Vol.2 No.13, 04 July 2002

Economic Realities of 2002's South Africa

Dear SANE Views reader

We have not communicated SANE Views in recent weeks, but we are now back in action on this front. We hope to communicate more regularly in the coming weeks.

A few weeks ago we had our AGM, and attached to that report was the report on South Africa's economic realities over the past year. It does not make happy reading, or happy living if you are caught up in daily life here. But there is hope. We do not believe that hope lies in the successful implementation of NEPAD - the New Partnership for African Development, but in the implementation of SANE policies. We shall be looking at these in SANE Views in weeks to come.

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We look forward to renewed engagement with our readers and beyond.

Aart R de Lange
SANE Views editor


In SANE's annual report of 2001, it was pointed out that between 1994 and 2000, 680,000 jobs were lost in South Africa's formal economy. This trend is proceeding unabated. More recent statistics indicate that, despite a reported increase in the 'real' GDP of 2.8 percent, a further 80,000 jobs were lost in the year up to February 2001. This is a decline of 1.9 percent as against an increase in the population of approximately 2.0 percent.

In February 2001 only 43.5 percent of the economically active population was employed in the formal economy (including domestic and agricultural workers) as against nearly 80 percent in 1975.

Over the period 1991-1996 the household income of the poorest 40% of the African population declined by about 20% while the richest 10% of Africans increased their income by more than 15%. ....Such persistent deepening of the income gap and of 'jobless growth' must result in social chaos.

Monetary Instability

In the late 1990s East Asian countries experienced a devastating economic crisis. Last year it was the turn of Argentina to suffer economic collapse. The 'Structural Re-adjustment Programmes' of the International Monetary Fund (IMF) played a major role in these economic crises (see SANE Views Vol.2 #1&2) South Africa also experienced a major collapse of its currency at the end of last year when over a period of three months the value of the rand dropped by 45 percent relative to the dollar; since then this has corrected to of the order of 25 percent. The collapse of the rand was followed by a rapid increase in inflation. A very disturbing concern now is the threat of hyper-inflation.

It is of interest to note how the decline in the rand and the rise in inflation manifested. They were, of course, related to loss of confidence in Africa as a trading partner and as a sound region for investment, but neither were directly related to real market forces of supply and demand. The decline in the value of the rand relative to the US dollar and other major currencies was the result of speculative financial trading by major players on the money markets, followed by a lemming-like response from lesser investors.

The rapid rise in inflation within South Africa was the result of quite a different process. According to orthodox economic theory, inflation is either the result of cost-push, or of demand pull forces, but neither of these played a primary role in this case. The first manifestation of inflation was that of a sudden rise in the prices of locally produced consumer goods. These prices should have been the last to rise, and only after increased costs of imported intermediate and investment costs had worked their way into price structures. The price rises actually experienced were clearly the result of opportunistic price increases long before suppliers of retail goods would have been directly affected themselves by increased prices.

It is obvious that national economies, and in particular the South African one, are at the mercy of global and national speculative monetary forces. A golden opportunity of injecting new life into local industries, previously undermined by competition from cheaper imported goods, was lost through human profiteering rather than as a result of market forces..

A SANE response

Action is required at local, national and global levels to keep the economy from collapsing into a mode of hyper-inflation. Such action should not be by direct control, but rather by adapting the rules of the economic game. We will not go into detail here as to what these rules might be, but we believe they should have their basis in the Six Pillars of Sustainability subscribed to by SANE described in our basic flyer and in SANE Views Vol.1, No.1. They are expanded upon in further SANE Views available on our web site. A reading of the contributions offered there will give a good idea of SANE's thinking and planning for transformation of the economy and of society.

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