About this site

This resource is hosted by the Nelson Mandela Centre of Memory, 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 It is the product of almost two decades of research and includes analyses, chronologies, historical documents, and interviews from the apartheid and post-apartheid eras.

The economy & GEAR

For the RDP go to [] transition/1994/[] Reconstruction and Development Programme.

The premise of GEAR was that for the South African to achieve higher levels of growth, SA needed to attract significant amounts of direct foreign investment (DFI). Higher levels of DFI would drive higher levels of growth, which in turn would create higher levels of employment, alleviating poverty and redistributing income. A rising tide would lift all boats. Thus, SA had to be perceived as market friendly and fiscally prudent, the emphasis was on promoting financial macroeconomic stability, bringing the rate of inflation under control and reducing the budget deficit. In short it had to show that the economic 'fundamentals' were sound and that the government was responsive to business concerns such as privatization. The emphasis moved from redistributive measures to growth-inducing measures.  In pursuit of these goals government policy verged on being Thatcherite much to the chagrin of both COSATU and the SACP, which did not feel that they were adequately consulted before GEAR was more or less rammed down their throats. For GEAR go to [] post transition/ 1996/[] Growth Employment and Redistribution

In 2002 Mbeki made a series of speeches and issued a number of statements attacking 'ultra leftists.' For a time being targeted as an 'ultra leftist' was one step short of being accused of bringing the ANC into disrepute, inviting disciplinary action. There were periodic bouts of wish thinking – that the ANC was about to split, that the SACP was about to go it alone and contest elections under its own banner, that COSATU was about to forma workers' party. Adopted in 1996, with Mbeki as one of its leading proponents, it was clear by 2002 that GEAR was not working. COSATU and the SACP favored economic policies with far more emphasis on redistribution and less on attracting foreign investment, which had not materialized under GEAR, despite the 'economic fundamentals' being sound.  The much awaited DFI never materialized. In 2004, economic policy underwent a subtle shift. Now government through massive public investment, using the parastatals as the driving force, would pick up the investment slack.

Had GEAR achieved success to any meaningful degree, perhaps the ANC's alliance partners might have been less robust in their support of a Zuma presidency. Would a Zuma be leftist? Zuma has never criticized GEAR; indeed he always expressed his support for Mbeki's policies (even after his dismissal), but his sympathetic ear to COSATU and the SACP endeared him to both. Both COSATU and the SACP 'tolerated' the pro- capital orientation of the government during the Mbeki presidency; the second decade they believe should be pro- worker. If not Zuma, then the SACP and COSATU will look for an alternative candidate to throw their weight behind. Opposing them, they believe, are the pro-business forces in the ANC, which have a powerful lobby in the NEC itself, which has no representation from labor.

In 2006, a new economic strategy was unveiled. The Accelerated and Shared Growth Initiative (ASGI) is designed to address the country's shortage of skills, which had been identified as one, perhaps the most important constraint to achieving a high growth rate. The initiative is spearheaded by Deputy President Phumzile Mlambo-Ngcuka. AGSI will address shills shortages, rand volatility, excessive red tape (per business there is an estimated R100, 000 [$16,666]  ( For ASGI go to [] transformation/ 2006/[] Accelerated Shared Growth Initiatives

Cost for administering compliance with regulations and legislation – a prohibitive impediment to small businesses, to entrepreneurs and to empowerment deals [John Orford and Eric Wood, "Research: Small business in South Africa,' in 'Conflict and Governance.'], weak competition [SA fell one place in the World economic Forum's ( WEF) annual Global Competitiveness Report ranking in 2005 from 41 to 42 out of 117 countries surveys mainly be cause of business concerns about crime  and the country's inability to adopt new information technologies], and infrastructure deficiencies. Regarding the latter, the government has committed itself to spending RR165 billion (($27.5 billion) to upgrade transport and electricity infrastructure between 2006 and 2010, all the more necessary as the World Soccer Cup will be held in SA in 2010. In 2005 the government abandoned the Strategic Investment Programme (SIP) after it conspicuously failed to make a dent in unemployment. SIP offered tax incentives on investments worth more than R50million ($6.33 million). While the program attracted R40 billion ( $6.66 billion) in capital it created a mere 7,000 direct jobs and 110,000 in indirect jobs. Andile Ntingi "All eyes on skills and delivery as Asgi takes over from fear next year,' Business Report 13 December 2003.  Vella Pillay, RDP, GEAR.

One aspect of South Africa's monetary policy that has been inadequately addressed is the impact of the fluctuating rand on growth. The more the rand appreciates against the dollar, sterling and the euro the more pronounced the impact on manufacturing.  The data clearly show that in periods of rapid & sustained appreciation exports suffer & employment in the manufacturing sector falls. The reverse is also true. In periods of rand depreciation exports increase and subsequently employment in export manufacturing industries/services picks\s up. Yet, for reasons that are difficult to fathom the markets cheer when the rand appreciates as if it were some kind of achievement against the "power" currencies.  No doubt an appreciating rand contributes to a rising market overall & thus is better for portfolio investors. However, while the capital inflows have been substantial & put SA among the best performing emerging markets, most of the capital is portfolio flows, which can disappear as easily as they flow in.

Moreover, an appreciating rand brings increasing imports & this coupled with SA's historical structural imbalances that result in the marginal propensity to import being greater than the marginal rate of growth means that for any given percentage of growth the percentage growth in imports is greater, creating larger trade deficits – as has happened in 2006 when trade deficits hit historical highs compelling the Reserve Bank to increase interest rates. SA can sustain large trade deficits as long as they are well covered by inflows of capital. But there is also a propensity for the markets to look adversely on increasing trade deficits, thus creating the conditions for capital outflows. In addition, SA attracts a disproportionately smaller share of direct Foreign Investment (DFI) than other countries at a similar stage of development. Among the many reasons for this are: the volatility of the currency, since investment decisions are made in dollar/euro/ sterling projections, skills shortages, especially in the sciences, strong labour unions coupled with relatively low productivity per worker put SA at a cost disadvantage, and BEE requirements that add a lot of bureaucratic overhead to decisions & tend to complicate.

This resource is hosted by the Nelson Mandela Centre of Memory, but was compiled and authored by Padraig O’Malley. Return to the Nelson Mandela Centre of Memory site.