NEPAD: The Need and Obstacles

Abstract: Africa performs poorly in the global economy. The continent lacks investments, jobs, real output, and basic social services. Aggravating the poor performance is poor management. This paper argues that the establishment of the New Partnership for Africa's Development (NEPAD) to grapple with Africa's economic problems makes sense but only if necessary policies are properly implemented. It argues that Africa should pursue interest politics through NEPAD as an economic integration. On the issue of financing the budget, which has in the past been a major constraint to OAU‐initiated projects, this paper strongly recommends that it should be made mandatory that all multinational companies operating in all NEPAD member countries pay a certain percentage of their earnings into the NEPAD budget.     

Aid Effectiveness in Africa*

Abstract: This paper revisits the issue of aid effectiveness in Africa by examining the effect of aid on growth. Historically, Africa's development context appears to be an aid‐dependent one, and with the New Partnership for Africa's Development (NEPAD) calling for additional capital flows to improve growth levels on the continent, and the attainment of the UN's Millennium Development Goals partly conditioned on aid inflows, there is a new urgency to evaluate the effectiveness of aid. Using a sample comprising 40 member countries of the African Union, and estimating fixed‐effects growth models, we find a positive and statistically significant effect of aid on growth. Aid increases investment, which is a major transmission mechanism in the aid‐growth relationship. An extension of our analysis to examine sources of growth finance shows aid, workers' remittances, debt‐service resources and domestic savings are important sources of development finance. Thus, for now, aid matters for the continent's growth. However, given the apparent donor aid fatigue and the debt servicing implications of concessional loans, the paper supports the need to strategize to reduce future dependence on aid.     

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.     

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.     

A review of trade trends: South Africa and the Indian Ocean Rim

Since 1990, intense diplomatic efforts have taken place to secure and negotiate trade treaties with South Africa's traditional trading partners (the European Union, in particular) and those countries in close geographic proximity. This article examines South Africa's trade links with some of its ‘non‐traditional’ trading partners, in particular the countries of the Indian Ocean Rim (IOR), in an attempt to ascertain the nature of the trade and its importance vis‐a‐vis the rest of the world. An examination of trade data for the years 1992‐5 indicates that trade with the IOR consists mainly of the mutual exchange of natural resource products and that this trade is growing much faster than South Africa ‘s trade in general. Given this trade dynamism, South Africa should pay increasing attention to international relations with these countries. South African trade with the Rim was also found to differ from trade with the rest of the world in that it comprises the mutual exchange of natural resource‐based products. This research shows that our imports and exports are positively related to the gross domestic product of our trading partners, and negatively related to their population size and distance from South Africa. Also, more open economies have absorbed more exports from South Africa. There is some ambiguity as to the role that distance plays in determining the level of imports into this country. The intensity indices computed in this article have to be viewed in the light of this research.     

HOW LARGE IS THE PRIVATE SECTOR IN AFRICA? EVIDENCE FROM NATIONAL ACCOUNTS AND LABOUR MARKETS

In recent years, the private sector has been recognised as a key engine of Africa's economic development. Yet, very little is known about its size and characteristics. We present novel estimates for 50 African countries and show that the private sector accounts for about two thirds of total investments, four fifths of total consumption and three fourths of total credit. Countries with small private sectors include a sample of oil exporters and some of the poorest countries in the continent. Surprisingly, the size of the private sector does not appear to be significantly correlated with growth performance. Labour market data reinforce the idea of a large private sector, which provides about 90% of total employment opportunities. However, most of this labour is informal and characterised by low productivity: permanent wage jobs in the private sector account on average for only 10% of total employment. South Africa is the notable exception, with formal wage employment in the private sector representing 46% of total employment. Finally, we find evidence of negative private sector earning premiums (?13% on the average), suggesting that market distortions abound. These are likely to prevent the efficient allocation of human resources and to reduce the overall productivity of the African economies.     

Is there a link between BRIC foreign direct investment and SADC export performance?

The BRICS (Brazil, Russia, India, China and South Africa) countries have agreed to strengthen their economic ties, thus paving the way for enhanced trade and investment performance. South Africa's strategic value in BRICS is that it is a gateway to the opportunity-rich Southern African Development Community (SADC). By using South Africa as a production hub for exports to the surrounding region, foreign investors would have ready access to neighbouring markets. This article addresses the question of whether, and in what ways, foreign direct investment (FDI) from the BRIC (Brazil, Russia, India and China) countries to the SADC influences the SADC's export performance. A series of empirical analyses revealed a positive causation between BRIC FDI and SADC exports, offering a clear incentive for the SADC to rejuvenate its trade and investment policies and structures, and strengthen its ties with BRIC countries in the interests of attracting more FDI and building a strong and sustainable export sector.     

Post‐apartheid South Africa's economic ties with neighbouring countries

In view of the rapid normalization of South Africa's relations with the rest of Africa, the appropriate framework for economic interaction with its neighbours requires careful thought. The article examines the more obvious possibilities and concludes that none of them, in their present form, can adequately meet future needs. Experience gained through them, however, should help to facilitate the pragmatic, step‐by‐step approach called for by the region's realities. Some aspects of such an approach are discussed.     

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.     

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.     

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.     

Sudden Stops and Current Account Reversals: Potential Macroeconomic Consequences for South Africa

South Africa is one of the emerging market countries that have received a relatively large amount of foreign capital since the mid‐2000s. In South Africa's case, these inflows were partly used to build the country's foreign exchange reserves, but more particularly to finance continued large current account deficits. During the course of the past two years, however, adverse domestic political developments, combined with the potential negative impacts of the unwinding of quantitative easing policies and the normalising of monetary policy in the United States on emerging markets in general, has raised the spectre of a sharp slowdown in foreign capital flows to South Africa and an associated reversal of the current deficit. This paper explores the potential impact of such a development on macroeconomic conditions in South Africa. The analysis consists of macroeconometric model‐based alternative scenarios backed up by both the international evidence on the impact of such events and South Africa's own history.     

Exchange rate volatility and agricultural trade under policy reforms in South Africa

Decades of government intervention have helped develop the South African agriculture sector to its present state. Policy reforms have included trade and exchange rate policies to increase the country's international competitiveness, reduce poverty and promote economic growth. These reforms are facilitating the growth in agricultural trade and South Africa's reintegration into the global economy. Annual agricultural exports and imports have increased. This paper uses annual data and a vector error-correction model to investigate the supply and demand relationships for agricultural trade flows in South Africa during the past four decades. The results show that prices, real exchange rates, domestic production capacity and real incomes have significant impacts on the country's agricultural trade. In particular, exchange rate volatility has negative impacts. This cannot be viewed solely as an exogenous source of macroeconomic instability in South Africa, as domestic policies play a crucial role in influencing the movement of exchange rates.     

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.     

Women and empowerment through the ‘economy of affection’ in KwaZulu‐Natal: Its significance for sustainable development

This article is an attempt to demonstrate how, in the absence of infrastructural requirements for development in the rural areas, the interpersonal relationships of women articulated through their households, kinship networks and community structures serve as indispensable mechanisms for their survival. These mechanisms are seen as part of an indigenous socio‐economic framework that is referred to here as the ‘economy of affection’. This framework is presented, through ethnographic data, as a means of facilitating moral, social and economic support among the indigent rural people in KwaZulu‐Natal. Taking cognisance of local organisational forms and resources is the best possible way to reconstruct South Africa's vast hinterland against the background of a history of development patterns, where rhetoric has played a more important role than actual substantive contributions to development of the rural poor, and where capital investments, technology and expertise of a post‐industrial nature are unlikely to spread.     

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.     

The South African city in relation to international city form

South Africa's apartheid‐induced cities are on the threshold of a critical restructuring in the changing South Africa of the 1990s. The reform and planning of an effective post‐apartheid city require careful consideration of possible international similarities and links. This article seeks to provide answers to the following questions: What are the form and structure of international cities; what are the general characteristics of the South African city; and where do our cities fit in this international framework? Research has shown that the South African city corresponds to a multi‐faceted international profile of First World prosperity. Second World central intervention and Third World deprivation. While the South African city displays numerous similarities to international city form, it has obtained a unique character as a result of the legal enforcement of apartheid. Restructuring the post‐apartheid city will have to take account of the reality that the present South African city is intrinsically a deviant version of the colonial Third World city and that it is likely to revert increasingly to that city form as legal apartheid disappears.     

The Poverty–Environment Nexus in Africa

Abstract: This paper provides a short review of the poverty‐environment nexus in Africa, which has emerged as a major development challenge for the continent. It looks specifically at issues related to deforestation and land degradation, low agricultural productivity, water scarcity, threats to Africa's biodiversity, and the impact of civil conflicts. It summarizes some of the main policy implications that arise based on the time inconsistency problem between short‐term survival strategies and longer‐term environmental concerns. The policy recommendations include sector‐specific interventions as well as cross‐cutting policy changes addressing gender imbalances and insufficient institutional reforms.     

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.