AN ANALYSIS OF ECONOMIC INFRASTRUCTURE INVESTMENT IN SOUTH AFRICA

This paper analyses long‐term trends in the development of South Africa's economic infrastructure and discusses their relationship with the country's long‐term economic growth. A database covering national accounts data, railways, roads, ports, air travel, phone lines and electricity was established for this purpose, and may facilitate further quantitative research. PSS (Pesaran, Shin and Smith, 1996, 2001) F‐tests are used to identify directions of association between economic infrastructure and economic growth. These indicate long‐run forcing relationships from public‐sector economic infrastructure investment and fixed capital stock to gross domestic product (GDP), from roads to GDP, and from GDP to a range of other types of infrastructure. There is also evidence of potential simultaneity between specific types of infrastructure and GDP. The evidence suggests three main findings. Firstly, the relationship between economic infrastructure and economic growth appears to run in both directions. Inadequate investment in infrastructure could create bottlenecks, and opportunities for promoting economic growth could be missed. Secondly, South Africa's stock of economic infrastructure has developed in phases. Policymakers should focus on choosing or encouraging the right type of infrastructure at the right time. Thirdly, the need for investment in economic infrastructure never goes away. The maintenance and expansion of infrastructure are important dimensions of supporting economic activity in a growing economy, provided that individual projects are chosen on the basis of appropriate cost‐benefit analyses.     

THE CONTRIBUTIONS OF MANUFACTURING AND SERVICES TO EMPLOYMENT CREATION AND GROWTH IN SOUTH AFRICA

This study examines the linkages between the manufacturing and services sectors, and between each of them and the rest of the domestic economy, based on analysis of input-output tables and employment trends. This reveals that manufacturing is particularly important as a source of demand for the services sector as well as the rest of the economy through its strong backward linkages, which suggests that in this respect a decline in manufacturing could negatively affect future growth. Services are especially important in terms of employment creation, both direct and indirect.     

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.     

ADJUSTING SOUTH AFRICA'S FISCAL BALANCE FOR TERMS-OF-TRADE EFFECTS

Standard output gap‐based calculations and interpretations of the cyclical component of the fiscal balance may convey a misleading picture in countries such as South Africa which experience substantial movements in their terms of trade. This paper therefore adjusts South Africa's general government primary balance for terms‐of‐trade effects by means of an alternative calculation of the transitory component based on a measure of the real income gap rather than the real output gap. The results indicate that measures of the cyclical component of the budget balance based on real income and real output gaps generally yield broadly similar results over history, but during exceptional periods of rapid changes in commodity prices, the measures can be very different.     

MACROECONOMIC UNCERTAINTY AND AGGREGATE PRIVATE INVESTMENT IN SOUTH AFRICA

This paper investigates the effects of time varying uncertainty on aggregate private fixed investment in South Africa. The GARCH generated measures of volatility of selected macroeconomic variables indicating five measures of uncertainty are used in the analysis. These are output growth uncertainty, uncertainty about changes in the real effective exchange rate, uncertainty about changes in the real interest rate, producer inflation uncertainty, and terms of trade uncertainty. The results of the estimation by an empirical ECM model of conventional investment determinants controlling for the effects of uncertainty indicated that, over all, time varying macroeconomic uncertainty significantly reduces private fixed investment.     

LOCAL MUNICIPALITIES AND PROGRESS WITH THE DELIVERY OF BASIC SERVICES IN SOUTH AFRICA

In 1994, South Africa adopted the Reconstruction and Development Programme (RDP) and emphasised the delivery of services to meet basic needs. Since then great strides have been made to redress past social inequalities. However, analysis of these successes have been limited to national or provincial aggregates, when much of the responsibility for meeting the RDP commitment lies at the local government level. The need for closer investigation is nonetheless clear from continuing protests over poor service delivery. This paper aims to shed more light on delivery at a local level by using data from the 2001 Census and 2007 Community Survey. The analysis involves the construction of a service delivery index for each municipality and analysis of variance to explain the changes in service delivery over the period 2001‐2007. The results show that improved service provision may require further urbanisation and densification. Also, local economic growth in itself may not be important, but it would contribute to the ability to pay for services and in that way aid delivery.     

THE LINKS BETWEEN TRADE POLICY AND TOTAL FACTOR PRODUCTIVITY IN SOUTH AFRICA'S MANUFACTURING SECTOR1

This paper reconfirms the important links that exist between manufacturing productivity, trade orientation, industry specific characteristics and some macroeconomic variables. The dynamic GMM estimator used in the analysis shows that apart from being affected by trade measures, total factor productivity is strongly persistent. In addition, the evolution of the real exchange rate and inflation exert important effects on manufacturing productivity. Most importantly, the dynamic error component specification appears to be more efficient in modelling the effects on manufacturing productivity of policy change than the static approach.     

AN ALTERNATIVE PERSPECTIVE ON SOUTH AFRICA'S PUBLIC DEBT, 1962‐1994

The history of public debt reflects the cumulative effect of fiscal decisions and real outcomes in the economy. In the South African case the published record on public debt distorts the historical perspective on the associated fiscal decisions. This paper shows the impact of adjusting the South African public debt on an accrual basis to take account of two major obligations assumed in the first half of the 1990s, namely actuarial pension fund deficits and government debt of the apartheid homelands. The adjusted series is less volatile and rose less steeply between 1989 and 1996 than the official, cash‐based debt series. Failing to account for the evolution of these obligations exaggerates the impression of weak fiscal discipline in the early 1990s and exemplary fiscal prudence in preceding decades.     

TAX REFORM AND THE PROGRESSIVITY OF PERSONAL INCOME TAX IN SOUTH AFRICA

This paper investigates the progressivity of personal income tax in South Africa over the period 1989 to 2003. We use the effective, redistributive and disproportionality measures of progressivity and find that progressivity of the tax system increased over the period 1990 to 1994. However, during the first phase of the reform programmes the results are inconclusive with the Kakwani index (disproportionality measure) showing increased progressivity. The redistributive effect measure, on the other hand, indicates a marginal decline in progressivity. During the second phase of the reform programmes, both techniques suggest a worsening in progressivity. One explanation for the decline in progressivity during the latter period in the analysis is the fact that many more “new” taxpayers entered the tax net (higher income groups in our database) which made the distribution of pre‐tax income more unequal thus impacting on progressivity. On the other hand, the disproportionality measure shows a continuous, albeit volatile increase in progressivity over the latter period under investigation.     

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.     

IMPACT OF MACROECONOMIC CONDITIONS ON GOVERNMENT POPULARITY: AN ECOWAS INVESTIGATION

A main focus of this paper is our analysis of the vote function using the vote share of government parties as the proxy variable for government popularity. Utilising Pedroni's (1999 ) panel cointegrated test and the fully modified OLS (FMOLS) technique, we empirically examine the long-run co-movement relationship in a bivariate model between government popularity and macroeconomic outcomes as well as a lag term in accordance with updated data for 11 countries of the Economic Community of West African States (ECOWAS) during the 1975-2005 period. The results indicate the existence of panel cointegration relationships in our empirical model. The panel FMOLS shows that several macroeconomic shocks are responsible for positive contributions to government popularity, especially in regard to economic growth and government expenditures. By contrast, currency depreciation, higher interest payments, and a greater taxation burden on households all contribute to lower government support in our sample countries. Based on such evidence, important policy implications emerge for ECOWAS.     

AN ANALYSIS OF INVENTORY INVESTMENT IN SOUTH AFRICA

This paper describes the evolution of inventory investment in South Africa over the past two decades, and identifies the factors influencing inventory investment over this period. An econometric model of inventory investment in South Africa, based on the production smoothing approach, is constructed. The results of the model indicate that actual sales, production, unfilled orders, price levels, interest rates and expected sales have an influence on the evolution of inventory investment. These variables are directly or indirectly influenced by macroeconomic policy decisions and through their influence on inventory investment they also influence changes in gross domestic product. Therefore, prior information on the factors that influence inventory investment contributes to explaining changes in gross domestic product and may help to prepare more accurate short‐term forecasts of overall economic activity.     

FORMAL–INFORMAL ECONOMY LINKAGES AND UNEMPLOYMENT IN SOUTH AFRICA

South Africa's high unemployment and small informal economy has been attributed to barriers to entry in informal labour markets. We develop a general equilibrium model based on a typology of informal activities that captures formal/informal linkages in product and labour markets. Simulations reveal that trade liberalisation increases formal employment, hurts informal producers, and favours informal traders and may explain the dominance of traders instead of producers. Wage subsidies also raise employment but further heighten competition for informal producers. Cash transfers favour informal employment, albeit with a fiscal burden. Results confirm the role of formal/informal linkages and product markets in explaining policy outcomes.     

REVISITING INFORMAL EMPLOYMENT AND SEGMENTATION IN THE SOUTH AFRICAN LABOUR MARKET

This study revisits the definition of informal employment, and it investigates the puzzle of high open unemployment co‐existing with relatively limited informal employment in South Africa. We estimate earnings equations using data from the September 2004 Labour Force Survey and present evidence of persistent earnings differentials not only between formal and informal employment, but also between types of informal employment. These persistent earnings differentials are suggestive of complex segmentation in the South African labour market and challenge the presentation of informal employment as an undifferentiated residual with no barriers to entry or mobility.     

'HOME IS NOT SO VERY FAR AWAY': CALIFORNIAN ENGINEERS IN SOUTH AFRICA, 1868–1915

This article describes the fate of Californian engineering and technology in South Africa during the years around the Jameson Raid. In theory, progress promised many things: commercial development, scientific and social enlightenment, free markets and rule of law. But in South Africa, these tools of progress came together in ways that differed from Californian engineers' own frontier experience. While mining flourished agriculture remained undeveloped. And both, far from producing the society imagined by Californians, furthered imperial goals.     

FORECASTING THE SOUTH AFRICAN ECONOMY WITH VARs AND VECMs

The paper develops a Bayesian Vector Error Correction Model (BVECM) of the South African economy for the period 1970:1‐2000:4 and forecasts GDP, consumption, investment, short and long term interest rates, and the CPI. We find that a tight prior produces relatively more accurate forecasts than a loose one. The out‐of‐sample‐forecast accuracy resulting from the BVECM is compared with those generated from the Classical variant of the VAR and VECM and the Bayesian VAR. The BVECM is found to produce the most accurate out of sample forecasts. It also correctly predicts the direction of change in the chosen macroeconomic indicators.     

LABOUR AND LAND IN GHANA, 1874–1939: A SHIFTING RATIO AND AN INSTITUTIONAL REVOLUTION

The Second Industrial Revolution created markets for new products for Ghana, rubber and then cocoa beans. Mechanised transport spurred the spread of cocoa planting. The paper estimates the resultant shift in factor ratios, and synthesises the data for prices of land-use rights and wages as the economy moved from land abundance to localised land scarcity. The consequences for factor markets were institutional rather than simply quantitative. For the first time markets in land use rights became widespread, while hired labour and farm pledging replaced slavery and debt bondage, as cocoa income made it possible for farmers to offer labourers sufficient inducement to enter the labour market.