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This resource is hosted by the Nelson Mandela Foundation, but was compiled and authored by Padraig O’Malley. It is the product of almost two decades of research and includes analyses, chronologies, historical documents, and interviews from the apartheid and post-apartheid eras.

4. Policy implications

A core economic principle of the government of national unity is liberalisation. In the current South African context this means removal of government domestic subsidies such as the Regional Industrial Development Programme (RIDP), the lowering of trade barriers and the removal of fixed-price marketing schemes in agriculture. Given space constraints, the regional policy implications of deregulation are considered briefly here for manufacturing and agricultural sectors only. For both of these sectors, the starting-point is a highly protected and concentrated structure of pricing and production which will be shocked by the new policy regime.

For simplicity, the discussion of manufacturing is limited to RIDP firms, which were also the only source of employment growth in manufacturing during the 1980s and the source of almost all manufacturing employment in the poorest regions. In these firms reduction of subsidies has already had a dramatic impact on employment and output. For example, one third of manufacturing employment was lost in Ciskei between 1990 and 1992 after the first reform of subsidies (ECOSA, 1992). This is not surprising in light of the expense of creating the RIDP jobs, which at an investment of R31,727 per job required ten times the investment elsewhere in South Africa. (See Table 11.) Such expense was supportable only with the extensive subsidies provided to keep black employment growth away from white areas (the wage bill, for example, could be subsidised up to 90 per cent).

Given that removal of subsidies will be contractionary in the short term, the question is: what are the longer-term prospects? The typical manufacturing firm locating in the poor areas is small scale, uses simple technology and employs mainly female labour. The firms produce mainly consumer goods such as clothing and footwear, electronics (which involves mainly assembly), plastics and metal fabricating.

Survival and growth of these firms depend upon their ability to maintain and ultimately expand their markets. Looking first at demand, a positive factor is the redistributive goal of the government. Consumer goods produced in the poor areas are largely aimed at the lower end of the market and successful redistribution would expand demand for these products. A large negative influence, however, is trade liberalisation. The products of the RIDP manufacturers are competitive with those from newly industrialising countries and with the output of multinational corporations in heavily subsidised enterprise zones in other developing countries. Opening up the South African market to imports of mass-market consumer goods is a direct threat to employment in the poorest parts of the country. This loss of market is all the more likely in light of both rising input costs associated with deregulation and the relatively low productivity of these firms. Moreover, labour legislation which raises wages or equalises wages by gender will further erode the profitability of these firms.

Liberalisation is thus in conflict with equalisation of regional conditions from the perspective of the typical manufacturing firm in poor areas. The poorer regions will fall further behind with extensive deregulation and less income from employment will flow to these areas. However, this unfavourable outcome results from the existing structure of production in poor areas, which was determined not by economic but by political imperatives. The remaining question is whether the structure of production could be changed to support a different competitive strategy which might enhance growth in these areas.

Some sectors of manufacturing in South Africa have succeeded in pursuing a competitive strategy based on the characteristics of the product rather than on cheap labour. Even clothing and footwear firms engaged in this type of production have found market niches which are stable or indeed growing. Largely based on exports, these sectors may be positively affected by trade liberalisation. Unfortunately, requirements for this competitive strategy, called differentiation, are not typically found in poor areas. They include skilled labour which can perform a range of tasks, proximity to suppliers of input, less hierarchical management structures all of which support high responsiveness to shifts in consumer tastes. (See, for example, Porter, 1980, 1990 and 1990, and Kaplinsky, 1993.) The South African experience supports this contention, inasmuch as location of such firms is concentrated in the richer areas of clothing and footwear production, such as the Cape Town environs. Clothing manufacturing in or neighbouring KwaZulu, on the other hand, remains targeted at the mass market.

Opportunities do, therefore, exist for successful production of those goods for which manufacturing in poorer regions is specialised but existing structures of production are a barrier to realising such possibilities. Moreover, the typical 'new competitive' firm is more capital intensive, thus reducing the employment multiplier of manufacturing expansion. The trade-off then is between loss of markets as a result of liberalisation and a transformation of production which reduces the labour intensity of production and therefore the equalising effect of growth.

In agriculture, similar constraints to regional equalisation arise from the inherited apartheid allocation of resources. Arable and potentially arable land is too limited in former homeland areas to support a viable small farmer option for the majority of the rural population. Institutional reform to provide credit and state expenditure on infrastructure can soften the land constraint to some extent, but there is limited room for improvement.

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