Manuel to Pour Billions into New Jobs: In a Return to Keynesian Economics, the New South African Budget Includes Large Scale Investment in Public Works Programmes in Order to Directly Create Jobs. Is This a Change of Direction, Asks Neil Ford, or Is South Africa a Special Case?

Article excerpt

The IMF has spent the past 20 years trying to persuade African governments to cut back state interference in the economy and to reign in expenditure. The message has been that the market is best placed to create wealth and therefore jobs, so governments should content themselves with providing an attractive environment to encourage domestic and foreign firms to invest.

Outlining his spending plans for the next financial year, South African Finance Minister Trevor Manuel seems eager to spend his way out of unemployment. He has allocated R20bn ($3.3bn) to public works programmes and hopes to create a million new jobs over the next five years. While the South African economy has grown at a faster annual rate over the past decade than it did during the final 20 years of apartheid rule, large sections of the population remain economically excluded from the benefits of the new South Africa.

It is felt that a higher growth rate is required if new jobs are to be created faster than the population grows. Manuel argues that the state is ideally placed to create employment. He says: "In those areas where government has sole responsibility we've done remarkably well--we've built houses, we've built clinics, we've upgraded hospitals, employed teachers. We've done less well in areas where we're dependent on other agencies, like the private sector, to create employment." The finance minister's plans have been given a fillip by growth forecasts of 3.3% for 2004, up from 1.9% in 2003.

[ILLUSTRATION OMITTED]

Putting the spending plans into context, Manuel explained: "We will continue day by day, and year by year, to translate the resources at our disposal and the opportunities before us into people-centred development, human fulfilment, and freedom."

In a country where so much needs to be done to improve infrastructure and services in poor districts, adopting the Japanese policy on employment may not be a bad idea. In contrast with the European and US policy of cutting spending during periods of economic downturn, Japanese governments have traditionally boosted spending in order to fund large scale construction projects that can create jobs and hopefully provide some long term benefits.

The budget also contained other measures to encourage increased employment. Apart from additional money for education and training, a new empowerment fund is to be set up to provide R6bn ($1bn) worth of loan guarantees to black South African companies and entrepreneurs. Manual explained that the fund "would support, through guarantees and wholesale financing, access to finance in circumstances where there are deserving cases for black economic empowerment." Manuel has also raised the income tax threshold, a move that should particularly benefit lower paid workers and could even help to create jobs at the bottom end of the scale.

BROADER OWNERSHIP OF IDEAS

The finance minister countered criticism of the role of the government's black economic empowerment (BEE) strategy by arguing: "There are a number of transactions in the mining sector which are doing exceedingly well, although that's partly occasioned by the fact that the mining industry is dependent on the government for licensing."

He added: "What we've seen in the financial sector is business coming together to develop a financial sector charter focused on a whole myriad of issues, from resource development to availing capital for empowerment transactions. That's exceedingly encouraging because this will allow for much broader ownership of the ideas and the programmes in the financial services sector."

While other economic indicators have improved during the post-apartheid years, unemployment has remained stubbornly high. The budget deficit remains moderate and total state debt has fallen from 64% of GDP to under 50%; inflation has been brought under control and 1.6m houses have been built for the poor.

While the informal economy undoubtedly provides a level of employment and income for many of the officially unemployed, few prosper without formal employment and many struggle to survive. …