SOUTH AFRICA'S POST‐LIBERALISED CAPITAL FLOWS AND BUSINESS CYCLE FLUCTUATIONS

This study used Christiano and Fitzgerald filtered correlation analysis to investigate the cyclical relationships between South Africa's post‐liberalised capital flows and domestic business cycle fluctuations. The results show that foreign direct investment inflows are counter‐cyclical and proactive, while the “hot” inflows are acyclical. Thus, South Africa's post‐liberalisation “hot” inflows have not been significantly associated with domestic business cycle fluctuations. In contrast, the capital outflows are found to be consistently procyclical and proactive, suggesting that the outflows are more significantly associated with domestic business cycle fluctuations than the capital inflows. In addition, it is found that the cyclical relationships between the capital inflows and the business cycle components of exports, household consumption and gross fixed investment are generally procyclical, except for portfolio inflows, which have a counter‐cyclical relationship with fixed investment. In contrast, the capital outflows are counter‐cyclically associated with exports and household consumption, and procyclically associated with fixed investment.     

SOUTH AFRICA AND THE NEW PARTNERSHIP FOR AFRICA'S DEVELOPMENT: ECONOMIC SPIN-OFFS AND LINKAGES

The New Partnership for Africa's Development (NEPAD) is a concerted effort by Africa's political leaders to develop a comprehensive and integrated strategic policy framework to raise current levels of socio‐economic development and reduce high levels of poverty across the African continent. The NEPAD framework recognises the need for African countries to pool their resources together in order to enhance regional development and economic integration. To this end, NEPAD emphasises capacity building and also seeks to solicit and disburse funds towards infrastructural development programmes and poverty alleviation projects, among others. South Africa's involvement with the rest of Africa has increased significantly since 1994. Trade exports, foreign direct investment (both market and resource‐seeking in nature) and public‐private partnerships have mushroomed in many parts of the continent. Many South African firms are providing the financial impetus for the infrastructural development and rehabilitation of African economies. This paper discusses salient economic linkages between South Africa and the rest of Africa within the framework of NEPAD. South Africa is the economic hub of sub‐Saharan Africa (and indeed of the African continent), with significant agricultural, manufacturing and services capacity. South African firms have invested in the development of a number of sectors in the rest of Africa, taking advantage of the new investment incentives offered by the NEPAD framework. The target sectors range from mining, the hospitality industry, engineering and construction, finance to telecommunications. These investments and economic involvements are crucial to the development of African countries and the relevant sectors that are important for the realisation of some of the objectives of NEPAD.     

The Global Financial Crisis and Sub‐Saharan Africa: The Effects of Slowing Private Capital Inflows on Growth*

Abstract: This paper uses the bias‐corrected least‐squares dummy variable (LSDV) estimator to examine the relationship between economic growth and four different types of private capital inflows (cross‐border bank lending, foreign direct investment (FDI), bonds flows and portfolio equity flows) on a sample of 15 selected sub‐Saharan African countries over the period 1980–2008. Our results show that FDI and cross‐border bank lending exert a significant and positive impact on sub‐Saharan Africa's growth, whereas portfolio equity flows and bonds flows have no growth impact. Our estimates suggest that a drop by 10 per cent in FDI inflows may lead to a 3 per cent decrease of income per capita growth in sub‐Saharan Africa, and a 10 per cent decrease in cross‐border bank lending may reduce growth by up to 1.5 per cent. Therefore, the global financial crisis is likely to have an important effect on sub‐Saharan Africa's growth through the private capital inflows channel.     

CAPITAL CONTROLS,TWO‐TIERED EXCHANGE RATE SYSTEMS AND EXCHANGE RATE POLICY: THE SOUTH AFRICAN EXPERIENCE

South Africa's 40 years of experience with capital controls on residents and non‐residents (1961‐2001) reads like a collection of examples of perverse unanticipated effects of legislation and regulation. We show that the presence of capital controls on residents and non‐residents enabled the South African Reserve Bank to target domestic interest rates (and or the exchange rate) via interventions in the (commercial) foreign exchange market. This provides an early rationale for anchoring SA monetary policy via the exchange rate, rather than via domestic interest rates. This suggests not only that the capital controls themselves exhibited substantial institutional inertia, but that this same institutional inertia also applied to the monetary policy regime. A plausible reason for this is that for most of the 20th century in South Africa. (partial) capital controls and exchange rate based monetary policies were like Siamese twins – almost impossible to separate.     

The Mystery of Missing Real Spillovers in Southern Africa: Some Facts and Possible Explanations

Anecdotal evidence suggests that the economies of South Africa and its neighbours (Botswana, Lesotho, Mozambique, Namibia, Swaziland and Zimbabwe) are tightly integrated with each other. The multiple interconnections suggest that South Africa's GDP growth rate should affect positively its neighbours'. However, our review of the available econometric evidence and our panel growth regressions suggest that there is no strong evidence of real spillovers in the region after 1994, once global shocks are controlled for. More generally, we find no evidence of real spillovers from South Africa to the rest of the continent post‐1994. We investigate the possible reasons for this lack of spillovers. Most importantly, the economies of South Africa and the rest of Sub‐Saharan Africa might have decoupled in the mid‐1990s. That is when international sanctions on South Africa ended and the country re‐integrated with the global economy, while growth in the rest of the continent accelerated due to a combination of domestic and external factors.     

Evaluating South Africa's Open Economy

The competing theories of the macroeconomic trilemma and dilemma are empirically tested for South Africa. The empirical findings show evidence of the trilemma theory being applicable to South Africa, supporting the country's ability to maintain monetary independence (MI). An empirical puzzle, however, emerged as South Africa's MI index decreased during the country's 2000–2014 inflation‐targeting period. A possible explanation, and subject for further research, is that the increasing opening of South Africa to international flows since 1995 may have caused South Africa to be more exposed to international business cycles and shocks, resulting in a reduction in measured MI.     

SOUTH AFRICA'S INTERGOVERNMENTAL FISCAL RELATIONS: AN EVOLVING SYSTEM

Across Africa, Latin America, Asia and the transition economies of Eastern Europe, the need to enhance the capability and capacity of sub‐national governments (SNGs) in providing public goods and services has become a main theme of development programmes. Central to this theme is the need to design an intergovernmental fiscal relations (IGFR) system that enhances the effectiveness of sub‐national governments in mobilizing revenues and implementing expenditure programmes. For South Africa, the post‐1994 dispensation has involved significant reforms to the structure and administrative capacity of the three spheres of government. Critical to these reforms is the need to formulate an IGFR framework that takes cognisance of South Africa's past, and serves as an effective policy tool in ensuring that public sector service delivery is well structured and managed. This paper provides an analysis of South Africa's evolving IGFR system. It outlines the historical evolution of the current IGFR system, identifies current challenges, and discusses implications that these challenges have for the functioning of the IGFR system. The general conclusion emerging from this study is that in the South African context, the key elements necessary for an effective IGFR system are in place. Ongoing reforms have improved the capacity of provincial and municipal authorities in carrying out their revenue and expenditure responsibilities. However, the evolving nature of South Africa's IGFR system requires that significant attention be devoted towards enhancing coordination between delivery departments and improving the capacity of many SNGs. These should not only aid the effective functioning of the IGFR system but also ensure that the gains of decentralisation are sustainable.     

THE RELATIONSHIP BETWEEN TOURISM AND TRADE IN SOUTH AFRICA

This article explores the relationship between tourist arrivals and trade in South Africa. Two analyses were conducted – a panel data analysis, which included tourism and trade data of 40 countries with South Africa, and a time‐series analysis that involved South Africa's main tourism and trade partners. Cointegration tests, Granger causality and Block exogeneity tests were used to investigate the nature of the relationship. The results of the panel data analysis show that for South Africa as a whole, there is indeed a long‐term relationship between tourist arrivals and trade, and that bidirectional causality exists. The results for the country case studies are mixed, although the evidence is stronger for the hypothesis that tourism causes trade.     

“Post‐Truth,” “Alternative Facts” and “Fakenomics”

South African companies are accused of hoarding profits to accumulate large amounts of “idle” cash, as well as of being the perpetrators of massive illegal capital flight. This paper argues that much of the claimed corporate cash is either offshore or belongs to banks. It reminds that bank deposits increase when companies borrow, not when they retain profits. It shows, too, that measures of massive capital flight actually reflect data errors. Exaggerating, through faulty methodology the extent to which companies have cash or may be involved in illegal capital flight is unhelpful. It exacerbates already‐fraught government‐business relations, and complicates the search for solutions to South Africa's economic problems.     

The implications of South Africa's skills migration policy for country competitiveness

South Africa suffers from a shortage of skills, while at the same time having an excess of unskilled labour. The brain drain and the impact of HIV/Aids are threats to the current skills level in the labour force. Skilled workers generally create jobs for unskilled workers, and the level of skills in the labour force is an attraction for foreign investment. The new international migration policy imposes financial penalties and other restrictions on employers of foreigners with skills. The policy is detrimental to South Africa's competitiveness in the global economy and will deter investors and those needing to utilise skills not available in the South African labour market. A general immigration policy would be more appropriate to attract skilled foreigners to South Africa, where their skills can be absorbed into the labour force by supply and demand forces.     

WAGNER'S LAW REVISITED: A NOTE FROM SOUTH AFRICA

The aim of this note is to reassess the validity of Wagner's law for South Africa for the period 1950‐2007 using cointegration and causality tests. The evidence shows causality running from income to government expenditure, thus supporting the Wagnerian proposition of an expanding public sector. Using five different long‐run estimators, we found that the size of South Africa's public sector was positively and significantly related to South Africa's national income. The elasticity ranges from 1.12 to 1.57, implying that a 1% increase in income leads to a 1.12‐1.57% increase in government expenditure.     

Promoting of Investment in Africa*

Abstract: This paper examines the trend, constraints, promotion, and prospects of investment – domestic investment, foreign direct investment, and private portfolio investment – in Africa. After identifying the importance of investment in Africa's economic development, it was shown that all forms of investment are low in Africa and hence inadequate for the attainment of the MDGs and poverty reduction in the continent. The constraining factors include: low resources mobilization; high degree of uncertainty; poor governance, corruption, and low human capital development; unfavorable regulatory environment and poor infrastructure, small individual country sizes; high dependence on primary commodities exports and increased competition; poor image abroad; shortage of foreign exchange and the burden of huge domestic and external debt; and undeveloped capital markets, their high volatility, and home bias by foreign investors. The paper recommends that successful promotion of both domestic, foreign direct and portfolio investment in Africa will require actions and measures at the national, regional, and international levels. It concludes that the prospects are bright. New and attractive investment opportunities are emerging in infrastructure, particularly as most African countries now encourage public/private partnerships for investments in this sector. In addition to privatization, renewed interest within Africa in undertaking regionally based projects and joint exploitation of natural resources is creating other investment opportunities. Apart from the fact that investment in Africa yields the highest returns, investment risk in the continent is declining. In addition, much progress has been made in recent years to improve the investment climate in Africa. All this is of course is not to deny that obstacles do remain hence economic reforms to enhance domestic investment would need to be complemented by measures to attract increased foreign capital. Critical in such endeavors must be efforts to improve governance in some countries as well as to eliminate socio‐political violence in others and development of domestic capital markets, while government institutions must be modernized and upgraded.     

Promoting farm/non‐farm linkages for employment of the poor in South Africa: A research agenda focused on small‐scale farms and agroindustry

This article presents a policy research agenda for the promotion of farm/non‐farm linkages in South Africa. Our premise is that promoting the participation of small farms and small agroindustrial businesses in these linkages will have a strong impact on employment and income for the poor. We argue that there is potential for growth in linkages. The first question of the policy research agenda concerns the current status of linkages, and we note the dearth of research on this. The second question concerns the constraints on and prospects for promoting linkages from the demand side, and the third question treats the same concerns from the supply side. The fourth question is rooted in the duality in South Africa's non‐farm and farm sectors, and asks whether, and how, small and large agroindustrial businesses and farms will compete or relate in ‘business linkages’ that can benefit intersectoral linkages. The final question concerns the impacts of and alternatives for policies and programmes to spur linkages.     

Tourism and regional development: The case of South Africa's distressed areas

Uneven development is a long-established feature of South Africa's space economy. Recent policy initiatives have been launched for tourism to be a vehicle for regional development. Against the background of international debates about tourism and regional development, this article examines the tourism economy of South Africa's 23 priority development districts or distressed areas that are the current focus of national policy to redress uneven development. The nature and growth of tourism occurring in these areas is shown to be primarily domestic tourism and concentrated upon visiting friends and relatives travel. The prospects for regional development ultimately hinge upon leveraging potential assets for leisure tourism. Key challenges for incipient tourism-led regional development in South Africa are identified.     

The Midrand area: An emerging high‐technology cluster?

This article takes a close look at art emerging high‐technology cluster in a developing country ‐ Midrand in South Africa ‐ to develop a deeper understanding of its nature, why it emerged and the problems it faces. Midrand lies within the Gauteng province, which has a disproportionately large share of South Africa's private and public demand, as well as factor inputs for high‐technology sectors. The cluster is growing rapidly and includes a large contingent of high‐tech multinationals and blue‐chip local firms. The cluster is not, however, based on research and development but rather on head office, warehousing and distribution functions, and manufacturing. Its success is built on a central location, high visibility, a positive high‐tech image, good quality of life, a visionary town council, good investment returns, low operating costs and a lack of local competition. Its weaknesses are that it has not been built on a solid foundation of high‐tech infrastructure and lacks high‐tech dynamism, rendering its locational advantage somewhat fragile.     

Resource utilisation Efficiency: A South African Provincial Evaluation

The objective of this paper is to analyse the utilisation of production capacity and total under‐utilisation in order to identify weak‐performing industries across the nine South African provinces. Detecting inefficiencies within the different provinces will help to identify where sound managerial or government intervention is required, which can contribute to the future success of the New Growth Path Framework and the Strategic Integrated Projects. Using a multistage data envelopment analysis model at the subnational level, several categories of production factors are explored: intermediate demand, labour, capital, as well as taxes and subsidies. The results emphasise South Africa's weak infrastructure and the failure to effectively promote stability in managing factor inputs. The results further illustrate that industry scale efficiency for water and electricity are poorest across all provinces, highlighting the current water and energy supply concerns in South Africa and problem areas associated with the National Development Program.     

The minerals‐energy complex and South African industrialisation

In their recent book Fine & Rustomjee argue that the minerals‐energy complex (MEC) as a system of accumulation had a determining and retarding effect on South African industrialisation. The evidence on the share of the MEC sectors in the GDP does not support the contention that the MEC as a system of accumulation has effectively increased the economy's dependence on these sectors. Statistical evidence contradicts Fine & Rustomjee s view that South Africa's import‐substituting industrialisation did not move from consumption goods to intermediate and then to capital goods, but in the opposite direction. There is no historical evidence to support the contention that the MEC as a system of accumulation prevented diversification of manufacturing industry and thus retarded industrialisation. Manufacturing industry did diversify both between the wars and in the postwar period. It is suggested that state‐promoted developments in MEC manufacturing sectors represented important and necessary steps towards full‐scale industrialisation, which began in South Africa between the wars.     

Tourism,business linkages and small enterprise development in South Africa

Although considerable attention is given to the prospects for developing small, medium and micro-enterprises (SMMEs) in South Africa's tourism economy, very little relevant research has been undertaken in this regard. In this article, the findings are presented from over 60 detailed interviews conducted with key enterprises and entrepreneurs involved in tourism, outsourcing and small enterprise development in South Africa. The aim is to examine opportunities for outsourcing and business linkage development in South Africa's tourism economy, and to investigate the difficulties that confront the tourism SMME economy through examining the status of business linkages between large tourism enterprises and SMMEs in South Africa. The South African research is located within the context of existing works on tourism and small enterprise development in developing countries.     

South Africa's infrastructure service delivery needs: The role and challenge for public‐private partnerships

South Africa's development challenges include over R100 billion needed in investment in infrastructure over the next ten years. Municipalities lack the institutional and financial capacity to address this alone and have to raise private sector finance to supplement their own resources and government grants. The borrowing of capital requires a well‐run administration that is able to raise sufficient revenue to meet all running costs, including loan redemption. Municipalities are showing increasing interest in municipal service partnerships (MSPs), including public‐private partnerships (PPPs), as a way of improving efficiency and accessing capital markets. This raises a number of challenges that include understanding and dealing with the continuing negative perceptions of the role of the private sector; clarifying the roles of the private sector and the government, especially local government; and addressing those issues necessary to produce effective and efficient MSPs in South Africa.