Driving forces in the economy

The driving force behind economic policy-making lies in the macro-economic objectives. The macro-economic objectives for South Africa are listed below and it is clear that they represent a bias in favour of economic growth which is potentially environmentally and socially unsustainable. The macro-economic objectives are:

• economic growth measured in terms of the percentage change in the Gross Domestic Product (GDP), 
• employment,
• balance of payments surplus,
• price stability, and
• equity.

Figure 6.3: The GDP, employment and unemployment in South Africa from 1970 to 1996

Employment and the growth in the GDP showed similar patterns until the early 1990s as can be seen from Figure 6.3. Since the early 1990s unemployment increased significantly despite the growth in the GDP. There are numerous reasons for this, and some are discussed below. The problem, however, is that the social and environmental impacts of this trend cannot be sustained in the long term. The economic growth that took place during the early 1990s was largely due to the inflow of long-term capital,(although mostly speculative) after the lifting of sanctions and South Africa's re-entry into the global trade forum. Entry into the global economy has been made possible by a change in the production structure (from primary to secondary and tertiary activities) and has been facilitated by the signing of numerous conventions and international agreements, including trade agreements.

Figure 6.4 The balance of the current account and capital account and net change in reserves of South Africa from 1980 to 1997

The drastic change in South Africa's Balance of Payments position is illustrated in Figure 6.4. A positive net change (i.e. more money coming into the country than going out) is important to support the exchange rate, which, in turn, is important for sustainable economic growth. 1993 and 1996 saw periods of severe political turmoil and hence large amounts of money leaving the country in 1993 and low levels of inflow in 1996, resulting in pressure on the reserves. This pressure lead to a depreciation in the exchange rate, and an increase in interest rates to attract foreign capital and reduce inflation.

The main problem associated with inflation is that inflation tends to take money from those earning fixed monthly (and annual) incomes and give it to those who have sufficient money to protect themselves against price increases.

Figure 6.5 Inflation and mortgage rates for South Africa from 1980 to 1997

Inflation therefore has a strong bias effect on the economy. As can be seen from Figure 6.5, inflation did decline, largely due high interest rates since the beginning of the 1990s. This decline has, amongst other things, contributed to the slight improvement in the distribution of income.

The distribution of income for 1995 for all households, as presented by the Lorenz curve, is displayed in Figure 6.6. The poorest 10% of the households received 1% of the total income, the poorest 20% received 3% of total income whilst the poorest 50% of households received 11% of total income. The most affluent 20% of households, on the other hand, received 65% of total income (Stats SA 1997)(see Social Environment).

Figure 6.6 Income distribution in South Africa for all households (the Lorenz curve): 1985

This clearly indicates an extremely skewed income distribution which is unsustainable. These numbers, however, represent a marked improvement towards equity from 1990 as indicated in the improvement of the Gini-coefficient from 0,68 in 1990 to 0,59 in 1995 (Whiteford & McGrath 1994:73). Income distribution among black households has, however, widened, as is indicated by the increase in the Gini-coefficient from 0,35 in 1990 to 0,52 in 1995. Although the general distribution of income has improved, the poorest of the poor have become even more impoverished (Anon. 1997:56).

>     Economic Environment: Pressures

There is also information about the Economic Environment in the following reports:
Metropolitan reports:
	Cape Metropolitan Council (1998 edition)		Durban Pilot Study
	Greater Johannesburg Metropolitan Council (1999 edition)		Greater Pretoria Metropolitan Council (1999 edition)