Answer to Question #207825 in Psychology for Emmanuel Egbuagha

Question

Discuss the Accelerated and Shared Growth Initiative (AsgiSA) in detail.

Answer 1

The challenge

In 2004, the South African government was given the mandate to reduce poverty and unemployment by half by 2014. These goals are attainable; in fact, we expect to exceed them as the economy's performance and job-creation capability continue to improve.

Growth averaged around 3% per year during the first decade of independence, from 1994 to 2004, a significant increase from the decade before 1994, when growth was 1% per year. Since 2004, annual growth has topped 4%, peaking at over 5% in 2005. Expectations for the present good performance to continue are high; bank and rating agency estimates usually predict that growth will remain around 4.5 per cent in the medium term. The level of business confidence is quite high. The Rand Merchant Bank/Bureau for Economic Research business confidence index has maintained at high levels for a prolonged time, with 86 per cent of businesses anticipating improved business conditions to continue. According to Rudolf Gouws, chief economist of Rand Merchant Bank, "such a stretch of unbroken positive confidence has not before been documented in the index's 30-year history." Consumer confidence has followed a similar trend.

Foreign capital inflows have been robust since 2003, with an R80 billion (about US$13 billion) influx into the JSE share market between the beginning of 2005 and the first quarter of 2006. During the same time period, South Africa saw numerous major inbound foreign direct investment transactions.

Good economic policies, a strong domestic mood, and a favourable international environment have created a chance to build on these achievements and improve our performance even further.

The greater growth rate has resulted in significantly improving job creation. Around 540 000 net new employment were generated in the previous year (through September 2005). Though unemployment remains high at over 26 per cent, it is far lower than the 32 per cent figure achieved a few years ago. According to a recent study, the lowest 20% of South Africans' actual earnings increased by 30% in real terms between 1994 and 2004. However, lowering unemployment to below 15% and halving poverty to less than one-sixth of households will require sustained and strategic economic leadership from the government and effective partnerships between the government and stakeholders such as labour and business.

Consultation

As we investigated our options, the government spoke with a variety of stakeholders. The Deputy President chaired the AsgiSA Task Force, which comprised the Ministers of Finance, Trade and Industry, and Public Enterprises, the Premiers of Gauteng and the Eastern Cape, and the Mayor of Johannesburg, who represented the South African Local Government Association. Many additional ministers and their departments and organized business and labour, religious leaders, youth, and women in different organizations and forums were included in the talks. The government also sought advice from domestic and foreign specialists. Asia will be implemented, consultation and discussion will continue.

Accelerated and shared growth goals

According to government assessments backed by some independent studies, the growth rate required to meet our social objectives is about 5% on average between 2004 and 2014. We have established a two-phase objective after realistically analyzing the economy's and the international environment's capacities. From 2005 and 2009, we aim for an annual growth rate of 4.5 per cent or greater during the first phase. In the second phase, from 2010 and 2014, we aim for an average growth rate of at least 6% of GDP (GDP).

In addition to these growth rates, our societal aims necessitate improving the environment and the additional labour-absorbing commercial activity availability. More broadly, we must guarantee that the rewards of prosperity are distributed so that poverty is as close to elimination as feasible and that the enormous disparities that continue to afflict our society are reduced further.

Our vision for our development path is a vibrant and inclusive economy in which products and services are diverse, more value is added to our products and services, production and distribution costs are reduced, labour is easily absorbed into long-term employment, and new businesses proliferate and expand.

The balanced growth

In two crucial ways, we will also place our expansion on a more even keel.

Recent growth has been driven by a mix of high commodity prices, large capital inflows, and robust domestic consumer demand, boosted by anti-poverty policies, rising employment, and rising asset prices. This combination, however, has had the effect of strengthening the currency, making it difficult for exporters outside of the commodities industry or those competing with imports to stay competitive. This resulted in a trade deficit of 4.3% of GDP in 2005, largely funded by capital inflows but demonstrated South Africa's struggle to compete effectively outside of the commodity market.

The second imbalance stems from the fact that, while the social grant program has provided the substantial impetus to poverty reduction and income redistribution, about one-third of South African households are still unable to profit directly from our economic progress. Including this segment of the population in the mainstream economy will significantly boost our growth potential.

Sustainable development of approximately 6% necessitates the correction of these two imbalances. We used a growth diagnostic study to uncover the 'binding limitations' on attaining our goals while designing a faster and more shared growth. According to the approach, during all successes.

Constraints on binding

The list of binding restrictions derived through analysis and consultation has been kept small and targeted to enable a clear and consistent set of replies.

The currency's volatility and level. Despite significant advances in fiscal and monetary policy administration, currency volatility deters investment in tradable products and services other than commodities. The Rand is still relatively volatile, although the degree of volatility has decreased. At the moment, relative volatility is accompanied by an inflated currency because economic resources are being directed into restricted sectors of investment, leaving an insecure foundation for the future. Another option for macroeconomic development is spending management, including government capital investment.

The national logistics system's cost, efficiency, and capacity. Backlogs in infrastructure and investment and market arrangements that discourage competition drive up the cost of transporting products and services across long distances. Logistics deficiencies are acutely felt in a country the size of South Africa, with a significant output inland and some distance from the major industrial markets.

A shortage of adequately trained labour is exacerbated by the influence of apartheid spatial patterns on labour costs. The hardest parts of apartheid's legacy to unravel are its purposely poor education system and illogical population settlement patterns. During a period of expansion, it is clear that we lack adequate competent professionals, managers, and artisans and that unequal educational quality remains a contributing problem. Furthermore, the fact that many impoverished people live a long distance from their places of employment raises their labour cost.