The state of the macro economy

The current South African macroeconomy is characterised by high and increasing levels of unemployment and low but positive levels of economic growth, giving rise to the phenomenon called "jobless-growth" (see Figure 6.3). The growth that took place was financed by long-term, risky, foreign investment, as can be seen in Figure 6.9. Recent disturbances in the capital market suggests that such a situation is not sustainable.

Figure 6.9 Long-term capital movement and the GDP of South Africa from 1980 to 1997

In addition to the fact that the growth was mostly financed by capital inflows, the production structure has also changed. This change goes hand in hand with the decline in employment. The cost of labour has increased rapidly, as can be seen in Figure 6.10. In order to save input costs, production companies are therefore cutting back on labour costs by reducing their staff numbers (contributing to unemployment), and using technology and machinery, where possible, instead.

The consequence of this has been the sharp rise in both the size and importance of the informal sector which acts as a sponge to absorb the unemployed. It has been estimated that the informal sector accommodates approximately 1.8 million people, 12% of the labour force, which is approximately 15 million in total. Their contribution to GDP was approximately R32 billion in 1997 or 7% of GDP. Both these numbers show the significant role of the informal sector in the South African economy (BEPA 1999) (see Social Environment).

Figure 6.10 Labour indices

The increase in unemployment (through reduction in the number of people employed in industry) puts pressure on natural resources, because people with no income or a very low income are more dependent on natural resources for subsistence needs (e.g. energy, food, shelter). At low levels, the environment can sustain these activities, but when millions of people are dependent on the same resources, it becomes a problem and leads to degradation of the environment. (See also discussion of Figure 6.6).

The South African economy is sensitive to changes within the global economy, illustrated by the fact that as the South African exchange rate depreciates (indicated by the real effective exchange rate), the import of goods and non-factor services as a percentage of GDP increases (see Figure 6.11). Imports therefore become more expensive and consume a larger proportion of the proverbial economic cake – the GDP. This exerts a lot of pressure on the reserves and interest rates.

Figure 6.11 Imports of goods and non-factor services to GDP ratio and the GDP of South Africa from 1980 to 1997

The depreciation of the exchange rate, the volatility of the capital market and the change in the production structure (to be more capital inclined) restrict growth in the GDP to a very large extent and, in turn, put pressure on employment opportunities.

Formal Government policy (the Reconstruction and Development Programme (RDP) and the Growth, Employment and Redistribution strategy (GEAR)) is currently unable to improve the state of the economy due to a number of market and policy failures as well as socio-economic factors, e.g. crime.

>     Economic Environment: Impacts

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)