The Magazine

Against All Odds

A flourishing democracy takes root in South Africa.

Mar 22, 2004, Vol. 9, No. 27 • By MAX BOOT
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Instead of redistribution, the government focused on economic growth. A number of state-owned enterprises were wholly or partially privatized. Farm subsidies were eliminated. Tariffs and taxes were reduced. The South African Reserve Bank has pursued a tight monetary policy that has reduced inflation from almost 10 percent in 1994 to 4 percent today. The rand has appreciated against other currencies including the dollar. The government is now relaxing exchange controls. The only monetary blemish is that interest rates remain high--about 11 percent--which economists here attribute to an unwarranted "risk premium" being demanded for South African bonds in leery foreign markets.

On the fiscal side, the government has reduced the budget deficit from 10 percent of GDP in 1994 to 2.4 percent in 2004--lower than in the United States. Unlike almost every other African country, South Africa has low foreign debt. It doesn't need World Bank or International Monetary Fund handouts, or the bossy foreign bureaucrats who come with them. The government finances itself with a tax burden that consumes 28 percent of GDP--lower than in Europe, about the same as the United States. Corporate and capital gains tax rates are lower than in the United States. Helped by the lifting of sanctions, South Africa has been growing at 2 to 3 percent in recent years. The economy is no longer entirely dependent on exports of diamonds and precious metals. The manufacturing sector, led by foreign auto companies like DaimlerChrysler, BMW, and Toyota, has been growing fast, and so has the service industry.

With a per capita GDP of $9,409 (adjusted for the cost of living), South Africa is richer than Russia, China, Mexico, Turkey, or Poland, to say nothing of the rest of Africa. That's the good news. The bad news is that the gap between haves and have-nots is the size of the Kalahari Desert. South Africa's income inequalities are exceeded only by Brazil's. About 15 to 20 percent of the people (mainly whites) are as rich as any First Worlders; the rest are as poor as any Third Worlders.

Just a few miles outside Cape Town, with its gleaming office towers and luxury hotels, are shanty towns of almost unimaginable squalor. In one giant township, Khayelitsha, most of the 500,000 blacks live in handmade shacks of tin and sheet metal. The vast majority lack electricity, and they're lucky to have an outhouse. A typical hut is less than 40 square feet--the size of a walk-in closet in one of the seaside mansions located a few miles away. This is the kind of place where wild dogs and little children roam the dusty lanes, men sit around drinking beer at midday, and the mamas do the laundry by hand.

Similar shanty towns surround all of the major cities. The government's focus since 1994 has been on improving basic services in these townships. And, driving around Khayelitsha, one can see utilities going up, small stores opening, and some stucco homes replacing the tin shacks.

The one thing the government has not been able to deliver is enough jobs; more than 30 percent of the population is unemployed. It would have been easy enough to organize giant public works and welfare schemes but, as Zola Skweyiya, the minister in charge of social development, puts it, "We do not want to create a syndrome of dependency on the government." (How often do you hear talk like that in the developing world?)

The government has been pushing a Black Economic Empowerment program, whose goal is to transfer 25 percent of land and businesses to blacks over the next 10 years. Like most affirmative action schemes, this has mainly benefited the middle and upper classes, making tycoons of many well-connected former ANC big shots. There's nothing especially wrong with this, but the impoverished masses have been left behind.

The ANC has shown commendable restraint in not pursuing the redistributionist schemes urged by its left-wing coalition partners, the Communist party and the Congress of South African Trade Unions. The question is whether the ANC will continue resisting calls for Zimbabwe-style land grabs even if the majority remains desperately poor. In all probability it will, so long as President Thabo Mbeki and his close associates remain in charge, but the continued existence of mass poverty casts a shadow on the country's future. Such extreme deprivation, existing in close proximity with great wealth, is a proven incubator of various social pathologies.