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An integrated approach to alleviating poverty in South Africa

Boyboy Motloung and Ronald Mears

Sustainable economic development is a pattern of development that permits future generations to live at least as well as the current generation.[1] It also includes environmental consciousness without diminishing the capital assets and environmental capital.[2] However, there is little consensus on what constitutes sustainable economic development strategies that can benefit the poor. Policies are increasingly being directed towards what has been described as high quality growth, or growth in GNP that is expected to ‘trickle down’ benefits to workers at low levels of income.[3] However, this process has failed to benefit the poor. Dollar and Kraay argue that trickle-down suggests a sequencing in which the rich get richer and eventually benefits trickle down to the poor.[4] In contrast, the growth-enhancing policies of environmental economics and macro-economic stability can create a better environment for poor households to increase their production and income. This article shows how poverty can be alleviated in Africa using the diversity of the creative development strategy. Institutions and policies that sustain economic development and create employment opportunities are urgently needed in Africa to improve the lives of present and future generations.

The African continent is characterised by high unemployment rates that lead to poverty among many countries and households. This is largely due to the rate of economic growth, which is too low to generate more employment opportunities for the unemployed. This paper tests the hypothesis that a low economic growth rate is the main determinant of unemployment and that this makes the problem of poverty more visible in Africa. The article postulates that policy-induced growth is as good for the poor in developing countries as it is for the developed countries. Participation in the global economy can benefit the poor to the same extent in typical African households.[5] A policy framework that enhances a high growth rate is important to develop an appropriate enabling environment for the creation of more labour-intensive employment.[6] This can enable poor people to alleviate their state of poverty by giving them employment and income.

There is an urgent need in Africa for a package of economic and social policies, which stimulate economic growth and create employment opportunities that benefit poor societies. The creation of competitive and more labour-intensive employment is arguably the best solution to reduce poverty. Moreover, the issue of poverty alleviation in Africa has to be on the agenda all the time and has to be researched further.

Growth is Good for the Poor

Motloung argues that sustainable economic growth is the best way to reduce poverty over time.[7] The world economy grew during the 1990s, but there is ongoing debate about the extent to which poor countries are benefiting from this growth. Economic growth and more labour-intensive employment creation can be a vehicle for sustainable economic development. This form of development can benefit both poor and rich, as is shown by the historical experiences in the industrialised nations. Although the relationship between economic growth and poverty is neither inevitable nor universally effective, it provides the best path for dealing with poverty.

The traditional approaches to economic growth can serve as models for those nations struggling to free themselves from the grip of poverty. Many of the world’s poor are caught in a web of deteriorating conditions.[8] In sub-Saharan Africa, more than 100 million people do not get enough to eat. Tietenberg states that, in Zambia, twice as many children died from malnutrition in 1984 as in 1980.[9] The picture is not totally bleak, however, and success against poverty is possible. Some Asian countries have done well in the 1980s. For example, Thailand reported a 50% decrease in its poverty rate and rising standards of living since 1960.[10]

Economic growth needs to be revived in developing countries, because that is where the links between economic growth, the alleviation of poverty and environmental conditions operate most directly. The developing countries are part of an interdependent world economy and their prospects depend on the levels and patterns of growth in industrialised nations. The medium-term growth prospects for industrialised countries are between 3% and 4%.[11] This is the minimum that international financial institutions consider necessary if these countries are to play a part in expanding the world economy. Venter states that a growth rate of 6% to 7% is required in sub-Saharan Africa between now and 2010 to put Africa’s economies back on track.[12] Such growth rates may be environmentally sustainable if industrialised nations can continue the recent shift in growth towards less material and energy-intensive activities, and the improvement of efficiency in using materials and energy.[13] Such growth rates are, however, not achievable without significant assistance from the developed countries, given the current conditions in most African countries. Developed countries are reluctant to finance the New Partnership for Africa’s Development (NEPAD) and to eliminate the continent’s debt crisis. This has constrained economic development in many African countries.[14] Table 1 provides more background on the current situation in selected African countries, with regard to growth rates, poverty levels, human development and human poverty.

Table 1: Measures of growth and poverty in selected African countries, 1993–2001

Country	GNP (US $ billions, 1993)	GDP per capita annual growth (%, 1990-1999)	Population below poverty line (%, 1993-1999)	Human development index (HDI, 1999)	Human poverty index (HPI, 2001)
Botswana Lesotho Malawi Mozambique Namibia South Africa Swaziland Zambia Zimbabwe	3.9  1.3  2.1  1.4  2.8  118.3  1.0  3.3  5.6	1.8  2.1  0.9  3.8  0.8  2.8  0.4 -2.4  0.6	33.3  43.1  -  37.9  34.9  11.5  -  63.7  36.0	0.621  0.569  0.397  0.313  0.601  0.702  0.615  0.431  0.563	-  25.8  43.4  48.3  34.5  18.7  -  40.0  36.2

Sources: UNDP, Human Development Report 2001, New York: Oxford University Press, 2001, pp 145–151; UNDP, Human Development Report 1996, New York: UNDP, 1996, pp 186–187.

As Table 1 shows, in 1993, South Africa had the largest GNP at US $118.3 billion, followed by Zimbabwe, Botswana, and Zambia. Zambia had a negative GDP growth of -2.4%, and the highest proportion of the population living below the poverty line, at 63.7%. South Africa recorded the highest HDI of the countries selected and the lowest HPI in 2001.[15] Interestingly, Mozambique registered the highest GDP growth but also the highest HPI. This is largely due to the problem of widespread inequality in many African countries. The implication that can be drawn is that improved patterns of economic growth need to be structured in such a way that this benefits the poorest of the poor in Africa.

Most of the developing nations are labour-surplus economies and it follows that their development strategy has to be labour-intensive. Development has to be about what human communities do for themselves.[16] A labour-based strategy serves the twin purpose of capitalising on an abundant resource and providing a source of income to large numbers of people. This strategy depends on the continuing maintenance and creation of social and economic environments within which people’s power can be effectively exercised.[17] This strategy builds on the knowledge people already have. A strategy to alleviate poverty requires the active involvement of the people themselves in the design and implementation of activities designed to improve their welfare.[18]

The African people can only help to reduce their poverty if the local, regional and national government policy framework gives suitable support for development. The creation of more labour-intensive employment needs a bottom-up approach. For success, the key ingredient is the empowerment of people to take increasing charge of their own development, combined with a clear knowledge of environmental constraints and the requirements to meet basic needs. The increased global control of Africa’s resources and the deepening economic crisis on the continent have influenced the intensity of environmental conflict. The linkage between structural adjustment and the deepening of environmental conflict in Africa underscores the role of economically rooted contradictions in contests over the environment.[19]

In many cases, the very survival of excluded groups, classes, regions and nationalities is at stake. Much of the conflict in Africa stems from the degradation of land, for instance in Central Africa and in the Sahelian belt of West Africa. This has also featured prominently as one of the reasons for the land invasions in Zimbabwe and the wars in Sudan, Somalia, and the Horn of Africa.[20] The solution therefore lies in the role of the state as a mediator of relations between people, global capital and the environment. Sustainable economic growth is a prerequisite to implementing a human development strategy that alleviates poverty in Africa. Achieving this goal requires social and natural scientists to work together to understand global change, and to recommend courses of action to ensure long-term well-being.[21]

Structural adjustment programmes were first introduced by the International Monetary Fund (IMF) and World Bank, to provide assistance on concessional terms to low-income developing countries facing protracted balance of payments problems. This was granted on condition that these countries agreed to undertake medium-term structural adjustment to foster economic growth and strengthen the balance of payments.[22] Key reform elements include the liberalisation of trade, interest rates and agricultural prices. The policy prescriptions of the IMF/World Bank have been, and still are, based on a blend of finance and adjustment. In the adjustment policies, however, the two bodies come in for criticism. They have been described as anti-developmental since there are very few clear cases of economic success in African countries. It has been argued that if African economies are to grow, they have to move from the traditional emphasis on agricultural production towards labour-intensive manufacturing.[23]

Economic globalisation has also been accelerated by the decline in barriers to investment and free trade, including the lowering of tariffs and other barriers to international trade. Countries such as Ghana and Uganda have been at the forefront of such reforms. The majority of African countries have introduced the reforms, at least in part.[24] The driving force behind economic globalisation includes technological advancement, economic expansion and the associated world-wide wave of economic liberalisation. Faced with the imperative of globalisation, the idea of a permanent job disappears with an increase in short-term contracts or part-time work. In many African countries, economic restructuring and privatisation in response to economic globalisation pressures have resulted in significant job losses.[25] In developing countries in particular, it is feared that economic globalisation, which has fuelled economic liberalisation and the desire to attract foreign direct investment (FDI), may lead to high transitional unemployment, and increased wage and income inequality.

However, there can be no sustainable economic growth without developing human resources in a meaningful manner.[26] The link between sustainable economic growth and human development helps to enhance the quality of life. The essential characteristic of the human-centred approach is that it is a holistic process. It also aims to expand the practical ability of individuals, communities and other collectives to initiate, orchestrate and manage their own development. The whole process is to be influenced and guided by the people themselves.[27] African local communities have to take charge of their own socio-economic development needs in future, because real development is self-development. Government, non-governmental organisations and big business are essential for giving support, but local initiative is the engine driving such development.[28] Wealth is created by people adding value to raw materials and not by government. Serageldin gives credence to the view that sustainable economic development is best achieved by human beings.[29] This principle of a human-centred approach is applied throughout this article.

The Strategy to Alleviate Poverty in Africa

Figure 1: Creative development strategy to reduce poverty in African countries

 

 

Source: Adapted from BI Motloung, ‘Combating poverty in South Africa’, Unpublished MCom dissertation, Vista University, 1999, Chapter 6.

Figure 1 shows a development strategy to combat poverty in Africa. African countries need a comprehensive and internally consistent set of policies aimed at initiating sustained economic growth that reduces poverty.[30] This can be in the form of existing policies and better policy integration and monitoring. For both the poorly educated rural and urban unemployed, high growth in labour-intensive employment, support for informal sector activities, and intensive education and training are required to integrate them into the job market.[31] Community-based public works programmes and adequate social safety nets can also be important interventions. For the young unemployed, with no labour market experience, skills training and assistance with job search and placement can be the most appropriate solution.

Export-led trade is the driving force behind many of the successes in a number of countries as shown in Figure 1. Export orientation in industrial development is a cure for stagnation in an uncompetitive and low-productive economy.[32] An outward-looking trade policy requires that the country be proficient in the production of at least one type of product. This is a constraint to export policies, since the low cost of production requires the economies of scale that can be achieved by long production runs. Another constraint to the export-led approach is that of growing protectionism.[33] Export industries usually create more employment than imports and inward industrialisation policies. A change of Africa’s trade policy towards the promotion of exports is consistent with the objective of creating more work. However, Dollar and Kraay argue that export promotion is related to growing inequality.[34] In contrast, Frankel and Romer argue that trade openness is good for the income of the poor.[35] The national policy needs to be outward-looking, but adapted to become more labour-intensive. This can help to reduce poverty in Africa by creating growth and trade with the world. At the same time, other strategies should not be neglected.

Figure 1 also shows that import substitution policies can contribute to economic growth and employment creation. Their contributions can only be seen as a partial success. These trade policies succeed in getting some imported goods produced locally, but have little impact on total imports.[36] They pay little attention to the activities of small entrepreneurs, who are involved in informal cross-border trade and who are also part of the movement of goods and capital throughout the region. The activities of small entrepreneurs involved in cross-border trade appear to have been overshadowed by attempts to support the activities of big business and capital.[37] Africa’s imports are mainly machinery and vehicles. Efficient import substitution industries in these products require markets and production runs that are beyond the size of the African economy. These markets have a larger export promotion than import substitution component. The implication is that informal sector enterprises represent a means of providing more employment than the formal sector. Import substitution policies have to be considered a significant strategy to reduce poverty in Africa.

Figure 1 shows that an inward industrialisation strategy is a cure for many structural economic problems, and specifically the overregulation of the African economy. Certain important elements include the provision of “basic needs” goods, the generation of income in providing these goods, and the stimulation of employment opportunities resulting from the envisaged expansion in the market. Inward industrialisation can change potential demand into effective demand, which means creating employment opportunities for the increasing labour force in the urban areas. The increased employment can bring about increased purchasing power and the satisfaction of basic and other needs.[38] Empirical evidence shows that an outward-looking policy is more successful than an inward-looking policy. The inward industrialisation strategy has significant implications for work and employment creation in Africa. In a global economy this is not always the best strategy, but all avenues have to be utilised to address unemployment and poverty.

Full employment is the objective of governments in most countries. Lessons from the Australian labour policy show how trade liberalisation and reforms in labour policy can create employment. In the 1980s, the Australian government introduced a wide-ranging set of policies to help foster the internationalisation of the economy, by liberalising the economy and substantially reducing the protection of industry, abolishing exchange controls, and introducing tax reforms and more liberal foreign investment policies.[39] However, far-reaching labour market reforms were also implemented, for instance with regard to wage-setting mechanisms, trade union structures, the social welfare system, skills development, and wage moderation. These policy changes had the eventual effects of liberalising the labour market, by encouraging enterprise bargaining and in many instances individual contracts of employment.[40] They also helped the Australian economy to adjust to international competition. Most of the negative employment consequences of opening up the economy were avoided. Trade liberalisation and reforms in labour policies can reduce unemployment and poverty. Such policy reforms are also needed to address unemployment and poverty in African countries.

Education influences the generation of income and wealth. Political leaders in Africa saw education, first as an important means to forge national unity, and second, as the most important instrument to increase the economic growth of the underdeveloped African countries.[41] The World Bank recommends that primary and lower secondary education be a generally intellectual education.[42] During the senior secondary phase, some widely applicable job-related skills can be added.[43] The expansion of education in itself cannot solve the problem of unemployment, especially for those with no previous work experience, but it is probable that newly-educated entrants to the labour market may jump the queue for jobs.[44] The implication is that education is an instrument of integration and social mobility. It has the potential to equip African people with the knowledge to deal with some of the challenges of the 21st century.

Many people have turned to the informal sector for survival, and are active in informal economic structures and in collectives at the local level. A large portion of overseas development assistance flows directly to local communities and the informal sector.[45] Many poor people, especially women, earn a living in the informal sector.[46] These types of jobs are linked to traditional skills, such as brewing and cooking. They need little initial capital and can be pursued intermittently. Cooperatives, self-reliance and self-help groups can overcome some of the drawbacks of the informal sector.[47] Stokvels can help people to accumulate money to maintain themselves and to invest in small or micro-enterprises. Informal sector cross-border trade is also important to achieve higher rates of economic growth that create jobs. Tthus, the business of small entrepreneurs involved in cross-border trade should be facilitated to encourage the development of the SMME sector and the economic empowerment of women.[48] The informal sector can thus help to combat poverty in Africa.

The key to reducing poverty is resumed growth.[49] However, for some people with outdated skills, the youth, the elderly, or children in large families, sustainable economic growth is not a complete solution. For such groups explicit remedial programmes are needed. Moreover, infrastructure is important for ensuring that economic growth is consistent with poverty reduction. Access to minimal infrastructure services is one of the essential criteria for defining welfare. Repairing roads can generate opportunities for employment using labour-intensive methods. This can be attained with the same public expenditure amounts, but with greater spin-off effects to the community. The employment consequences of slum improvement projects are normally not included in the appraisal and design of projects.[50] For example, sections of local roads can be maintained by residents staying close to that section of the road, for a small fee. Personnel from the local roads department can inspect and supervise the quality of work. Training can also be provided on site.[51] The choice of labour-based techniques is not made solely on the grounds of employment creation, but also because they can achieve the same technical standards as equipment-intensive techniques at equal or lower cost.[52]

In addition, public spending by government can enable poor households to access productive assets and employment opportunities, and to receive adequate payment. This can be achieved by increasing the productivity of labour and assets of poor households through access to capital, education and skills.[53] A policy designed to bring about far-reaching structural changes in the distribution of assets and services is needed to reduce poverty.[54] This can be in the form of transfer of assets and services from the wealthier sector of the population, with market and spatial reforms benefiting the less well-off. A policy designed to modify the size distribution of income at the upper levels through the enforcement of legislated progressive taxation on incomes and wealth can also help to combat poverty. Without such structural changes and asset redistribution, the chances of improving the living conditions of the majority of rural and urban poor are improbable, perhaps even impossible.[55] Poverty can also be reduced in Africa through the provision of public consumption goods and services for the poor, to create a social safety net for those who may be bypassed by the development process. Thus, the redistributive policies for income and asset transfers have to be developed to benefit the poorest of the poor in Africa.

Todaro argues that future growth and quality of life are dependent on the quality of the environment.[56] The solution to environmental problems can enhance the productivity of resources and improve living conditions among poor people.[57] It is increasingly questioned whether the global economic system can continue to grow without undermining the natural systems which are its ultimate foundation.[58] Public involvement and labour-intensive approaches can, for instance, make the waste collection and processing system effective at a low cost. This can be achieved by taking decisions that match the environment, and avoiding a fixed top-down approach. In this way, African countries can address specific environmental degradation problems while addressing unemployment.

Development represents a mental challenge to which people can respond. The individual is seen as the agent and not the object of sustainable economic development. The only criterion for measuring its ultimate success or failure is what it does to enhance the lives of individual human beings.[59] This kind of developmental policy is needed to alleviate poverty in Africa. Any policy to integrate the poor communities into economic life has to enable them to contribute fully to national progress.[60] Many people seek to protect and enhance the quality of the environment now and for their children. This is based on a more people-centred approach to combating poverty. The implication is that African people have to initiate, manage and implement programmes that are aimed at improving their welfare.

However, strategies to reduce poverty in Africa have focused mainly on the achievement of target growth rates of output or per capita income. These strategies have ensured a high quality of services and commodities for the wealthy few at the expense of the impoverished majority.[61] This has rendered these strategies ineffective for many problems facing African countries. The creative development strategy analysed above is different from those strategies designed to achieve particular growth targets, in that it includes the SMME and informal sectors as a means to reduce poverty. The question is not whether the informal sector is inherently evolutionary or involutionary, but what strategy is to be followed to cause evolutionary growth.[62] The informal sector can provide employment for people that the formal sector is unable to absorb. This strategy can go some way with the support of technology and big businesses to alleviate poverty in Africa.

South African Examples and Applications to Reduce Poverty

As in the rest of the continent, sustainable economic growth is needed in South Africa to create jobs and reduce poverty. This specific example is used because South Africa is one of the richest countries on the continent. Nevertheless, it has the most unequal distribution of income. The employment strategy in South Africa has been developed to benefit the poorest of the poor and is therefore also applicable to the rest of Africa.

The Poverty and Inequality Report estimates that the South African economy has created few jobs in the formal sector in recent years.[63] Fewer than 10% of new job seekers have been absorbed into wage employment. This poor record is due to capital-intensive production, which increases continually. This results in output growth that has failed to translate into employment growth. Since 1994, South Africa has been subjected to a significant increase in foreign competition, following the adoption by the South African government of an outward-oriented trade and industrial strategy.[64] While the expansion of exports has been significant, the welfare implications are less clear.

The rate of economic growth has to be increased to about 6% per annum, if South Africa is to reduce unemployment and poverty significantly. To achieve such growth rates, the level of investment needs to be above 25% of GDP.[65] Even so, continuing reforms to relax arbitrary interventions in labour, capital and product markets can also support more labour-intensive and efficient patterns of growth. Moreover, sustainable economic growth requires a recovery of investment and savings, one of the major macro-economic challenges facing the government.

The transformation of the economy from its inward-orientated focus to an outward-orientated or export-driven economy is also essential. High export growth is needed to prevent the balance of payments from becoming a constraint on the economic growth rate. The government’s trade and industry reform strategy consists of elements designed to help South African industry to become internationally competitive.[66] For such a strategy to benefit poor people, the use of labour-intensive techniques is encouraged. This can help to deal with the possibility of short-term adverse impacts of globalisation on poor people, such as the shedding of unskilled labour or lowering of the social wage in certain industries.[67] As South African industry responds to trade liberalisation, it is important to monitor the impact to ensure that the poor do not bear an excessive share of the adjustment burden.

South Africa has thus implemented a skills development act (1998) to strengthen education and training efforts.[68] To address the difficulties facing new entrants to the labour market, the act combines learning with work experience in areas where there is a need. Those already employed can be afforded more extensive training to improve productivity and efficiency. The Department of Environmental Affairs and Tourism has also implemented a Tourism Poverty Relief Project, leading to 980 permanent jobs and 82 000 temporary jobs between 1999 and 2001.[69] In certain cities, such as Johannesburg and Durban, local eco-tourism development plans recognise the opportunities offered by informal cross-border trade and are putting policies in place to attract cross-border traders from the region.[70] Although such activities were not encouraged in the past, it is estimated that 86% of black people are involved in informal sector activities in the country.[71] The inclusion of informal sector trade in the vision of policy makers can help to facilitate the economic empowerment of individuals and a significant part of regional trade activities.

Human-centred development is arguably the ultimate objective in enabling people to enjoy long, healthy and creative lives. In South Africa, this policy is strongly supported by the African National Congress government.[72] It weaves the development processes around people rather than weaving people around the developmental processes. In the long run, it is human growth that matters most and not economic growth. The government is pursuing policies that can enable all citizens to participate actively in all facets of the social and economic life of the country. Investment in people is a national priority involving all sectors of the economy.[73] South Africa has to go back to more labour-based forms of production, because this is the best way to achieve sustainable employment and economic growth. In the long-term, policies that result in sustainable economic growth and development are the key factors influencing the ability of individuals, households and communities to alleviate their plight.[74]

Conclusions

The African continent is characterised by low economic growth which causes unemployment and poverty. Policy-induced growth is seen as good for the poor as it creates employment opportunities. A policy framework that enhances growth rates is important to develop an enabling environment for the creation of more labour-intensive employment. The issue of poverty alleviation in Africa has to be on the agenda all the time, and further research by economists, environmentalists, policy makers and those interested in sustainable economic development is needed.

Sustainable economic growth is the best solution to reduce poverty over time. A growth rate of 6% to 7% is required in sub-Saharan Africa between now and 2010. The linkages between structural adjustment and the deepening of the environmental conflict underscore the role of economically-rooted solutions for the environment, and have hampered economic growth in Africa in the past. Economic restructuring and privatisation in response to economic globalisation pressures have also resulted in significant job losses. However, credence is given to the view that sustainable economic development is best achieved by human beings.

Export-led trade is the driving force behind many of the successes in a number of countries. Export orientation in industrial development is a cure for stagnation, especially in an uncompetitive and low-productive economy. Export industries can provide more employment than import-oriented and inward-looking industries. The change of Africa’s trade policy towards the promotion of exports is consistent with the objective of creating more employment. A national policy that is outward-looking, but adapted to being more labour-intensive, is needed. This can alleviate poverty in Africa by creating growth and trade.

Import substitution policies can also contribute to economic growth and employment creation. These trade policies succeed in getting some imported goods produced locally, but have little impact on total imports. Efficient import-substituting industries require markets and production runs that are beyond the size of the African economy. These markets can be entered under the banner of export promotion rather than import substitution. Import substitution policies have to be considered as one of the strategies to reduce poverty.

The inward industrialisation strategy is also seen as a cure for many structural economic problems. Inward industrialisation can change potential demand into effective demand, which means creating employment opportunities for the increasing labour force in the urban areas. The increased employment can bring about increased purchasing power and the satisfaction of basic and other needs. Empirical evidence shows that an outward-looking policy is more successful than an inward-looking policy.

Full employment is a long-standing objective of labour policies. Faced with limited employment opportunities, education cannot solve the problem of unemployment. Infrastructure is also viewed as important for ensuring that economic growth is consistent with alleviating poverty. The labour-based techniques to infrastructure development are the most important instruments for employment-intensive economic growth. The role of transfer payments and safety nets is important in combating poverty for those who are unable to work.

Future growth and quality of life are dependent on the quality of the environment. The solution to environmental problems can enhance the productivity of resources and improve living conditions among the poor. Development is about people and this kind of developmental policy is important to alleviate poverty in Africa.

Boyboy Motloung is an MCom graduate from the Department of Economics, Vista University, Soweto Campus, and Ronald Mears is Professor of Economics, Department of Economics, Rand Afrikaans University.

Notes and references

Mit freundlicher Genehmigung von: Africa Insight, Vol.33 No.4 (2003)

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