated as gross output per employed person.

Source: ILO Task Force, based on data from Stats SA, the DTI, IDC and SARB.

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Figure 17

Trade, economic and labour market performance of manufacturing sectors by natural resource intensity, 1994–971 (as a percentage of total change) 52.8 51.6 52.7

Natural-resource-based manufacturing Non-natural-resource-based manufacturing Total manufacturing

30.6 21.4 23.4

24.5 18.1

14.8 8.2

11.0

12.9

3.9 2.6 2.7

–7.7

Production2

Imports

Exports

–4.2 –6.0

Employment3

Average real wages

Productivity4

For a definition of natural-resource-based and non-natural-resource-based manufacturing sectors, see table 17, note 3. The indicator of production refers to gross output. 3 Employment variation is corrected for the break in January 1996 following the inclusion of TBVC data for the manufacturing sector. The cumulated variation of employment was calculated from a composite of employment variation from 1994 to December 1995, and employment variation from January 1996 to 1997. 4 Calculated as gross output per employed person. 1 2

Source: ILO Task Force, based on data from Stats SA, the DTI, IDC and SARB.

Figure 18

Trade, economic and labour market performance of manufacturing sectors by capital intensity, 1994–971 (as a percentage of total change)

Capital-intensive manufacturing Intermediate capital-intensive manufacturing

Labour-intensive manufacturing Total manufacturing

67.3 55.8

52.7

32.5

33.2

23.4

19.6 8.9 7.2 11.0

17.0 18.1

10.9 10.2

9.5

4.5

11.8

4.5

0.9 2.7

–4.1 –6.0 –9.7 –6.9

Production2

Imports

Exports

Employment3

Average real wages

Productivity4

1 For a definition of manufacturing sectors by capital intensity, see table 17, note 4. 2 The indicator of production refers to gross output. 3 Employment variation is corrected for the break in January 1996 following the inclusion of TBVC data for the manufacturing sector. The cumulated variation of employment was calculated from a composite of employment variation from 1994 to December 1995, and employment variation from January 1996 to 1997. 4 Calculated as gross output per employed person.

Source: ILO Task Force, based on data from Stats SA, the DTI, IDC and SARB. © ILO 2001

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South Africa: Studies on the social dimensions of globalization

Figure 19

Trade, economic and labour market performance of manufacturing sectors by initial level of tariff rates, 1994–971 (as a percentage of total change) 68.0

49.6

26.1

52.7

Manufacturing sectors with low initial tariff rates Manufacturing sectors with high initial tariff rates Total manufacturing

23.4

21.8

17.6

13.5

11.0

18.1

11.0

7.1

4.0 2.9 2.7 –6.8 –3.5 –6.0 2

Production

Imports

Exports

Employment3 Average real wages

Productivity4

1 For

a definition of manufacturing sectors with low and high initial tariff rates, see table 17, note 5. 2 The indicator of production refers to gross output. 3 Employment variation is corrected for the break in January 1996 following the inclusion of TBVC data for the manufacturing sector. The cumulated variation of employment was calculated from a composite of employment variation from 1994 to December 1995, and employment variation from January 1996 to 1997. 4 Calculated as gross output per employed person. Source: ILO Task Force, based on data from Stats SA, the DTI, IDC and SARB.

experienced lower increases in imports, higher rises in exports and lower relative employment losses than those sectors with a low level of initial protection and with a slight reduction in import tariffs (figure 20).6 In short, since the start of trade liberalization in South Africa, exportoriented sectors have performed better in terms of gross output, productivity gains and wage increases than import-competing sectors. The same is true for the manufacturing sectors based on natural resources, as well as for capital-intensive sectors. However, relative employment losses have also been comparatively greater in the export-oriented, the natural-resource-based and the capital-intensive sectors. The fact that formerly highly protected sectors, as well as those with significant reductions in important tariffs, experienced lower relative employment losses than the other sectors suggests that import liberalization is not the main factor behind employment losses.

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Figure 20

Trade, economic and labour market performance of manufacturing sectors by magnitude of the decrease in tariff rates, 1994–981 (as a percentage of total change) 80.5

Manufacturing sectors with no or slight decrease in tariff rates Manufacturing sectors with a significant drop in tariff rates

52.7

Total manufacturing 23.4 14.0 11.0 7.6

22.2

20.3 18.1 15.1

13.4 7.3

2.3 2.9 2.7 –6.5 –5.3 –6.0

2

Production

Imports

Exports

Employment3 Average real wages

Productivity4

For a definition of manufacturing sectors by the magnitude of the decrease in tariff rates from 1994 to 1998, see table 17, note 6. 2 The indicator of production refers to gross output. 3 Employment variation is corrected for the break in January 1996 following the inclusion of TBVC data for the manufacturing sector. The cumulated variation of employment was calculated from a composite of employment variation from 1994 to December 1995, and employment variation from January 1996 to 1997. 4 Calculated as gross output per employed person.

1

Source: ILO Task Force, based on data from Stats SA, the DTI, IDC and SARB.

Review of the relevant literature While most studies agree that trade liberalization in South Africa has the potential to increase national welfare,7 there are as yet no empirical studies on whether this is happening. There are, however, projections, such as the study by Coetzee et al. (1997), which estimates the impact of trade liberalization based on a computable general equilibrium (CGE) model. Such modelling inevitably involves simplifications and assumptions.8 In the study, the authors simulate the impact of South Africa’s current trade liberalization programme and the phasing out of the export subsidy schemes. The estimated impact of trade liberalization is that real GDP would rise by 0.8 per cent and employment by 1.1 per cent, while real wages would fall by 1.4 per cent. International experience suggests that the shifts in output and employment as a consequence of trade liberalization take several years to materialize. The fact that the mobility of resources and labour within and across sectors also takes some time implies that there will be a transitory period of employment losses in the tradable-goods sector and unemployment in the economy as a whole. Adjustment problems are especially acute when trade liberalization operates in © ILO 2001

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South Africa: Studies on the social dimensions of globalization

Box 1

Why is South Africa a capital-intensive economy?

It is somewhat puzzling that South Africa remains specialized in the export of capitalintensive goods, given the availability of a large, unused supply of labour. Trade liberalization and the removal of the peculiar set of industrial incentives which had favoured capital-intensive sectors could have been expected to shift export patterns in favour of labour-intensive sectors, which would have stimulated job creation. This has not happened. It goes beyond the scope of this study to offer a comprehensive analysis of this issue. However, it is possible to put forward some explanations for this apparent puzzle: • It could be argued that, at least compared with the developed countries with which South Africa conducts an important part of its trade, the abundant factor is the availability of a large reserve of natural resources, not labour. There is, moreover, an association between natural resource and capital-intensive processing industries. Altogether, trade liberalization would have raised the profitability of capital-intensive industries. The conceptual and empirical consequences of this hypothesis are explored below (see section entitled “Conceptual considerations” below). • Even though industrial policies in favour of capital-intensive industries have been officially terminated, some elements of the institutional framework may still remain. For example, mining companies can fully deduct capital expenditure from their taxable income of the year in which expenditure was undertaken, while other companies have to spread the tax deduction over a five-year period (WTO, 1998, p. 108). This would favour mining and immediate downstream industries, which are capital intensive. • Though the institutional framework may be relatively neutral in its incentives to different types of sectors, enterprises that used to benefit from incentives under prior institutional frameworks have accumulated experience on where to obtain information and how to apply for these benefits. Information costs may be a considerable barrier in this respect, especially for small enterprises. • More generally, there may be elements of path dependency in the sense that accumulated capital assets and technical knowledge in capital-intensive sectors are now part of the comparative advantage.

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• Although investments in labour-intensive industries may have become more profitable, actual investment decisions have been slow to materialize, possibly reflecting the overall investment climate. It is important to note, in this respect, that total domestic investment represents only 17 per cent of GDP, a low figure by international comparison. • The scarcity of skilled labour can have a negative impact on the development of labour-intensive sectors. • Some observers argue that labour markets are inflexible, inhibiting the transition to a more labour-intensive development path (see, however, the evidence presented on this issue in Part III of this study).

a context of an over-valued currency. In such circumstances, imports may increase much faster than exports, thereby depressing output and employment, at least in the short term (Amadeo, 1996). In this sense, the depreciation of the real exchange rate for the South African rand during the first two years of the import-liberalization programme certainly contributed to limiting the potential negative short-term consequences of trade liberalization. Although South Africa has a wealth of mineral resources, the country’s high unemployment rate suggests that it is also rich in labour. Several studies have pointed to the paradox that, although trade flows based on capital-intensive exports and labour-intensive imports have risen, unemployment rates remain persistently high (Roberts, 1998b; Tsikata, 1998). Trade liberalization has so far benefited capital-intensive industries, such as non-ferrous metals, rather than labour-intensive industries (Roberts, 1998a). The fact that the South African economy has not shifted towards labour-intensive types of industries is one explanation for the country’s weak employment performance. The reasons for the continued capital-intensive specialization of the South African economy are not entirely clear (see box 1 for a discussion on this issue): • Several observers (such as Tsikata, 1998) have claimed that South Africa’s competitiveness is hampered by high wages, especially by those of low-skilled workers, which exceed corresponding productivity levels. Although, as pointed out by Kyvik (1995), the export specialization of the South African economy implies that the main competitive factor of most of its export sectors is not labour costs (export sectors are intensive in capital and natural resources rather than in labour), labour-intensive industries may still © ILO 2001

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South Africa: Studies on the social dimensions of globalization

be affected. In 1995, unit labour costs in labour-intensive manufacturing sectors (such as textiles, clothing and footwear) were indeed higher than in several other African countries and higher than those of potential Asian competitors, such as Bangladesh, Indonesia and India, in unskilled labour-intensive products (UNCTAD, 1998, p. 199). However, for manufacturing as a whole, the unit labour cost relative to the United States fell in the late 1990s after rising during the first half of the decade (figure 21). This means that increases in real wages have been outweighed by labour productivity gains and the real depreciation of the South African currency. • Capital-intensive export sectors related to minerals processing have been favoured by past government interventions (Roberts, 1998b; Fine and Rustomjee, 1996). For example, public corporations participated in large-scale investment projects in capital-intensive sectors.9 According to Schydlowsky (1984), the country’s past record in the accumulation of fixed assets, whether in line with the comparative advantage of the country or not, has had an impact on the performance after trade liberalization.

Conceptual considerations A number of complex conceptual and methodological considerations need to be looked at to understand the social impact of globalization fully. A standard trade model was modified for the purposes of this study in order to take into account the specificities of the South African economy and labour market. It assumes that natural resources provide the main source of comparative advantage in South Africa and that the exploitation of these resources is relatively capital intensive. Based on these assumptions, the following theoretical predictions can be made (see Annex 1 for more details): • Trade liberalization can raise national welfare, because trade allows a country to exploit its comparative advantage. As figure A1 in Annex 1 shows, the shift in trade prices associated with trade liberalization encourages specialization in the production of the good that uses the factor of production in which the comparative advantage lies more intensively – which, in the case of South Africa, seems to be capital (see box 1). • There is also a distributional effect in the sense that trade liberalization tends to raise the demand for the factors that are used relatively more intensively in domestic production, while reducing the demand for the other factors of production. Since South Africa specializes in relatively capital-intensive sectors, trade liberalization will raise the demand for these sectors but reduce the demand for labour. 58

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Figure 21

Evolution of cost competitiveness, 1990–98 (1990=100)

A. Manufacturing unit labour costs in current US$ and relative to United States unit labour cost Index 120 115 110 105 100 95

Unit labour cost in manufacturing (in current US$) Unit labour cost relative to United States unit labour cost

90 1990

1991

1992

1993

1994

1995

1996

1997

1998

Source: ILO Task Force, based on data from the SARB and the US Bureau of Labor Statistics.

B. Nominal and real effective exchange rate Index 110 104.2

105 100 95

100.0

105.1 107.2

100.7 97.8

97.0

96.5

94.4

90

91.0

85

90.2 87.4

86.3

80 79.9

75

70.6 70

Real effective exchange rate

65

70.3

Nominal effective exchange rate

60.9

60 1990

1991

1992

1993

1994

1995

1996

1997

1998

Source: IMF: International Financial Statistics, various years. © ILO 2001

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South Africa: Studies on the social dimensions of globalization

• It is possible that, under the pressure of increased international competition, enterprises will adopt new technologies. So, besides trade, technological change is another major aspect of the globalization process. Under certain conditions, it can be labour-saving and can, therefore, contribute to a poor performance in employment. To see to what extent these predictions have been realized in South Africa, the following empirical analysis considers the recent trends in relative prices and factor intensities, and assesses possible determinants of employment.

Empirical analysis Shifts in relative prices and factor intensity Since data on trade prices by sector were unavailable at the time of writing, producer prices were instead used to examine the validity of the prediction that trade liberalization raised the demand for capital-intensive goods. Weighted averages of price indexes were calculated for groups of manufacturing sectors classified by factor intensity. The result of this simple calculation shows that producer prices for capital-intensive goods increased by 37.4 per cent during 1994 to 1998 (latest data available are for August), that is, more than three percentage points higher than the figure for intermediate capital-intensive and labour-intensive goods (figure 22). This finding lends some support to the prediction that trade liberalization may have raised the demand for capital-intensive sectors to the detriment of labour-intensive sectors, and that it may, therefore, have contributed to the weak employment performance of the South African economy.

Determinants of employment Given that import liberalization has only recently been implemented, it is difficult to undertake an in-depth investigation of its impact on the South African labour market. The evidence from prices suggests that trade liberalization may have raised the demand for capital, while reducing that for labour, but the size of this demand effect cannot be inferred from this evidence alone. To assess the possible employment effects associated with trade liberalization, an econometric equation of the determinants of intra-industry employment changes has been estimated. More specifically, this equation tries to answer the following question: how are sectoral changes in employment correlated with sectoral changes in trade and technology? As in other studies, both technological 60

© ILO 2001

Assessing the social impact of globalization

Figure 22

Production prices by factor intensity, 1994–981 (1994=100)

Index 140 Capital-intensive manufacturing Intermediate capital-intensive manufacturing Labour-intensive manufacturing

135 130 125 120 115 110 105 100 1994

1995

1996

1997

1998

1 Data

for 1994, 1995 and 1996 are yearly averages, while 1997 data refer to December and 1998 to August. For a description of the classification of sectors, see table 17. Source: ILO Task Force, based on data from Stats SA.

change and trade are included in the equation – it is quite likely that both these factors are global and that they will have a similar impact on the labour market. However, the equation is largely ad hoc in that, unlike the evidence from prices, it has not been derived from the trade model presented in Annex 1. Results should, therefore, be interpreted with caution. Two types of technological change are considered, namely technological change embodied in new capital and disembodied technological change, which includes the adoption of new methods of work organization and production rationalization. It is assumed that embodied technological change is associated with the investment process (measured as real fixed capital formation). By contrast, in the absence of any direct evidence on disembodied technological change, a constant time trend has been used as a proxy in the equation. In other words, it is hypothesized that technological change that is not embodied in new capital goods will affect employment at a pace that is constant over time. Though not unreasonable, this choice has obvious limitations: besides disembodied technological change, the time trend could also capture other phenomena current at the time, including institutional changes. © ILO 2001

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With these conditions and data limitations in mind, evidence suggests that both embodied and disembodied technological change are correlated with sectoral employment trends. As Annex 1, table A1 shows, the coefficient on the time trend is negative, possibly pointing towards the presence of labour-saving, disembodied technologies – which lends support to the production rationalization, or “rightsizing”, view. By contrast, the coefficient on the real fixed capital formation variable is positive, which could be interpreted as evidence that investment enhances the ability of enterprises to create jobs. In other words, higher investment could be expected to raise employment. In the light of these results, the observed rising trend in the capital–labour ratio should not be regarded as evidence that firms are actively substituting capital for labour (figure 23).10 A simple comparison of the investment and employment dynamics of different manufacturing sectors leads to similar conclusions. Indeed, the two sectors with the most significant employment losses between 1994 and 1997, namely professional equipment and non-ferrous metals, featured lower average capital expenditure during these years than in 1993, while investment in the two sectors with the strongest employment creation (plastics and machinery) was relatively dynamic. Although not all sectors follow this pattern, it is important to note that export-oriented manufacturing sectors as a whole have not increased their investments, yet they suffered more significant relative employment losses than import-competing sectors, which have seen a rise in investments (table 20). This result may have interesting policy implications. Indeed, it can be interpreted as evidence that the country’s capital stock cannot absorb any more employment. Investment as a share of GDP, though on the rise over the past few years, is still relatively low by international standards (figure 24). In a lowgrowth environment characterized by low investment rates, enterprises often react to increased international competition by rationalizing production and downsizing employment. Interestingly, when export intensity and import penetration variables are included in the equation, the technological-change story does not change. In addition, export intensity is associated with negative developments in sectoral employment, while import penetration is positively (though insignificantly) associated with employment (table A1, panel B). One possible explanation may be that imports and investment are strongly correlated. Another is the phasing out of GEIS, which would have directly affected “labour hoarding” in export industries. Even assuming that trade and technologies are labour saving, it does not necessarily follow that employment should fall; indeed, non-tradable sectors 62

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Figure 23

Capital–labour ratios by economic sector, 1980–95 (1980=100)

Index 220

200

Total economy Services Agriculture Mining Manufacturing

180

160

140

120

100

80 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 Source: WEFA, based on data from Stats SA.

could well absorb displaced labour. To some extent, this has happened in South Africa, since the public sector, trade and other private-sector services registered net increases in employment between 1994 and 1997. Presumably, the non-tradable sectors could have contributed more to employment creation following the dismantling of apartheid-inherited obstacles, such as uneven access to credit and other productive resources.

Conclusion In short, the process of trade liberalization initiated in 1994 may have contributed to the weak employment performance of the South African economy. The extent of this contribution, however, is probably rather small and cannot be accurately quantified. Moreover, empirical evidence suggests that the channels through which trade affects labour markets in South Africa are atypical: © ILO 2001

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Table 20

Investment and employment variation in manufacturing sectors, 19971

Sector

Food processing Beverages Textiles Clothing Leather Footwear Wood Furniture Paper Printing and publishing Industrial chemicals Other chemical products Products of petroleum Rubber Plastics Glass Non-metallic mineral products Basic iron and steel Non-ferrous metals Metal products Machinery Electrical machinery Motor vehicles Other transport Professional equipment Export-oriented manufacturing Import-competing manufacturing Total manufacturing

Capital expenditure on new assets

Employment2

Variation 1993– average (1994–97)

Cumulated variation, 1994–97

12.9 –29.0 132.5 36.4 –17.9 –3.7 15.9 68.3 62.1 139.0 69.7 1.9 –25.1 34.9 27.9 234.8 62.3 43.4 –31.5 –38.6 33.3 57.4 –39.4 20.0 –20.8

–11.3 –11.4 –17.6 –1.3 –7.0 –5.5 –5.1 –5.3 –0.1 –3.2 –12.3 –4.9 –15.9 –1.8 11.3 –4.8 –11.8 –8.3 –18.4 –6.0 5.0 –3.9 3.1 –11.0 –26.5

–0.3 13.1 5.1

–7.7 –5.5 –6.0

For a classification of manufacturing sectors, see tables 17 and 18. Employment variation is corrected for the break in January 1996 following the inclusion of TBVC data (see figure 15) for the manufacturing sector. The cumulated variation of employment was calculated from a composite of employment variation from 1994 to December 1995, and employment variation from January 1996 to 1997. 1 2

Sources: ILO Task Force, and the DTI based on data from Stats SA.

• Notwithstanding significant job losses in some import-competing sectors (such as in the textile industry, where employment fell by almost 18 per cent between 1994 and 1997), employment losses are not directly correlated with import competition. 64

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Figure 24

Gross domestic fixed investment and gross domestic savings, 1980–98 (as a percentage of GDP)

% Gross domestic fixed investment Gross domestic savings 33

28

23

18

13 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 Sources: IMF: International Financial Statistics; SARB.

• Relative employment losses have been higher in export sectors than in import-competing ones. This may be due to the phasing out of the export incentive scheme (GEIS). • The use of labour-saving technologies, such as new machinery and equipment, does not appear to be a main factor here. • Instead, employment losses can be attributed mainly to the process of rationalization or downsizing, which might have occurred as a reaction to increased international competition. Given that the potential for increases in labour productivity without substantial investment is limited, an important issue for further research would be to discover whether employment losses due to rationalization have already bottomed out or whether the process is likely to continue. • Since South Africa’s economy specializes in capital-intensive goods, trade liberalization has favoured these sectors relative to labour-intensive ones, thereby reducing the demand for labour. © ILO 2001

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C. GLOBALIZATION AND INCOME INEQUALITIES

Even after a “transitory adjustment” has taken place, some economic agents benefit more from liberalization than others, which may be either worse off or see little improvement in their situation. Even though trade is not a zero-sum game (and is likely to be associated with welfare improvements for a country as a whole), some distribution problems are likely to arise from the process. International evidence suggests that trade liberalization has made a modest but significant contribution to income inequality in developing countries (Robbins, 1996). South Africa’s income inequalities are extremely wide by international standards. Although, as mentioned in Part I, overall income inequality decreased between 1990 and 1995, inequality within the population groups is increasing. While a relatively small number of Africans (in particular those who are highly skilled) have been able to improve their employment and income situation since the end of apartheid, an extremely large number of them continue to suffer from the high and rising unemployment rates. Inequalities are, to a large extent, the legacy of apartheid-related discrimination in education and access to land and other productive resources, as well as due to restrictions on the movement of African labour and, more generally, to discrimination in the labour market. Seen within this context, the direct impact of trade liberalization on inequalities appears relatively less important. The data presented in Part I showed that the wage gap between white and African workers varies according to the type of economic sector. Unfortunately, there are insufficient data to allow an analysis of whether differences in skills, trade orientation or political decisions ensuring more equity in the public sector are the main explanatory factors behind this wage structure. There are, however, two reasons why trade liberalization may, indeed, be contributing to greater income inequalities, rather than correcting them. This 66

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may particularly be the case if trade policies are not being adequately accompanied by new policies in education, retraining and labour market institutions: • In so far as enterprises are forced to increase their productive efficiency in the face of greater competition, firms may be tempted to reduce the number of low-skilled workers they employ. As experience in other countries shows, globalization tends to be associated with technological change, which also increases the demand for skilled workers. • The second problem relates to the specialization of the South African economy. Exports are concentrated in natural resources and natural-resource-intensive products. As international evidence shows, this type of international specialization tends to make a country more prone to income inequalities. A model that illustrates this link between natural-resource intensity and income inequality was used in the Chilean country study conducted by the ILO Task Force (ILO, 2001). In the case of Chile, exports were found to have had a limited but significant impact on income distribution. Unfortunately, the available data do not allow for a more systematic analysis of the determinants of income inequality (such as via econometric estimates). However, it may be worth monitoring this issue for possible links between wealth in natural resources, trade liberalization and income inequalities, once the relevant data become available. Notes There is currently an international debate on the desirability of maintaining some control over short-term capital movements. As one example among many others, see “ Curbs now seen in more favourable light”, in Financial Times, 16 Sep. 1998. Far from being seen as protectionist, such regulation is supported even by such ardent defenders of free trade as J. Bhagwati (1998) and J. Sachs (Radelet and Sachs, 1998). 2 South African trade data are somewhat inconsistent in that some of the most important export products such as gold or diamonds have often been classified under the “residual” category. Also, data may refer either to South Africa proper or to the Southern African Customs Union (SACU), consisting of South Africa, Botswana, Lesotho, Namibia and Swaziland, where South Africa accounts for more than 90 per cent of total exports. 3 Choosing a year at the end of the period of analysis (and not as its start) to identify export-oriented and importcompeting sectors probably introduces a bias when the performance during recent years is analysed. However, using an earlier year would have caused an even stronger bias due to the marked sector-specific pattern of trade protection in place at that time. 4 It is also interesting to note that, within manufacturing, export-oriented sectors experienced a higher increase in imports and exports than import-competing sectors during 1994–97. 5 The fact that export-oriented manufacturing sectors had larger employment losses than import-competing ones does not necessarily imply that within each sector export-oriented enterprises have experienced more employment losses. Although this issue is largely unexplored, one study on a sample of auto-component companies concludes that exportoriented firms within the sample performed better on the employment front than import-competing firms (Kaplinsky and Morris, 1999). 6 This analysis is based on data on tariff rates provided by the foreign trade regulations and not on effective tariff rates. Some imports benefited from tariff exemptions before trade liberalization. A preliminary analysis of the data on effectively collected import duties would suggest that trade liberalization was more gradual than indicated by import tariff data (for total manufacturing, collected import duty decreased from 4.3 per cent of total registered imports in 1994 to 3.0 per cent in 1997); some of the sectors considered sensitive, such as clothing, appear to have experienced an increase, rather than a decrease, in protection (ILO Task Force, based on data from the Industrial Development 1

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South Africa: Studies on the social dimensions of globalization Corporation of South Africa [IDC]). A more detailed analysis of the difference between import tariff data and effectively collected import duties would be an important issue for future research. 7 See, however, the more sceptical studies by Roberts (1998a; 1998b). 8 For instance, the model does not capture the productivity increases in industries facing trade liberalization. It compares the situation in 1994 with the outcome that would prevail at the end of trade liberalization, which is assumed to materialize in 1999. As a result, transition problems are ignored. 9 Fine and Rustomjee (1996) argue that the minerals and energy complex (MEC), which has been central to the development of the South African economy, was a direct result of political and economic linkages and relations between different agencies acting in the economy. This MEC, together with associated subsectors of manufacturing, allegedly constitutes the core site of accumulation in the South African economy and was responsible for placing South Africa on a particular development trajectory dominated by conglomerates. 10 The above interpretation, based on data from manufacturing subsectors only, does not, therefore, apply to the mining sector, where a well-documented process of mechanization has been going on for several decades.

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PART III

POLICY ISSUES International experience suggests that the extent to which a country is able to reap the potential benefits from integration into the global economy and alleviate any negative consequences depends on the particular policies it undertakes. South Africa began to liberalize its economy from a base of high levels of unemployment and extreme racial inequalities – in both skills and access to productive assets. Furthermore, previous industrial policies had tended to favour capital-intensive industries, which therefore led to a bias against labour-intensive industries. Finally, many decades of import-substitution policies failed to create a dynamic manufacturing sector capable of generating an adequate number of employment opportunities. Several important issues arise out of this particular context: • Policy responses to the employment losses from trade liberalization will need to take into consideration not only the role of tariff liberalization but also the liberalization of the export regime and adjustments in exportoriented industries. The continuing development of capital-intensive industries, which seems to have been reinforced by globalization, raises additional policy issues and challenges. Trade and investment liberalization can create new business opportunities in tradable as well as non-tradable sectors, since income generated from trade is often spent in these areas. However, for these business opportunities to materialize, there has to be a competitive product market environment; however, some sectors of the South African economy are plagued by a high degree of industry concentration. The ownership of productive assets is severely skewed along racial lines, so this also raises the issue of distributing benefits more equally. Finally, inequality of opportunity could significantly impede economic growth. These issues, which relate broadly to trade and industrial policy, are discussed in section A, below. © ILO 2001

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• Improving workers’ skills has become more important. Indeed, as suggested in Part II of the study, the upgrading of skills is often necessary to meet the new demands of technology and to facilitate workers’ ability to adjust in the face of labour market instability, which is often associated with globalization (section B). • Labour market regulations need to provide a sufficient degree of adaptability to allow for adjustments, but they also need to protect workers against too much insecurity. It is in this regard that the reforms of labour law and industrial relations play a critical role (section C). Finally, some form of social protection will be needed to protect those people who will lose their jobs (either temporarily or permanently) as a direct or indirect result of globalization (section D). It may be slightly premature to evaluate the impact of many of these policy reforms, since many have only been in place since 1994. Thus this section should only be taken as a preliminary analysis of the policy challenges facing South Africa.

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A. INDUSTRIAL POLICY, TRADE REFORM AND PERSPECTIVES OF REGIONAL INTEGRATION

South Africa, like many other countries, is faced with the not inconsiderable challenge of consolidating the process of global integration in a way that promotes growth and facilitates industrial restructuring. It also needs to consolidate the emergence of a more internationally competitive local business environment. Achieving this would no doubt stimulate productive investment, which, as shown in Part II, would also enhance employment.

Trade reform and industrial policy The aim of the Government’s trade and industrial policies is to facilitate the transformation of South Africa into a sustainable, fast-growing, internationally competitive, labour-absorbing and export-oriented economy. The Department of Trade and Industry (DTI) aims to achieve these objectives by phasing out previous demand-side incentives, which favoured capital-intensive sectors, and adopting instead supply-side incentives to facilitate industrial restructuring. In the past, the development of manufacturing sectors based on the processing of minerals was strongly influenced by government policies, including the provision of the country’s physical infrastructure and financial support (Fine and Rustomjee, 1996). A new set of direct investment promotion and incentive programmes has been introduced to develop the economy and to promote the development of labour-intensive industries: • The first part of this strategy is aimed at facilitating regional development through Spatial Development Initiatives (SDIs). The objective of the SDI programme is to promote private investment in specific regions that remain underdeveloped because of previous apartheid policies. These investment measures appear to be encouraging capital-intensive mega-projects, but it is as yet too early to assess their impact on the rest of the economy. © ILO 2001

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• Secondly, the DTI is hoping to locate Industrial Development Zones (IDZs) within designated SDI regions in order to attract FDI for export-oriented manufacturing to these regions. The IDZs will differ from traditional export-processing zones in other countries in that labour regulations and environmental standards will be enforced in the same way as in the rest of the economy. The services offered will be specifically packaged for exportoriented investors, aiming to reduce red tape through one-stop customs clearance and improved infrastructure (ports, etc.). • Thirdly, a financial scheme has been made available to new businesses employing large numbers of people. Interestingly, this scheme has, as yet, not been taken up. • Fourthly, the workplace challenge programme, a joint initiative of NEDLAC and the DTI, promotes “best practices” in work organization and productive processes through a number of “pilot plants”, with the aim of influencing other enterprises by their results. As discussed in Part II, it appears that the country’s capital-intensive development trajectory is being reinforced by liberalization – to the detriment of labour-intensive industries and employment creation. If the above policy options are to succeed, the reasons behind the continued development of capital-intensive industries need to be understood: • A detailed review of the tax benefits and incentive schemes could establish whether there is any explicit or implicit bias in favour of capital-intensive industries. The policies could then be modified according to the findings. • If the problem is rather that enterprises in labour-intensive sectors are simply failing to take up existing incentives, then it would be necessary to enhance the transparency of the system and improve the institutional framework. In several other countries, governments have found it useful to carry this out by using intermediate institutions, such as sectoral business associations or groups of enterprises, rather than individual enterprises. • Shortage of skills may be behind the bias. There are also other grounds for upgrading skills. In addition, supply-side measures aimed at upgrading technology will increase the demand for skilled labour and will, therefore, need to be accompanied by appropriate initiatives in skills development. • If it is the case that businesses feel that labour markets are inflexible, despite the fact that the comparative analysis presented below does not support this perception, a range of policy initiatives and public commissions to investigate these issues might be appropriate. 72

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• There have been calls for industrial policies to be more selective, that is, more subsector specific (Roberts, 1998a). Although trade liberalization can be considered a facilitator of growth, the latter does not follow automatically; liberalization needs to be accompanied by effective fiscal, monetary and financial policies if growth is to occur. International experience shows that disciplined domestic financial policies are a prerequisite for the maintenance of relatively stable levels of inflation, balance of payments and exchange rate conditions. The country’s pattern of fiscal restraint did help South African industry in October 1997 when the local market held up well compared with other emerging economies in the face of the East Asian financial crisis. This, to some extent, reflected the market’s perceived confidence in South Africa’s fundamentals. However, as certain experts have pointed out, such fiscal restraint should also attempt to accommodate growth-inducing social investment, since economic growth is unlikely to make a significant impact on unemployment in the short term (Dixon, 1998). Moreover, the recent volatility of international capital markets suggests that emerging economies such as South Africa would be well advised to maintain selective controls on short-term capital flows. Finally, the level of the exchange rate could well determine the growth effects of trade liberalization; it is important that the rand depreciates in line with inflation differentials in order to preserve competitiveness.

Competition policy South Africa’s domestic markets also need to operate more efficiently if they are to realize the potential growth-enhancing effects of globalization. It appears that markets for some types of products are relatively contestable, while others are dominated by large conglomerates. Benefits from trade can be limited by the collusive behaviour of enterprises. A DTI discussion document (DTI, 1998, p. 92) has acknowledged that: The elimination of trade and investment barriers may only be a necessary and not a sufficient condition for ensuring that markets are genuinely contestable. What liberalization may grant, restrictive business practices may deny [...] The concentration of South Africa’s industrial sectors has already been identified as one of the key inhibitors to foreign direct investment.

Domestic market intervention, such as competition policy, has a critical role to play in promoting a competitive environment and ensuring that firms do not behave collusively and exploit their market power. Much emphasis is often © ILO 2001

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placed on the efficiency considerations of competition policy. However, given the racially skewed and inequitable distribution of assets in South Africa, it has an additional role to play in promoting more development. The DTI has introduced a new competition policy framework, for which all stakeholders at NEDLAC were consulted. The new competition policy framework aims to combine the imperatives for both development and efficiency by seeking to ensure access to the market for disadvantaged groups. It has been explicitly designed to promote the development of downstream high-valueadded exports and to encourage local conglomerates to unbundle and increase specialization. It is too early, however, to determine the degree to which this new framework will be effective in facilitating the contestability of markets and the redistribution of economic power.

Equal access to productive assets One of South Africa’s policy challenges is to improve access for disadvantaged groups to enterprise ownership. This is important not only for obvious social reasons, but also for economic ones: the growth potential arising from globalization will only be realized in full if individuals who perceive new business opportunities do not face too many financial and/or legal obstacles. Equal access to credit facilities, in particular, is of crucial importance in this respect. However, as Part I showed, business and assets in South Africa remain predominantly white owned. The new Government has introduced a number of measures to support so-called “black empowerment”, in particular, the setting up of the National Empowerment Fund. The fund will pool part of the shares from recently privatized companies and use these resources to support the development of African business ownership. However, the financial malaise in international markets in the late 1990s undermined some of these initiatives.1 The Government has stepped up its programmes to assist small, medium and micro enterprises (SMMEs). Additional funding is to be made available for SMME development, and a National Small Business Regulatory Review Team has been established to advise the Government on the appropriateness of the legal and regulatory framework on small business development. The new state procurement policy has introduced the concept of “affirmative procurement” in order to use state expenditure via procurement to support, in particular, initiatives emanating from disadvantaged groups. To date, it is doubtful whether these measures have succeeded in promoting the development of SMMEs. Another issue is access to land and the possible employment prospects that land reform could offer. Since the end of apartheid, South Africa has developed an extensive land reform programme. However, the actual 74

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redistribution of land to date has been extremely modest. Part of this seems to be due to administrative hurdles and to the inability of local governments to promote and facilitate the process. The report on poverty and inequality in South Africa (May et al., 1998) recommends that the present budget share for land reform be increased and institutional problems addressed through closer cooperation between the Department of Land Affairs and both national and provincial land reform offices.

Regional integration Exports to SADC countries have shown higher growth rates than those to other regions. Exports to these countries are of particular significance to South Africa in that, unlike exports to developed countries, they consist mainly of relatively sophisticated manufactured goods. Thus closer economic ties with the SADC region could contribute to greater economic growth and employment creation in South Africa. Economic integration with SADC countries has, indeed, been proceeding. The trade offer South Africa made in 1998/99 reflects a commitment for trade to be liberalized at a faster pace on the South African side. However, South Africa runs significant trade surpluses with the other SADC countries, which, combined with the economic and political instability of the region, might inhibit the development of these markets.2 Provided that the political situation in the region stabilizes, South Africa is certainly in a position to help in, and benefit from, regional reconstruction; indeed, South African enterprises have an excellent track record in the management of large projects and the development of infrastructure. A “virtuous circle” of reconstruction, increased production and increased consumption could benefit all the countries in the region. Significant initiatives in regional industrial policy and complementary economic development are now beginning to emerge. The considerations of a social dimension to regional integration remain, though, in their infancy.

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B. IMPROVING ACCESS TO EDUCATION AND SKILLS DEVELOPMENT

Export trends in the late 1990s pointed to a relative decline in the share of unskilled, labour-intensive sectors (Tsikata, 1998; Bhorat, Deiden and Hodge, 1998; SARB, 1998). A shift in demand patterns towards capital-intensive sectors has also been observed, entailing adverse effects on the demand for unskilled labour.3 Against this background, the legacy of apartheid policy in education and training has had a profound effect on the skills profile of the South African labour force. As shown in Part I, the proportion of African men and women without any formal education is alarming. In addition, Africans were excluded from apprenticeship schemes in the formal sector, reducing further their opportunities to acquire skills. The result is a relatively low-skilled labour force, with limited professional and managerial abilities, particularly among Africans. Providing equal access to education and training and developing a better-educated, better-trained labour force is, therefore, one of the country’s priorities. The educational reforms introduced by the new government have attempted to address these disparities by improving equality of access, as well as improving the quality of education. Approximately one-quarter of the government budget is now spent on education. However, little of this is targeted on basic adult education and training. It has also been argued that, if these requirements are to be met, there will need to be a significant drop in the allocation of resources to expensive urban schools and a more efficient allocation of resources to the historically disadvantaged groups and areas of the population. It should also be stressed that some of the provinces responsible for administering and providing adequate education lack the ability to do so. The Department of Education is attempting to deal with this, as can be seen by its statement on “Norms and Standards” of October 1998. Although everybody would agree on the value of vocational training on both economic and social grounds, a crucial issue in South Africa is overcoming the 76

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barriers to training. International evidence suggests that one major obstacle might be the problem of so-called “poaching”, when, instead of investing in training, many enterprises engage workers who have been trained elsewhere by offering marginally higher wages than their previous company. Another problem is that enterprises tend to underestimate training needs in the short term, especially with regard to more generic or abstract skills for which the immediate economic benefits are difficult to measure. In South Africa, it is the Department of Labour that decides how state expenditure for training is to be allocated. Part of the country’s skills enhancement strategy is provided for in the Skills Development Bill (1997), on which many stakeholders across a wide spectrum were consulted. The aim of the new Bill, which recently became law, is to develop a partnership between the public and private sectors. Although a payroll levy will be placed on every enterprise, only those firms that give training will be able to qualify for a grant. The training strategy has a sectoral focus and aims to provide generic skills. It also attempts to address the difficulties faced by first-time entrants to the labour market by putting in place a “learnership system”, combining learning and work experience for job competence areas for which there is clear demand. These opportunities are to be identified by both employers and workers in a forward-looking planning exercise. It is also envisaged that employers and unions will form a partnership with relevant government departments in each economic sector to identify training needs and labour demand, as well as to ensure that training meets the specific needs of each sector. As a medium- to long-term programme, it is therefore unrealistic to expect the Bill to lead to the immediate upgrading of skills. However, Bhorat, Deiden and Hodge (1998) have argued that the Bill is likely to be most effective in upgrading the skills of those who are already skilled, rather than helping workers on the bottom rung of the job ladder. They argue that it will be extremely costly and time-consuming to upgrade the skills of these workers to a high enough level, and that such a task goes beyond the scope and finances of the Bill (Bhorat, Deiden and Hodge, 1998; Businessday, 7 August 1998). According to a recent survey, on average, 3.3 per cent of companies’ payrolls went on training in 1997, compared with 3.2 per cent in 1995. The survey also found that the companies that spent the most on training were also high performers on the JSE, and viewed training not merely as a cost item but also as an integral part of the growth of the company (Labour Research Service, 1998).

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C. LABOUR MARKET REGULATIONS AND INSTITUTIONS

Labour market regulations and collective bargaining are crucially important issues in a globalized economy. Given that globalization inevitably involves economic restructuring, employment has to be sufficiently adaptable to facilitate adjustment. At the same time, labour market institutions need to ensure that workers’ fundamental rights and labour standards are not undermined. Besides protecting workers, they can also have a positive impact on the economy and ensure a degree of social stability (Hayter, 1998). Labour market interventions thus derive their rationale from equity and developmental considerations as well as efficiency ones. This section assesses the challenges and rationale behind South Africa’s recent labour market reform, the characteristics of the current labour market regulatory framework and the functioning of collective bargaining within the context of globalization.

Rationale behind recent labour market reform In 1995, in a context of political and institutional transition, the newly established Labour Ministry initiated a comprehensive review of labour market policy with the intention of implementing far-reaching reforms. The Comprehensive Labour Market Commission (CLMC), which was set up at that time, drew its terms of reference from the RDP.4 It was decided to restructure the South African labour market by introducing a series of legislative reforms which would improve industrial relations, secure workers’ rights, balance the requirements for flexibility with the need for employment security, and redress inequalities and discrimination.5 The legislative reforms were the results of a remarkable tripartite negotiation process involving labour, business and government representatives at NEDLAC. They introduced a number of new labour market institutions,6 and 78

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at the same time direct intervention by the Government was substantially reduced. The commitment of the South African authorities to the observance of basic minimum standards was demonstrated by the ratification in 1996 and 1997 of five of the seven ILO fundamental human rights Conventions.7 In order to improve equal access to employment, an Employment Equity Bill was presented before Parliament in the late 1990s, requiring employers to submit employment equity plans, together with a timetable for their implementation. However, this is exactly the sort of law that would ordinarily only be implemented by large employers in the formal sector, and so would have little practical impact on vulnerable workers, including women, who tend to be employed in smaller businesses. Therefore, it is crucial that the Government ensures that the new laws and policies promoting equality of opportunity in employment are applied by all enterprises and not just by those in the formal sector. Before describing the main regulatory changes implemented over the past few years, it is important to note that, while in many other countries labour reforms were introduced as part of, and a complement to, the process of economic liberalization, in South Africa these reforms can be regarded as an important function of the political transformation of the country.8 Although industrial restructuring, reintegration into the international economy and “globalization” were acknowledged in the CLMC report, the labour market reforms are largely a response to the reconstruction and development of a postapartheid economy.

Labour market regulation and adaptability Appropriate labour market regulation is a key policy issue in a globalized economy. It is often assumed that a simple trade-off occurs between the adaptability of the labour market and employment security, and that some kind of balance therefore needs to be struck.9 However, there are a number of different types of adaptability, which can have different social and economic outcomes: numerical adaptability (adjusts employment levels), wage adaptability (adjusts wage levels) and functional adaptability (redeploys workers in different tasks within the same enterprise and skills upgrading). In the case of numerical adaptability, the Labour Relations Act (LRA) 66 of 1995 appears to provide an adequate degree of protection against dismissal, which must be for a fair reason and in accordance with a fair procedure. With regard to restructuring, the Act prescribes procedures should an employer wish to dismiss employees for “operational reasons”. These include the sharing of information, consultation on alternative action, an adequate notice period and severance pay. Furthermore, workers are fully protected against employment © ILO 2001

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80

30 or more (depending on duration of employment)

Brazil

Written approval by the Ministry of Labour

No

authorization

Prior administrative

• Withdrawal from individual No account in capitalization fund (corresponding to 5.5 months’ wages in the case of a worker with 5 years of service); and • direct lump sum payment by employer (2.2 months’ wages in the case of a worker with 5 years’ service)

n.a.

1 to 30 (depending on type of contract and duration of employment)

Zimbabwe

Severance pay

7 to 28 (depending on 1 week’s wage per year of duration of employ- service ment)

Period of notice (in days)

Dismissals

Maximum duration of fixed-term contracts

3 months

n.a.

• 2 years, subject to one contract renewal for the same term

n.a

No explicit regulation, • No regulation. but notice period of only • In LRA (Sec.186) dismissal is 1 week during the first defined to include an employee 4 weeks of employment reasonably expecting an employer to renew a fixed-term contract of employment on the same or similar terms, where the employer has offered to renew it on less favourable terms or did not renew it

Probationary period

International comparison of legislation on dismissals and fixed-term contracts

South Africa

Country

Table 21

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As stated in the • None by law employment contract • Usual practice in employment contracts is 1 month’s pay for the first year of service and 2 weeks’ pay for each year thereafter

90

None

New Zealand

Spain

Uruguay

2 weeks

No

No

No

3 months

n.a

n.a.

Dismissals must follow n.a. rules regarding consultation with unions and a report to the authorities

No

5 months, subject to one contract renewal for the same term

3 years

No restriction

18 months

• 1 year, except managers, professionals and apprenticeship contracts

n.a. = figures not available. Source: ILO Task Force, based on the NATLEX database; Marquez et al. (1995); Inter-American Development Bank (1996); and the labour codes of certain countries.

• 1 month’s wage per year of service • Maximum of 3 to 6 months

• 1 month’s wage per year of service, with a maximum of 12 months’ wages (48 months’ wages in case of unfair dismissal)

• 1 month’s wage

60

Korea, Republic of

• 1 month’s wage per year of service • Maximum of 11 months’ wages • Compensation in case of unfair dismissal is up to 1.5 months’ wages per year of service

30

Chile

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termination in the event of procedural strike action. Importantly, South Africa’s regulatory environment does not appear to be particularly stringent compared with other middle-income countries (table 21). Moreover, its regulatory environment has not impeded the process of rightsizing, especially in export industries. This suggests that a degree of numerical adaptability (at exit) does exist. It is also important to consider regulations on hiring – an area where, once again, the law provides for a degree of adaptability. Fixed-term contracts of any duration can be concluded (whereas, as shown in table 21, there is a limit to the maximum duration of such contracts in many countries). Also, in contrast to the situation in many other countries, fixed-term contracts can be renewed. It should, however, be noted that, while the notice provisions in the Basic Conditions of Employment Act (BCEA) imply a probationary period (with presumably a lesser degree of employment protection during this time), these provisions are not the same as those of the LRA. In terms of the LRA, being dismissed during the probationary period can still be considered as unfair labour practice and the employer can, therefore, be ordered to pay compensation or even to reinstate the worker. This helps explain the perception among many employers that, together with recent reforms in labour regulation, it has now become more onerous to employ people. These perceptions, while they may not be very realistic when one considers the regulatory environment in other countries, do appear to be influencing the behaviour of the economic actors, particularly enterprises, and so may be playing a part in reducing the adaptability of the labour market (at entry). With respect to wage adaptability, a first important consideration is the fact that South Africa has no national minimum wage. Instead, two separate institutions determine minimum wages. Sectoral bargaining councils set minimum wages at an industry level through a process of collective bargaining. In cases where the parties to the agreement are deemed to be sufficiently representative of the industry, the agreement can be extended by the Ministry of Labour to non-signatories (such as to firms that are not part of the bargaining council). The second institutional mechanism, which applies to areas not covered by bargaining councils, is the Employment Conditions Commission (formerly the Wage Board), which makes “sectoral wage determinations” for certain industries. Both mechanisms take sectoral and regional conditions into account. Some wage differentiation is occurring because of these wage-setting mechanisms. In the clothing industry, for example, while bargaining councils may set wages in certain regions (mostly urban areas), many clothing firms operating in the former Bantustans are covered by determinations. The result is a considerable wage differential between the negotiated R327 per week for a machinist in the main urban centres and the R81 set for areas such as Phuthaditjhaba, where the determination is applied (Nattrass, 1998; Baskin, 1998b). 82

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The growing incidence of subcontracting arrangements has introduced an additional element of flexibility in wages and employment. Even when wages in subcontracted enterprises are similar to those offered by core firms, non-wage benefits and employment security are often more limited. More generally, increased international competition may exert pressure on wagesetting mechanisms, highlighting the trade-off between employment security and wage protection at the bottom end of the labour market. The Task Team set up to investigate the impact of the BCEA on small businesses recently recommended a downward revision of a small number of BCEA conditions for those firms employing fewer than ten people. A report prepared for the Task Team by the Ntsika Enterprise Promotion Agency (1998) contains a series of international comparisons, referring to overtime pay, holidays, maternity leave, working hours, and so on. It confirms the findings of this study that the new South African law is not out of line by international standards: no country, with the exception of the Republic of Korea, has generalized exemptions for small businesses. According to the report’s assessment, only some sectors (mostly services) are likely to be affected by the new law. The study provides estimates of the possible impact on labour costs of the implementation of the BCEA: labour costs may rise by up to 10 per cent in certain sectors, though the estimated rise (if any) is much less in most other enterprises. So, permitting a downward revision in some aspects of the new regulations (but no general exemption) would appear to be a reasonable approach to attain the twin goals of adaptability and protection. Wage differentials seem to be responding to labour market conditions. An analysis of average wages for workers in elementary occupations, by province, shows that there is some association between wages and the regional unemployment rate. This association is especially strong when urban unemployment rates, rather than total unemployment rates, are considered (figure 25). Skill shortages, together with inadequate patterns of work organization, are among the main obstacles to functional adaptability. Although further research on this issue needs to be done, one recent study suggests that firms are continuing “to meet the demand for product diversity with a production system geared towards product standardization” (Kaplinsky and Morris, 1999).

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Figure 25

Mean wages for elementary occupations and unemployment rates by province

A. Total unemployment rate, 1996 Rand Mean wages, elementary occupations

1200 1100

Gauteng

1000 900

Western Cape

KwaZulu-Natal North-West

800 700 600

Eastern Cape

Northern Cape

Northern Province

Mpumalanga Free State

500 400 0 10 20 Total unemployment rate (1996)

30

40

50

60

B. Urban unemployment rate, 1995

Mean wages, elementary occupations

Rand 1200 1100

Gauteng

1000 900

KwaZulu-Natal Western Cape

800 700

North-West

Eastern Cape Northern Cape

Northern Province

600

Mpumalanga Free State

500 400 0 5 10 15 Urban unemployment rate (1995)

20

25

30

35

40

Notes: Wage data were kindly provided by Stats SA, based on raw data from the October Household Survey, 1996. They include employees aged 15 to 65. The questionnaire provides for wage brackets rather than actual wages. Those who said they received zero wages were excluded. The unemployment rates correspond to the expanded definition (see Part I), and have been taken from the Census 96 for the total unemployment rate and from the October Household Survey, 1995, for the urban rate. Sources: Stats SA (1998b); October Household Survey, 1995 and 1996.

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Collective bargaining In an era of globalization, collective bargaining can be an efficient means of taking into consideration market realities and facilitating adjustment.10 In South Africa, collective bargaining exists at the enterprise (workplace forums and other, often informal, bargaining mechanisms), industry and sector (bargaining councils) levels, while NEDLAC handles coordination at national level. Minimum standards and conditions are often set at an industry level. Improvements to these standards and conditions and issues related to productivity and work flexibility are negotiated at the plant level (Macun, 1997). This enables both industries and firms to facilitate adjustment through negotiation. Collective bargaining at the sectoral level has been strengthened by the new legislation11 – the Ministry of Labour can now extend sectoral agreements to nonparties.12 This would appear to go against the current trend of decentralizing collective bargaining in the face of globalization. The main argument behind the link between globalization and the decentralization of collective bargaining is that the increase in competition enhances the interest of employers to take measures concerning their internal labour market without being bound by rules and standards imposed on them from higher levels. Employers and governments thus often see a devolution of collective bargaining to the enterprise level as an increase in labour market flexibility (Gladstone, 1998). An influential study by Calmfors and Driffill (1988) claimed that there was a “U-shaped relationship” between the degree of centralization in collective bargaining and economic outcomes – that is, systems dominated by bargaining at enterprise and national levels perform better than those dominated by sector-level bargaining.13 However, the OECD (1997) found no evidence for the U-shaped relationship in its recent major study on this issue. The only robust result of econometric estimates was that centralized systems are correlated with lower degrees of income inequality. Thus, no conclusive a priori lessons are to be drawn from comparative international evidence on the superiority of one type of collective bargaining over another, in terms of both economic efficiency and labour market outcomes. This calls for more country-specific empirical analysis on the issue. Several remarks can be made in the case of South Africa: • It is difficult to quantify the coverage of registered (and extended) collective agreements. Official data are difficult to interpret, given that many agreements may take time to register or may cover more than one year. Figures for the National Association of Bargaining Councils (NABC) and non-NABC members give a more accurate reflection of the number of © ILO 2001

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Table 22

Collective bargaining coverage in the non-agricultural sector, 1993–97

Calendar year

1993

1994

1995

1996

1997

Registered collective agreements in the private sector Registered agreements Employers involved Workers covered

163 20 702 313 572

156 23 745 353 634

124 50 194 823 823

139 70 387 810 589

147 53 636 775 583

Bargaining coverage (coverage rates in parentheses) Private-sector bargaining councils NABC coverage1 Non-NABC coverage (% of private sector employment2,3)

765 800 737 800 28 000 (26.5)

731 100 703 600 27 500 (25.6)

783 700 755 700 28 000 (27.0)

925 846 895 846 30 000 (32.7)

886 900 857 900 29 000 (32.0)

Chamber of Mines (% of mining employment)

386 653 (62.4)

391 288 (64.4)

377 017 (63.5)

342 439 (60.4)

322 025 (58.6)

Total private sector (Bargaining councils + Chamber of Mines) 1 152 453 1 122 388 1 160 717 1 268 285 1 208 925 (% of total private-sector employment)3 (32.9) (32.4) (33.2) (37.3) (36.4) Transnet (% of Transnet employment)

134 331 (101.8)

112 735 (96.9)

109 972 (95.6)

107 281 (95.6)

104 105 (96.6)

Other public sector4 (% of public-sector employment3,5)

n.a. (n.a.)

n.a. (n.a.)

n.a. (n.a.)

n.a. 1 250 000 (n.a.) (71.2)

Total coverage (% of total employment)3

n.a. (n.a.)

n.a. (n.a.)

n.a. (n.a.)

n.a. 2 563 030 (n.a.) (49.0)

n.a. = figures not available. 1 Active employees for National Association of Bargaining Councils (NABC). 2 Excluding mining. 3 Employment refers to the formal business sector only. 4 The Public Sector Bargaining Council (PSCBC) was established in October 1997. Before that date, no central chamber for the public sector existed and data on collective bargaining coverage are not available. 5 Excluding Transnet. Sources: ILO Task Force, based on data from the Department of Labour: Annual Report, 1997, the NABC, Transnet, Chamber of Mines for bargaining coverage, and SARB; Stats SA for employment.

active employees covered by bargaining councils (i.e. those who pay contributions for benefits provided by bargaining councils, such as medical aid and pensions). Coverage of collective bargaining as a share of total formal employment estimated on this basis for 1997 is 49 per cent when the public sector is included and 36.4 per cent for the private sector alone (table 22). When compared with other middle-income countries, this figure is relatively high (table 23). Given that many agreements can be extended to non-parties by the Ministry of Labour, coverage is likely to be higher. 86

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Policy issues

Table 23 International comparison of collective bargaining systems Country/territory

South Africa Argentina Brazil Chile Korea, Rep. of Malaysia Mauritius New Zealand Poland Spain Thailand Uruguay Venezuela Taiwan, China

Proportion of employees covered by collective agreements (%, year)1

Existing bargaining levels over past 10 years

Dominant bargaining levels over past 10 years

49.0 (1997) 72.9 (1995) n.a. 11.5 (1997) n.a. 2.6 (1995) 40.0 (1995) 23.1 (1995) n.a. 82.0 (1996) 26.7 (1995) 21.6 (1993) n.a. 3.4 (1995)

N/S, C N/S, C N/S, C C N/S, C C N/S, C N/S, C N/S, C N/S, C C N/S, C N/S, C n.a.

N/S, C N/S N/S C C C N/S, C C C N/S C N/S C n.a.

Trend over past 10 years N/S

C

Increase Stable Increase Does not apply n.a. Does not apply Increase Decrease Decrease Increase Does not apply Stable Decrease n.a.

Increase Increase Increase Increase n.a. n.a. Stable Increase Increase Increase Increase Increase Increase n.a.

C = company/plant level; n.a.= figures not available; N/S = national/sectoral level. 1 Collective bargaining coverage rates are measured as the proportion of employees covered by collective agreements in the formal sector. The figure for South Africa takes into account the number of workers in enterprises covered by bargaining councils. Sources: ILO (1997); ILO (2001); and table 22.

• While the possibility of extending bargaining results to non-parties exists in many countries, the practice is seldom as automatic as it is in South Africa. This “extension” mechanism may encourage employers to bargain wages collectively at an industry level so as to account for unfair competition due to exploitative labour costs. A comparative study (OECD, 1994) suggests that the very existence of such extension provisions is likely to encourage membership of employer associations. Union density has, however, decreased in countries where such provisions have been used extensively, because there are fewer incentives for individual workers to join unions when they are automatically covered by agreements in any case. This does not appear to be the case in South Africa, but the degree of centralization of collective bargaining is likely to be higher than it would have been had these extension provisions not existed. © ILO 2001

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• Many commentators have complained that this extension mechanism is responsible for making the labour market inflexible. An exemption mechanism does, however, exist. In 1996, 80 per cent of those exemption requests were granted.14 Most firms applying for exemption are medium to large in size, and do so usually on the basis of demarcation issues or because they want to opt out of part of the agreement (such as hours of work). • Anecdotal evidence suggests that smaller firms are evading registration and compliance, and are only applying for exemption when a complaint has been lodged with the bargaining council. Thus, while extension mechanisms are intended to provide some flexibility within the industry, non-compliance rather than application for exemption seems to be the preferred route of small businesses. This presents challenges for ensuring minimum standards within an industry. More research needs to be done into this issue. • The ongoing success of bargaining councils is important as they play a crucial role in setting minimum criteria, but also because they participate in the provision of other social services through the pension, medical and other social funds they operate (the burden of these services would otherwise fall on the State). The promotion of sectoral bargaining has more recently resulted in a process of amalgamation of regional or subsectoral bargaining councils in the clothing, chemical and electrical sectors, with similar developments afoot in other sectors. • The LRA enables bargaining councils to design different models for sectoral collective bargaining, depending on the nature of industrial organization that exists in a particular sector. Sectoral bargaining councils may thus evolve to include different chambers or subsectoral agreements. However, the recent near-collapse of the third regional building industry bargaining council in the space of three years is a sign that bargaining councils may be more suited to industries where businesses are relatively homogeneous.15 For collective bargaining to be an efficient way of facilitating adjustment, there need to be strong labour market institutions and effective dispute resolution mechanisms, both of which are well established in the South African labour market (table 24). Political change was associated with a marked drop in the number of work-days lost to strike action between 1994 and 1997. In 1998, however, industry witnessed a dramatic increase in the number of workdays lost, although these levels were still below those recorded in the previous labour-relations regime (Baskin, 1998c). Increased competitive pressures aggravated by the high levels of inequality, previous double-digit rises in inflation, rising productivity levels and continued high expectations concerning wage increases may be creating a new source of tension in South Africa. 88

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Table 24

Labour market institutions, 1993–971 1993

1994

1995

1996

1997

Registered unions (LRA) 201 213 248 334 417 Members 2 890 174 2 470 481 2 690 727 3 016 933 3 412 645 Estimated unregistered union members 382 594 488 986 595 379 261 428 133 088 Total union membership 3 272 768 2 959 467 3 286 106 3 393 238 3 545 733 Total formal sector employment2 5 312 206 5 284 039 5 312 206 5 312 206 5 227 706 Union density (%) 61.6 56 61.9 63.9 67.8 Employer organizations 195 191 188 196 258 Bargaining councils 86 86 80 77 76 During 1997 most unregistered unions and a number of public service unions were registered, hence the dramatic increase in registered union members for 1996 and 1997. 2 Excludes agriculture.

1

Sources: ILO Task Force, based on data from the Department of Labour: Annual Report (1997), Public Sector Bargaining Council (PSBC), various other sources (for trade union membership) and SARB (for employment).

Social dialogue at national level NEDLAC has contributed greatly to achieving nationwide agreements on development strategy in general and labour market legislation in particular. Given the high risk of social unrest in South Africa due to the country’s high unemployment levels, the possible costs in terms of delays have to be weighed against the risk of social and political upheaval in the absence of a strong national-level institution for social dialogue. A Presidential Job Summit, involving all the stakeholders (business and labour representatives and the relevant government departments), took place on 30 October 1998 to discuss employment creation and develop an employment strategy. A number of agreements emerged from the Summit between the social partners on industrial policy measures, human resource development, special employment programmes and better-coordinated and directed infrastructural programmes. Sectoral summits were proposed to advance further the commitments made and agreements reached at the Summit. Although issues relating to labour market regulation were not discussed, the Deputy President’s Office agreed to look into them.

Conclusion Although it is still too early to assess how successful the recent labour market reforms in South Africa will be in creating employment in a globalized © ILO 2001

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economy, the strong emphasis on social dialogue at different levels stands out as a key feature of the strategy. And it is also understood that excessively protective employment regulations could have unintended negative consequences on employment creation and on the capacity of enterprises to adapt. In this context, it is important to stress that existing regulations do not appear to be especially stringent by international standards.

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D. THE SOCIAL SAFETY NET

South Africa’s integration into the global economy will most likely involve the dislocation and exclusion from the formal economy of the country’s least skilled and most economically vulnerable workers. Adequate social security nets need to be designed to: (a) provide some form of social protection to deal with problems in the labour market; and (b) facilitate the adaptability of the labour market by providing transitional benefits combined with active labour market policies. These two areas encompass measures such as welfare and unemployment benefits. Welfare expenditure accounts for 10 per cent of the government budget. Ninety per cent of welfare spending is allocated to social security in the form of old-age pensions, benefits for the disabled, child care, maintenance grants and social relief. Pensions account for 60 per cent of the social security budget (May et al., 1998). A notable feature of the White Paper on Social Welfare is the shift to “developmental social welfare” – helping people to help themselves. However, this objective appears to be thwarted by budgetary constraints.16 An Unemployment Insurance Fund (UIF) is in place. Unemployment benefit (the equivalent of 45 per cent of the insured wage) is payable for a maximum of 26 weeks. A number of problems have been identified with the Fund (see Standing, Sender and Weeks, 1996): • The benefit provides inadequate levels of income for low-paid workers, which has led some commentators to recommend introducing a minimum income floor for the unemployed rather than the current 45 per cent rule. • The coverage of the Fund is limited. Many employers have been reluctant to register workers with the UIF. Furthermore, the UIF does not cover individuals who have never been in employment, or casual workers and domestic workers who have just lost their jobs.17 Many of the poor are also excluded as they work outside the formal sector. The system has been © ILO 2001

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criticized as only being of use to a minority of relatively privileged workers.18 • The Fund is in financial difficulty.19 • The system is not adequately linked to other labour market policies, particularly in respect of reskilling and recruitment systems. In view of these considerations, it looks as if the Fund should be reformed and that coordination with other social and labour policies should be improved.20 Several other proposals have been put forward to help workers displaced as a result of industrial restructuring. The CLMC, for example, has called for a Social Plan, which includes the following recommendations: • Unions and enterprises going through the process of sectoral or firm restructuring should share information. • Retrenchment procedures should contain a minimum notice period, thereby allowing for the counselling and retraining of affected workers. Retraining schemes should be designed in such a way that they strengthen future earning potential through employment or income-generating opportunities. • A Social Plan Fund should be established to finance these training, counselling and employment or income-generating initiatives (RSA, 1996b). A Social Plan Technical Support Facility will be established under the now renamed Social Plan and Productivity Advisory Council to implement this strategy.21 The Plan also aims to facilitate arrangements for workers who want to use retrenchment packages as collateral for business loans. As such, retraining and counselling initiatives envisaged by the Plan may be more appropriately targeted at the skills required for SMME development.

Conclusion In reviewing the country’s existing social safety net, South Africa needs to look at a number of practicable options and models to ensure that an effective, coordinated and comprehensive social security system is implemented. Adequate welfare systems for the most vulnerable groups are just one side of the equation. If a comprehensive system that assists displaced workers and facilitates labour market mobility is to be put in place, there needs to be more recourse to active labour market policies.

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Notes 1 Between

July and September 1998 the value of 28 black-controlled firms listed on the JSE fell by some R20 billion. This had a severe impact on the financing of many of the black economic empowerment deals, which are now regarded as especially vulnerable (Businessmap SA, 1998b). 2 For example, in Zimbabwe, South Africa’s largest trading partner in the region, the inflation rate exceeds 30 per cent and commercial lending rates are 40 per cent. In 1998 Zimbabwe’s trade flows were cut by a fifth compared with a year earlier (Weekly Mail, 6–12 Nov. 1998). 3 Bhorat, Deiden and Hodge (1998) have noted that the increasing capital intensity and the shift to microelectronics in all sectors have resulted in growing demand for skilled professionals and technicians to develop and operate new technology. They also found that changes in production methods had a larger effect on occupational distribution than structural changes in the economy. 4 “The RDP is rooted in a strong commitment to employment creation, to fair remuneration and working conditions, to industrial democracy, and to the elimination of racial and gender-based discrimination in the labour market [...]. This Commission is charged with developing the labour market policies necessary to meet the RDP’s employment-related objectives and that are consistent with the requirements of productivity enhancement and macroeconomic stability” (RSA, 1996b: III). 5 For an assessment of the political economy of the reform process, see Baskin (1998a). 6 In particular, the Labour Court, Labour Appeal Court, Commission for Conciliation, Mediation and Arbitration (CCMA) and an Essential Services Committee. The reforms were mostly enacted through a new legislative framework, which included the Labour Relations Act (LRA) 66 of 1995, the Basic Conditions of Employment Act (BCEA) 75 of 1997, an Employment Equity Bill and the new Skills Bill. 7 Freedom of Association and Protection of the Right to Organize Convention, 1948 (No. 87); Right to Organize and Collective Bargaining Convention, 1949 (No. 98); Forced Labour Convention, 1930 (No. 29); Abolition of Forced Labour Convention, 1957 (No. 105); Discrimination (Employment and Occupation) Convention, 1958 (No. 111). 8 Indeed, the CLMC report opens with the following statement: “Labour market policy was, arguably, the centrepiece of apartheid’s mechanism of social control and its economic growth strategy. Poverty, discrimination and inequality were the hallmarks of its workings and consequences” (RSA, 1996b: IX). 9 In South Africa, this notion of balance is referred to as “regulated flexibility”. 10 For example, see Hayter (1998). 11 LRA 66 of 1995 – see Ch. I: Purposes of this Act(d)(ii). 12 Chapter III (C)(32) of the LRA 66 of 1995 establishes a procedure for the extension of collective agreements concluded in bargaining councils. The bargaining council must apply to the Minister for extension of the collective agreement concluded in the bargaining council to any non-parties to the collective agreement that are within its registered scope. Parties must be deemed to be representative of the majority of employees employed within the registered scope of the bargaining council. A procedure must also be established to grant exemptions from the collective agreement to non-parties. 13 The theoretical explanation for this behaviour would be that at enterprise level negotiating parties lack monopoly power to push through economically unreasonable demands, while at national level the negotiating parties will at the same time be negatively affected by the consequences of exaggerated demands, thus leading to more responsibility in negotiating. According to this logic, sector-level bargaining is the “worst of both worlds”. 14 This figure refers to the bargaining councils affiliated to the NABC. 15 The building sector is no longer homogeneous. It encompasses, at the one extreme, major construction companies and, at the other, small, unorganized companies doing minor renovations and subcontracting work. Non-wage social funds add roughly 30 per cent to the wage bill. If these types of bargaining councils are to succeed, they will have to offer members increasingly flexible options. 16 In respect of pensions, which take the form of direct cash transfers to the elderly in South Africa, Case and Deaton (1998) found that the social pension was an effective redistribution tool in that it reached predominantly poor households. Because so many of the elderly among South Africa’s African population live with their children, the social pension was also considered to be an important means of transferring money into poor households with children. 17 Farmworkers are now covered if their employers register them as they are legally obliged to do. 18 The Department of Labour estimates that between 4 and 5 million employees are covered by the Fund, with an estimated 1 million employees having claimed benefits during 1997. A total of 300,000 employers are registered with the Fund. (Source: Department of Labour.) 19 For example, in 1997, contributions declined by 42 per cent while benefits increased by 17 per cent. (Source: Department of Labour.) 20 A report on the restructuring of the UIF was released in December 1998. However, the report (which was completed in 1996 and included a draft Unemployment Insurance Amendment Bill, 1988) focuses mostly on the coverage and financing of the Fund rather than considering an appropriate coordinated social safety net. 21 Details of which were agreed at the tripartite Job Summit held under the auspices of NEDLAC in October 1998.

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CONCLUDING REMARKS

This conclusion discusses the general issues related to the sustainability of the globalization process in South Africa. Firstly, the experience of the ILO Task Force country studies on the social dimensions of globalization suggests that, despite the considerable differences between the seven countries examined, the following four policy pillars appear to be critical: • The ensuring of core labour standards. In order to maintain the link between social progress and economic growth, guaranteeing fundamental principles and rights at work is of particular significance in the context of globalization. This includes the ratification of the seven ILO core Conventions and, even more importantly, a careful follow-up of the progress of and main obstacles to trade liberalization. • The skills enhancement of the labour force. Given that a skilled workforce is a crucial asset for social and economic development in the era of globalization, policies need to foster training initiatives, overcome disincentives for enterprises to train their own employees (because of the so-called “free-riding” problem) and narrow the gap between the training being offered and the jobs available. • The existence of an adequate social safety net. Those who have been displaced from employment as a direct or indirect consequence of globalization need to be protected and supported in their efforts to find new work. For example, there could be some form of coordination between unemployment benefits and training policies or business set-up programmes. • Adaptable labour regulations. These are needed to provide a sufficient degree of labour market adaptability, while also ensuring adequate protection for workers. © ILO 2001

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Secondly, several issues call for more research to be undertaken in order to understand fully the social impact of globalization in South Africa, and to revise the country’s policies accordingly. For instance, although this study raises several hypotheses as to why the changes in industrial policies and trade liberalization have not caused a shift towards a more labour-intensive development path (see Part II), the report has not been able to reach any firm conclusions on this issue. Given that the import-liberalization programme was accompanied by the elimination of export-incentive schemes, a more detailed analysis of the changes in the incentive structure would also be useful. Furthermore, an analysis of the response to globalization within sectors would help explain whether efforts to diversify and to improve the quality of production are taking place, and whether more labour–management dialogue would help. Finally, the short period of time that has elapsed since the start of the importliberalization programme (in 1994) makes the analysis carried out in this study inevitably preliminary in nature. Careful monitoring of the situation and further studies are, therefore, still necessary. Thirdly, the situation in South Africa is unique in that the country has been undergoing enormous political, social and economic change since the end of apartheid. Given the legacy of apartheid, it can be stated that this transformation process has so far been relatively successful. However, the situation in certain areas remains worrying, particularly with regard to unemployment and rising levels of crime. More generally, there seems to be a growing feeling of disenchantment among certain segments of the population, who expected rapid improvements in their living conditions after so many decades of social and political segregation. There are two particular dangers here. On the one hand, some experts may consider these problems or “costs” as merely transitory, and so may advise authorities to pay little attention to them, since the “costs” will, anyway, be wiped out in the long term. The disadvantage with this “free-tradeno-matter-what” view is that it could undermine public support for the liberalization process, with the result that the long term never materializes. On the other hand, others may favour returning to past protectionist policies, because an independent economic policy is, arguably, more conducive to job creation. It is doubtful, however, whether such measures would provide anything other than a temporary respite, and they would probably aggravate the situation in the medium to long term. Instead, by placing job creation at the centre of the policy agenda, the South African Government and the social partners are continuing the transformation process, while addressing the country’s most pressing social demands. The task facing South Africa is immense, but there is no doubt that the existence of institutions that encourage dialogue should prove an asset in formulating innovative solutions. 96

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ANNEX I

THEORETICAL AND EMPIRICAL APPROACHES TO THE ASSESSMENT OF THE IMPACT OF TRADE LIBERALIZATION This annex: (a) presents the theoretical perspectives chosen for the assessment of the social impact of trade liberalization; and (b) explains the methodology and data used for the econometric estimates.

Theoretical perspectives Trade liberalization can help raise national welfare. This can occur because trade allows a country to exploit its comparative advantage. As figure A1 shows, the Figure A1

Output and consumption effects of freer trade p' Ql Bc

p F A

B

F' Qk Note: It is assumed here that trade liberalization leads to a fall in the price of the hypothetical labour-intensive good relative to the price of the hypothetical capital-intensive good (from p to p'). Ql and Qk designate, respectively, output of the labour-intensive and capital-intensive goods and point A gives the maximum level of output and consumption of both goods, which is consistent with initial relative prices (p). Point B gives the maximum level of output consistent with the level of relative prices (p') emerging after trade has been liberalized. Point Bc represents national consumption of both goods in the presence of free trade. It appears that Bc is on a higher indifference curve than A, illustrating the benefits arising from trade for the country as a whole. In addition, in the presence of scale economies, the production possibility frontier (FF') will shift to the right, further raising the benefits from trade. © ILO 2001

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Figure A2

The impact of freer trade on output and employment when relative wages are fixed

Panel A.

Output changes along the Rybczynski line Ql A

B

Rybczynski line

Qk

Panel B.

Emergence of unemployment L

Ql

Unemployment Ua

Ub

Qk

Kb Ka K

shift in trade prices associated with trade liberalization encourages specialization in the production of the good that uses more intensively the abundant factor of production – capital in this case. Production moves from point A to point B'. Consumption shifts from point A to point B, suggesting an increase in the real income and welfare of the country. If, in addition, specialization leads to economies of scale, the production possibility frontier FF ', moves upwards, further raising real incomes and national welfare. However, when wages do not adjust and/or employment does not shift from declining sectors to expanding ones, the welfare effects arising from trade are somewhat different from those depicted in figure A1. In particular, since employ98

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Annex 1

ment is assumed to be immobile across sectors and capital to be fully utilized, output moves along the so-called Rybczynski line (figure A2, panel A). In other words, the economy does not operate on the production possibility frontier. The employment consequences are shown in figure A2, panel B. Compared with the initial employment situation, the capital stock continues to be fully utilized (the sum of the capital stock at Ub and Kb equals that at initial equilibrium points, Ua and Ka). By contrast, the loss of employment in the labour-intensive sector is not compensated for by higher employment in the capital-intensive sector. As a result, unemployment grows.

Econometric estimates: methodology and results In order to assess the extent to which trade and technology have contributed to explain employment trends, an econometric equation has been estimated. The equation includes sectoral employment, specified in log-level terms, as a dependent variable, and trade variables and proxies for technological change as explanatory variables. The explanatory variables are: (a) import penetration (the ratio of imports to domestic demand); (b) export intensity (the ratio of exports to output); (c) investment intensity (real fixed capital formation as a ratio of output); and (d) a time trend. The analysis also includes fixed effects in the form of a different constant term for each sector. Equations have been estimated using OLS techniques with fixed effects, based on pooling data. The data set used for the estimation covers the years 1993 to 1997, a period characterized by a decisive acceleration of trade reform and outward import liberalization from 1994 onwards. The data include manufacturing subsectors at a 3-digit level of the Standard Industrial Classification. For more details on data sources, see Annex 2. Estimation results are presented in table A1, overleaf. As shown in panel A, both the time trend and investment intensity appear to shape sectoral employment patterns. The coefficient on the time trend is negative and significant. It could be interpreted as evidence that, in the presence of disembodied technological change, employment falls by 0.16 per cent per year. The coefficient on the investment intensity variable is positive and suggests that a percentage-point increase in the investment–output ratio would raise employment by 0.3 per cent. In panel B, trade variables are added to the equation. Export intensity appears to reduce employment, suggesting that the increased competitive pressures on South African exporters may have translated into a rightsizing of the production system. The coefficient on the import penetration variable is positive but statistically insignificant, which could be interpreted as evidence that there is no direct link between import penetration and job losses. © ILO 2001

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Table A1

Sectoral employment determinants: econometric results; dependent variable: employment (in log-level terms)

Panel A.

Explanatory variables: Technological change

Intercept Time trend Investment intensity

Panel B.

Coefficient

t-statistic

34.5** –1.6E-02** 3.0E-02*

4.8 4.5 2.0

Explanatory variables: Technological change and trade Coefficient

Intercept Time trend Investment intensity Export intensity Import penetration

33.2** –1.57E-02** 2.63E-04* –3.17E-03** 3.81E-03

t-statistic

3.7 –3.5 1.7 2.1 1.3

Note: The equations were estimated using the GLS function of SPSS, with fixed effects. A “*” indicates that the coefficient is significant at the 10 per cent level (5 per cent level in the case of “**”). According to the F-statistic, the equation is statistically significant. Source: ILO Task Force.

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ANNEX 2

DATA SOURCES

The analysis presented in this study depended crucially on the availability of reliable statistics. Much effort went into obtaining data from different sources, harmonizing them and then making corrections for any changes in methodology and other shortcomings of the original statistics. This annex documents the sources and adjustments made to the data used in Part II. In most cases the data available covered only the so-called “formal business sector”. Since the data come from establishment surveys, unregistered enterprises and most self-employed people were, by definition, excluded. It is clear that the impact of globalization in terms of economic performance and employment is, of course, not restricted to the formal sector. However, no coherent time series for the informal sector with a sufficient degree of reliability and disaggregation exist for the period of analysis. Although the October Household Survey has employment data for 1994–97, which includes the informal sector, the sectoral disaggregation is far from satisfactory. Indeed, employment is disaggregated at 1-digit Standard Industrial Classification (SIC) level only, whereas more detailed statistics are needed to carry out empirical research. Moreover, many respondents to the survey failed to answer the question on the economic sector, which again makes the data far from reliable. Within manufacturing, most data are available for subsectors at a 3-digit SIC level, which allows for a detailed empirical analysis. Thus the core of the analysis in Part III of the study refers to manufacturing subsectors. The main data sources for manufacturing subsectors can be summarized as follows (see table A2 for more details): • Employment data come from the DTI, based on Stats SA. The ILO Task Force corrected the data for the break caused by the incorporation of former “homeland” territories from January 1996. This was done by calculating the employment variation between 1995 and 1996 as a composite variation of © ILO 2001

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Annex 2

•

• • •

•

102

(a) the variation between the year average 1995 and December 1995, and (b) the variation between January 1996 and the year average 1996. Production (gross output) data were provided by the IDC and are derived from an index of volume of production. The original data are in 1993 prices; the producer price index by sector of Stats SA was used for the conversion to current prices. Export and import data come from the DTI, based on Stats SA. Current price data were deflated by the producer price index by sector of Stats SA. Monthly salaries and wages come from Stats SA statistical releases. Real wages were calculated using the consumer price index from SARB. Data for capital expenditure on new assets come from Stats SA statistical releases and were deflated using the fixed investment price index by sector from SARB. Labour productivity is defined as the ratio of gross output to employment.

© ILO 2001

© ILO 2001

Stats SA

Producer price index (PPI)

Stats SA

SARB: Quarterly Bulletin, June 1998

Agriculture: Southern African Development Bank, standardized employment series Mining and rest of the economy: SARB

Capital expenditure on new assets

Value added

Employment

Utilization of production DTI based on Stats SA capacity

Production (gross output) IDC

Sources

Statistics: Sources and definitions

Indicator

Table A2

Agriculture: no data available for 1997.

(cont’d)

Value added data were used to estimate gross output and labour productivity for agriculture and the “rest of the economy”.

Available only for manufacturing (see text).

• Only the output of South African industry groups is used to compute the PPI. Data are yearly averages for 1993 to 1996, and monthly statistics for 1997 (December) and 1998 (August). • Data for basic chemicals and other chemicals are not available separately and both PPIs were assumed to be equal to the chemicals’ total. Unlike other series, in the case of the PPI, the sector “other manufacturing” excludes tobacco. • The PPI for the “rest of the economy” was assumed to be equal to that of the total economy.

Remarks

Annex 1

103

Agriculture: WEFA Mining: Stats SA Rest of the economy: calculated from Stats SA

See sources for employment, gross output (manufacturing), value added (agriculture and rest of the economy) and volume of physical production (mining)

Monthly salaries and wages

Labour productivity

• Given that value added data are not available for manufacturing sectors at 3-digit level, labour productivity is defined as gross output per employed person. Data on gross output are available only for manufacturing. For the other sectors, value added per employed person was used to estimate productivity. • In the case of mining, the index of physical production (source: DTI, based on Stats SA) was used instead of value added in order to exclude the impact of short-term price fluctuations for mining products.

• Agriculture: no data available for 1996 and 1997. • Manufacturing: no data available separately for the sectors “industrial chemicals” and “other chemicals”. • Non-metallic mineral products include pottery. • Real wages were calculated by using the consumer price index (source: SARB).

• Exports and imports in constant prices were calculated by deflating current price data with the producer price index for each sector. • “Rest of the economy”: no data available for 1997.

Remarks

Notes: (1) Annual data were collected from 1993 to 1997, unless otherwise specified. (2) Tobacco and pottery are usually included in “other manufacturing”. “Other manufacturing” products were excluded from the calculation of the data for the manufacturing subsectors. (3) Non-manufacturing sectors consist of “agriculture” (agriculture, forestry and fishing), “mining” (mining and quarrying), and other sectors (namely electricity, gas and water, construction, wholesale and retail trade, catering and accommodation, transport, storage and communications, finance, insurance, real estate and business services, and community, social and personal services), referred to as the “rest of the economy”.

Agriculture and mining: SARB and IDC Rest of the economy: WEFA

Exports and imports of goods and services

(cont’d)

Sources

Statistics: Sources and definitions

Indicator

Table A2

Annex 2

104

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109

INDEX

Note: Page numbers in bold refer to major text sections, those in italic to figures, tables and boxes. Subscript numbers appended to page numbers indicate an endnote, the letter n a footnote. Concatenated page numbers (eg 17–19) do not necessarily indicate continuous treatment.

Africa 40, 45 see also individual countries African population, inequality with other population groups see racial inequalities agriculture (incl. fishing) 46, 47, 50, 63, 103–4 exports 41, 47, 50, 104 imports 14, 47, 50, 104 see also forestry; rural areas apartheid 29, 31, 96 Argentina 87 Asia 40, 45 see also individual countries Asian population, inequality with other population groups see racial inequalities balance of payments 73 Bangladesh 58 beverages see food and beverages Botswana 19, 22, 30, 30 Brazil 19, 22, 30, 30, 80, 87 capital expenditure 62, 64, 102, 103 capital flows 13, 17, 38, 73 see also investment © ILO 2001

capital-intensive sectors 48, 49, 63, 65 employment 49, 53, 54, 99 intermediate sectors 44, 48, 49, 53, 61 performance 49, 53, 54 prices 60, 61, 97 trade 39–40, 44, 53 capital-intensive specialization 2, 56–7, 57–8, 60, 62, 97, 98 policy issues 69, 72–3 casual employment see temporary employment chemicals 14, 15, 18, 42, 48, 50, 64, 88, 103–4 Chile 13, 19, 22, 30, 67, 81, 87 clothing 12–13, 14, 48, 50, 58, 64, 676, 82, 88 see also textiles collective bargaining 78, 82, 85–9, 86–7, 89 see also wages coloured population, inequality with other population groups see racial inequalities comparative advantage 39–45, 48n, 49, 50–51, 58, 97 111

South Africa: Studies on the social dimensions of globalization

competition policy 73–4 competitiveness 57–8, 59 construction 23, 24, 29, 34, 88 contracts, fixed-term see temporary employment copper 42 data sources 101–4 diamonds 42, 672 disability benefits 91 dismissals 3, 79, 80–81, 82 drinks industry see food and beverages earnings 29, 32, 33 see also income; wages Eastern Cape 84 economic growth 1, 5, 6, 7, 23, 35, 38, 46, 55 education and earnings 32, 33 and gender 27, 28, 31, 31–2 policy issues 3, 76 primary 28, 31–2 racial inequalities 31, 31, 33, 76 secondary 27, 28, 31–2, 33 tertiary 27, 28, 31–2 and unemployment 27, 28 see also skills development; training electrical machinery/equipment 14, 42, 48, 51, 64 electricity 32, 33, 88 employment 21, 23–5, 103 fluctuations 2, 23, 23–4, 25, 25, 46, 47, 49, 52–5, 54–5, 62–5 and gender 27, 33, 34, 79 impact of trade liberalization 2, 37–8, 46–65, 98–9, 98, 100 see also individual subjects non-standard 3, 25, 33–4, 34–5, 80–81, 82 quality 33–4, 78–9, 80–81, 82, 95 racial inequalities 26, 33, 34 rate 26 112

sectoral variation 23, 24 see also individual sectors status 27, 33, 34–5 termination 79, 80–81, 82 energy supply 15, 18 enterprise development 3, 74, 92 enterprise ownership, equal access to 74 equality of opportunity 79 equities 15, 17, 19 EU (European Union) 2, 40, 45 exchange rate 13, 38, 57, 59, 73 export-oriented sectors 46, 48, 49, 52 comparative advantage 49, 50–51 employment 2, 49, 52, 54, 62, 64, 65 policy issues 69, 71–2 productivity 49, 52, 54 wages 49, 52, 54 exports 42, 57 agriculture 41, 47, 50, 104 capital-intensive specialization see capital-intensive sectors/specialization data sources 102, 104 destination 40, 45, 75 flows 15, 16 intensity 62, 99, 100 manufacturing 12, 39–40, 41–2, 44–5, 47, 50–55 mining and quarrying 39, 41, 43, 47, 50, 104 policy issues 11–13, 67, 69 world markets 39, 43 factor intensity see capital-intensive sectors; labour-intensive sectors Far East 40, 45 see also individual countries FDI see investment fertility rate 22 financial policies 72–3 fishing see agriculture © ILO 2001

Index

fixed-term contracts see temporary employment food and beverages 14, 15, 18, 48, 49, 50, 64 footwear 13, 14, 48, 50, 58, 64 foreign direct investment see investment foreign exchange 13, 15, 38, 57, 59, 73 forestry 14, 34, 41 see also agriculture Free State 84 functional adaptability (labour market) 79, 83 furniture 13, 14, 48, 49, 50, 64 garments see clothing Gauteng 84 GDP growth see economic growth gender see men; women Germany 18 glass 48, 51, 64 globalization 11–20 social impact v–vi, 37–68 see also individual subjects; trade liberalization GNP (gross national product) 21, 22 gold 39, 42–3, 672 gross national product (GNP) 21, 22 HDI (Human Development Index) 21 health indicators 21, 22 health and safety at work 33 home work 33, 35 Human Development Index (HDI) 21 illiteracy, adult 22 ILO (International Labour Organization) v–vii, 27, 95 Conventions 79, 95 sources 33–4, 35, 87 Task Force 29, 40–41, 44, 47–8, 50–55, 59, 61, 64, 67, 676, 80–81, 86, 89, 100, 101–2 © ILO 2001

import penetration 62, 99, 100 import-competing sectors 46, 48n, 49 comparative advantage 49, 50–51 employment 2, 49, 52, 62, 64, 64, 65 productivity 49, 52, 54 wages 49, 52, 54 imports 42, 57 agriculture 14, 47, 50, 104 data sources 102, 104 flows 15, 16 manufacturing 12–13, 14, 40, 40, 44, 47, 50–55 mining and quarrying 14, 47, 50, 104 policy issues 11–13, 96 tariffs 2, 5, 12–13, 14, 48, 49, 54, 54–5, 676 income 6, 21, 29–31, 30, 35, 66–7, 98 see also earnings; wages income tax 56, 72 India 58 Indian population, inequality with other population groups see racial inequalities Indonesia 58 industrial policy 3, 5, 12–13, 69, 71–3, 96 industrial relations 78 collective bargaining 78, 82, 85–9, 86–7, 89 trade unions 87, 89, 92 see also labour regulations infant mortality 21, 22 inflation 1–2, 38, 73 initial tariff rates 48, 49, 54, 54 intermediate capital-intensive sectors 44, 48, 49, 53, 61 International Labour Organization see ILO Internet access 19, 19 investment 57, 61–2, 64–5, 71, 99, 100 foreign direct investment (FDI) 2–3, 13, 15, 17–18, 72 113

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securities 15, 17, 19, 37 see also capital flows iron 14, 42–3, 48, 49, 51, 64 Israel 21 Japan 18 Kenya 21 Korea, Republic of 81, 83, 87 KwaZulu-Natal 84 labour costs 58, 59, 83 see also wages labour laws see labour regulations labour market institutions 78, 88, 89 see also trade unions labour productivity see productivity labour regulations 3, 70, 78–83, 80–81, 95 see also industrial relations labour-intensive sectors 2–3, 48, 49, 57, 60, 62, 63, 65, 71–2, 97 employment 49, 53, 99 performance 49, 53, 57–8 prices 60, 61, 97 trade 44, 53 land reform 74–5 leather 14, 48, 49, 50, 64 Lesotho 21 life expectancy 21, 22 machinery 14, 42, 48, 51, 62, 64 maize 42–3 Malaysia 15, 18–19, 22, 30, 87 manufacturing comparative advantage 39–45, 48n, 49, 50–51, 58, 97 data sources 101–4 employment 2, 23, 24, 33, 46, 47, 49, 52–5, 54, 62, 64 exports 12, 39–40, 41–2, 44–5, 47, 50–55 factor intensity 39–40, 44, 48, 49, 53, 57–8, 60, 61, 63 114

foreign direct investment 15, 18 imports 12–13, 14, 40, 40, 44, 47, 50–55 labour costs 58, 59 natural-resource-based sectors 39, 48, 49, 53, 54, 67 productivity 46, 47, 49, 52–5, 54, 57–8, 102 tariff rates 48, 49, 54, 54–5 trade orientation 2, 46, 48, 49, 50–52, 54, 62, 64, 65, 69, 71–2 wages 29, 47, 49, 52–5 Mauritius 19, 22, 30, 87 medicaments 42 men 22, 26, 27, 28, 31, 31–2, 34 metals 14, 42–3, 48, 49, 51, 62, 64 minerals 14, 48, 51, 58, 64, 104 minimum wage 82 mining and quarrying 15, 50, 56, 63, 86 economic performance 46, 47 employment 23, 24, 46, 47, 103 exports 39, 41, 43, 47, 50, 104 imports 14, 47, 50, 104 wages 47, 104 mortality, infant 21, 22 motor vehicles 14, 18, 42–3, 48, 51, 64 Mpumalanga 84 natural-resource-based sectors 39, 48, 49, 53, 54, 67 New Zealand 81, 87 non-agricultural sector 23, 23, 25, 46, 47, 86 see also individual sub-sectors non-standard employment see employment North America 40, 45 see also individual countries North-West 84 Northern Cape 84 Northern Province 84 numerical adaptability (labour market) 79, 82 © ILO 2001

Index

oil 15, 18 opportunity, equality of 79 output 54–5, 97–8, 99, 102, 103 see also productivity paper 14, 48, 49, 50, 64 part-time employment 35 see also employment pearls 42 pensions 91, 9316 petroleum 48, 49, 50, 64 Phuthaditjhaba 82 plastics 14, 15, 18, 48, 51, 62, 64 Poland 13, 19, 22, 30, 87 policy issues v–vii, 1, 3–4, 69–93, 95–6 competition policy 73–4 equal access to productive assets 33, 69, 74–5 industrial policy 3, 5, 12–13, 69, 71–3, 96 labour regulations 3, 70, 78–83, 80–81, 95 regional integration 75 skills development 70, 72, 76–7, 95 social dialogue at national level 3–4, 89 social safety net 70, 91–2, 95 trade reform v–vi, 69, 71–3, 75 see also trade liberalization poverty 21, 22, 27 precious stones 42 prices 58, 60, 61, 97, 98, 102, 103–4 primary education 28, 31–2 see also education printing 14, 48, 50, 64 private sector 23, 24, 28, 28, 34, 63, 86, 86 productivity 23, 25, 27–8, 28, 35, 46, 47, 103–4 manufacturing 46, 47, 49, 52–5, 54, 57–8, 102 see also output © ILO 2001

professional equipment 48, 51, 62, 64 public sector 23, 24, 28–9, 28, 34, 63, 86, 86 public spending 31, 91 publishing 14, 48, 50, 64 quarrying see mining and quarrying racial inequalities 3, 31–3, 32, 96 education 31, 31, 33, 76 employment 26, 33, 34 equal access to productive assets 33, 69, 74–5 health indicators 21, 22 Human Development Index position 21 income 30–31, 30, 35, 66–7 labour regulations 78–9 poverty 21, 22 unemployment 26, 27 wages/earnings 28–9, 29, 32, 33, 66 radio equipment 51 regional integration 75 regulations, labour see labour regulations Republic of Korea 81, 83, 87 rubber 14, 48, 51, 64 rural areas 26, 31 see also agriculture SADC (Southern African Development Community) 2, 75 salaries see wages savings, domestic 65 secondary education 27, 28, 31–2, 33 see also education sectoral classification 46, 48, 49, 50–51 self-employment 25, 34 see also employment semi-precious stones 42 services 23, 24, 28–9, 29, 63 shares (stock market) 15, 17, 19 115

South Africa: Studies on the social dimensions of globalization

shoes 13, 14, 48, 50, 58, 64 skilled labour, shortage 3, 57, 67, 72 skills development 70, 72, 76–7, 95 see also education; training social dialogue at national level 3–4, 89 social impact of globalization see globalization social progress indicators 21–35 see also individual indicators social safety net 33, 70, 91–2, 95 South Africa see individual subjects Southern African Development Community (SADC) 2, 75 Spain 81, 87 steel 14, 48, 49, 51, 64 stock market 15, 17, 19 strikes 82, 88 subcontracting 33, 3613 14, 83 sugar 42–3 Swaziland 21 Taiwan, China 87 tariffs see imports taxation see imports (tariffs); income tax taxis 25 technological change 19, 19, 60–62, 65, 67, 99, 100 telecommunications 15, 18, 365 telephones, private 32, 33 television equipment 51 temporary employment 3, 33–4, 34–5, 80–81, 82 see also employment termination of employment 79, 80–81, 82 tertiary education 27, 28, 31–2 see also education textiles 13, 14, 48, 50, 58, 64, 64 see also clothing Thailand 19, 22, 30, 87 tobacco 13, 14, 51n, 103 trade flows see exports; imports 116

trade liberalization 2–3, 5, 7, 11–13, 46–65 policy issues v–vi, 69, 71–3, 75 review of relevant literature 55–8 theoretical/empirical assessment 58–63, 97–100 see also globalization; individual subjects trade openness 16 trade orientation see export-oriented sectors; import-competing sectors trade unions 87, 89, 92 see also industrial relations; labour market institutions training 76–7, 92, 95 see also education; skills development transport equipment 13, 14, 48, 51, 64 UN (United Nations) 21, 58 unemployment 2–3, 7, 21, 55, 98, 99 benefits 91–2, 95 and education 27, 28 and gender 26, 27, 28 racial inequalities 26, 27 rate 1, 25–7, 26, 28, 35, 57, 83, 84 urban areas 26, 83, 84 and wages 83, 84 unions see trade unions United Kingdom 15, 18 United Nations (UN) 21, 58 United States 15, 18, 58, 59 university education see tertiary education urban areas 26, 30, 31, 82–3, 84 Uruguay 81, 87 value added 25, 47, 103–4 Venezuela 19, 22, 30, 87 vocational training see training wages 27–9, 28, 57–8, 98, 98 adaptability 79, 82–3 © ILO 2001

Index

data sources 102, 104 differentials 28–9, 29, 34, 66, 82–3 fluctuations 27–8, 28, 55, 58 minimum 82 sectoral 28–9, 28–9, 47, 49, 52–5, 54, 82, 104 and unemployment rate 83, 84 urban areas 82–3, 84 see also collective bargaining; earnings; income; labour costs water supply 32 Western Cape 84

© ILO 2001

white population, inequality with other population groups see racial inequalities women 22, 32 education 27, 28, 31, 31–2 employment 27, 33, 34, 79 unemployment 26, 27, 28 wood 14, 48, 50, 64 workers’ rights see labour regulations working conditions 3, 33–4 Zimbabwe 21, 80, 932

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