State of the Nation - South Africa 2004-2005 docx

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Compiled by the Democracy and Governance Research Programme,
Human Sciences Research Council
First published in South Africa by HSRC Press
Private Bag X9182, Cape Town, 8000, South Africa
www.hsrcpress.ac.za
Published in the rest of the world by Michigan State University Press
East Lansing, Michigan, 48823-5202, United States of America
© 2005 Human Sciences Research Council
First published 2005
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Contents
List of tables vi
List of figures viii
Foreword xi
Mark Orkin
Acronyms xiii
Introduction: President Mbeki’s second term: opening the golden door? xix
John Daniel, Roger Southall and Jessica Lutchman
Part I: Politics
Introduction 3
1 Race and identity in the nation 9
Zimitri Erasmus
2 The state of parties post-election 2004: ANC dominance and
opposition enfeeblement 34
Roger Southall and John Daniel
3 Rural governance and citizenship in post-1994 South Africa:
democracy compromised? 58
Lungisile Ntsebeza
4 The state of corruption and accountability 86
Sam Sole
5 The state of the public service 112
Vino Naidoo

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Part II: Society
Introduction 137
6 The state of crime and policing 144
Ted Leggett
7 The state of the military 117
Len Le Roux and Henri Boshoff
8 The state of South Africa’s schools 210
Linda Chisholm
9 HIV/AIDS: finding ways to contain the pandemic 227
Tim Quinlan and Sarah Willan
10 Multiple communities: Muslims in post-apartheid South Africa 252
Goolam Vahed and Shamil Jeppie
11 The state of the art(s) 287
Lynn Maree
12 The state of the archives and access to information 313
Seán Morrow and Luvuyo Wotshela
13 A virtuous circle? Gender equality and representation in
South Africa 336
Shireen Hassim
Part III: Economy
Introduction 363
14 An overview of the South African economy 367
Stephen Gelb
15 Who owns South Africa: an analysis of state and private
ownership patterns 401
Reg Rumney
16 The state of employment 423
Miriam Altman
17 Black empowerment and corporate capital 455

Roger Southall

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18 ‘Empty stomachs, empty pockets’: poverty and inequality
in post-apartheid South Africa 479
Benjamin Roberts
19 A better life for all? Service delivery and poverty alleviation 511
David Hemson and Kwame Owusu-Ampomah
Part IV: South Africa in Africa
Introduction 541
20 South Africa and Nigeria: two unequal centres in a periphery 544
John Daniel, Jessica Lutchman and Sanusha Naidu
21 South Africa’s quiet diplomacy: the case of Zimbabwe 569
Lloyd M Sachikonye
Contributors 586
Index 589

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List of tables
Table 2.1 Outcome of the national elections, 1994, 1999 and 2004 38
Table 5.1 Public service growth in personnel
(including apartheid period) 114
Table 5.2 Comparative economic figures for white areas and black
homelands, 1985 117
Table 7.1 Expenditure estimates and summarised outputs for DoD
programmes for the medium-term expenditure framework 2004–07

(R thousands) 184
Table 7.2 Itemised expenditure for DoD, MTEF 2004–07 (R thousands) 184
Table 7.3 Numbers of members of forces integrated into SANDF 187
Table 7.4 Racial composition of the SANDF, 1994, 1998, 2003 188
Table 7.5 Gender composition of SANDF, 1994, 1998, 2003 188
Table 7.6 Approved force design of SANDF 192
Table 8.1 Provincial education expenditure per programme (R millions) 209
Table 8.2 Expenditure per learner by province (Rand) 209
Table 8.3 Enrolment in educator training at universities and technikons, 2000
and 2001 214
Table 8.4 Changing union membership, 1999– 2002 214
Table 8.5 Number of teachers in schools, per province 223
Table 9.1 Summary of HIV/AIDS-specific allocations in the
national Budget 233
Table 9.2 Overall HIV prevalence (extrapolated from study sample)
by province, South Africa 2002 240
Table 9. 3 Provincial HIV prevalence, antenatal clinic attendees, South Africa
1994–2002 241
Table 9.4 Extrapolation of HIV prevalence amongst antenatal clinic attendees
to the general population, 2000–02 241
Table 9.5 Cost of HIV to three companies in KwaZulu-Natal,
South Africa 243
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Table 10.1 Muslim population per province and race 253
Table 14.1 Government budget: size and distribution 371
Table 14.2 Decomposition of aggregate demand, 1989–2003 392

Table 14.3 Sectoral output shares, 1995 prices 395
Table 14.4 Percentage shares of merchandise exports, by sector 396
Table 16.1 Unemployment rates by region and gender, 2003 (percentages) 424
Table 16.2 Unemployment trends (percentages) 425
Table 16.3 Summary of net employment creation (thousands) 434
Table 16.4 Female earnings as a percentage of male earnings,
formal sector 2002 438
Table 16.5 Mean monthly incomes 440
Table 16.6 Unionisation 443
Table 16.7 Average year-on-year growth rates of productivity
and real wages 444
Table 18.1 Subjective assessment of food insecurity in South African
households by province and area of residence, 1995–2002
(percentage) 491
Table 18.2 Annual per capita income by race group (percentage of
white level) 494
Table 18.3 Gini coefficients by population group using per capita income 495
Table 18.4 Decomposition of national income by income source and poverty
status (percentage share in overall Gini) 496
Table 19.1 Forms of household sanitation 1995 and 2001 (percentage) 521
Table 19.2 Main reason for interruption of water service for more than one day
by monthly household income 526
Table 19.3 Human Development Index and life expectancy trends 531
Table 20.1 Rand value of South African exports by continent/region,
2000–03 547
Table 20.2 South Africa’s top five African trading partners (R billions) 549
Table 20.3 South African investments in Africa by region and investment type,
value in R millions and by market share, 1997–2001 551
Table 20.4 African investments by region in South Africa, value in
R millions and by market share, 1997–2001 552

Table 20.5 Major South African companies in other African countries by sector
(selected companies) 554
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List of figures
Figure 2.1 Comparison of 1994, 1999 and 2004 elections by votes 39
Figure 2.2 Voter registration and valid votes for 1994, 1999 and 2004
elections 39
Figure 5.1 Comparative racial representation within central public
service 115
Figure 5.2 Profile of public service, 2003 118
Figure 5.3 Racial composition of South African public service, 2003 119
Figure 5.4 Senior managers by race and salary level 119
Figure 5.5 Senior managers by provincial administration and national
departments 121
Figure 6.1 Percentage change in crime rates between 1994–95 and
2002–03 151
Figure 7.1 Structure of the Department of Defence 181
Figure 9.1 HIV prevalence rate by skill level in South Africa 244
Figure 14.1 Fiscal balances as share of GDP, 1990–2003 373
Figure 14.2 Exchange rate volatility, 1982–2003, percentage change in
effective rates, quarterly 377
Figure 14.3 Capital inflows, quarterly, 1990–2003 379
Figure 14.4 Effective exchange rate indices, monthly 1990–2003,
1995=100 380
Figure 14.5 Interest rates and inflation, 1983–2003 381
Figure 14.6 GDP growth, consumption growth and changes in capital

formation, 1983–2003 384
Figure 14.7 Investment as share of GDP, 1982–2003 385
Figure 14.8 National savings as share of GDP, 1982–2003 388
Figure 14.9 Balance of payments, 1982–2003 390
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ix
Figure 14.10 Trade components as share of GDP, 1982–2003 391
Figure 16.1 GDP and unemployment 426
Figure 16.2 Unemployment by race 426
Figure 16.3 Comparing strict and broad unemployment 427
Figure 16.4 Number of unemployed by age 248
Figure 16.5 Employment and labour force 248
Figure 16.6 ‘Not working’, as a percentage of working age population,
by race 429
Figure 16.7 GDP and employment growth – comparing formal non-
agricultural private sector employment in the LFS and SEE 431
Figure 16.8 Employment in formal and non-formal sectors 432
Figure 16.9 Change in formal employment 433
Figure 16.10 Distribution of employment, broad sectors 433
Figure 16.11 Formal employment by skill level 435
Figure 16.12 Proportion of labour force, productive and unproductive 437
Figure 16.13 Wage trends by skill level in the formal sector, 2000 prices 437
Figure 16.14 Formal sector workers with written contract, by skill category 439
Figure 16.15 Formal sector workers with pension plan, by skill category 439
Figure 16.16 Earnings in the formal and informal sector, by level of
education, 2002 441

Figure 18.1 Incidence of poverty by province (percentage of households) 487
Figure 18.2 Change in employment and economically active population
by race and gender, 1995–99 (percentage) 489
Figure 18.3 Real annual per capita income by race group, 1970–2000
(constant 2000 Rands) 494
Figure 19.1 Progress over the period, water delivery, 1993–2003 519
Figure 19.2 Progress over the period, sanitation, 1993–2003 520
Figure 19.3 Consumption of drinking water 524
Figure 19.4 Access to piped water by household income 524
Figure 19.5 Access to sanitation and household income 525

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x
Figure 20.1 Market share of South Africa’s export trade by continent/region,
2003 547
Figure 20.2 Market share of South Africa’s import trade by continent/region,
2003 548
Figure 20.3 South Africa’s trade balances by continent/region, 2003 548
Figure 20.4 South Africa’s investment partners in Africa, 2002 552
Figure 20.5 South Africa’s trade relations with Nigeria, 1992–2003 560

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xi
Foreword
State of the Nation: South Africa 2004–2005 is the second issue of what, last
year, the Human Sciences Research Council (HSRC) announced would

become an annual set of original essays dedicated to reviewing developments
in South Africa. Recalling the format of the South African Review that was
edited by Glenn Moss and others in the 1980s, and drawing inspiration from
the presidential ‘State of the Nation’ speeches which have become a feature of
our new democracy, these annual collections seek to provide empirically-
based analysis and assessment of contemporary events and trends from a
developmental perspective, reflecting the values that are embedded in the
Constitution.
The founding State of the Nation collection attracted widespread interest. It
was commended for the quality and coverage of the contributions and the
vigorous argument that they occasioned. The current volume constitutes a
worthy successor, and is sure to have a similar effect. It is a project of the
Democracy and Governance Research Programme of the HSRC. But it draws
upon original and stimulating work also undertaken elsewhere within the
organisation and, in addition, features contributions by a spread of analysts
from universities and civil society. As such, it powerfully illustrates both the
breadth of the expanded HSRC’s own capabilities and its commitment to
undertaking such work in active collaboration with publicly and privately
funded research partners.
The importance of the annual State of the Nation volumes in promoting pub-
lic debate in South Africa has been recognised by five donor organisations.
Atlantic Philanthropy, the Ford Foundation and the Mott Foundation have
generously provided funding for the project over three years. Without their
assistance, the production of the book would not have been possible. The
Konrad Adenauer Foundation and the Durban-based Democracy Develop-
ment Programme helped to ensure that the first volume entered the main-
stream of national policy discourse by providing funding for a series of three

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launch workshops. They have generously agreed to repeat the exercise for
the present collection. Without the extensive supplementation of its parlia-
mentary grant by partners such as these, the HSRC would be far less able to
discharge its statutory mandate of undertaking social-scientific research of
relevance to public policy, public knowledge and public debate.
The HSRC’s mandate is a distinctively challenging one. Any scientific research
that is interesting and profound will engender controversy, in itself and its
applications. But this is notably true of social research, which deals with
politics, the economy, and society, both locally and internationally. It thus
covers matters which participants engaged in their respective institutions –
such as politicians, managers and employees, activists, and diplomats – as well
as thoughtful citizens engaged in their everyday lives, may wish to apply in
their decision-making. These participants and citizens are thus as intensely
concerned to assess the research as the analysts who produce it. The special
contribution, and obligation, of the latter is to provide considered analyses
that are based on empirical evidence and the scholarly insights of their
disciplines.
In this regard the editors of this second volume of State of the Nation – John
Daniel, Roger Southall and Jessica Lutchman – and all its contributors,
beyond and within the HSRC, continue to serve us well. They are to be
thanked for providing a wide-ranging work of intellectual substance that will
help to advance democracy and development in our country and on our
continent by provoking relevant reflection and lively discussion.
Dr FM Orkin
President and Chief Executive Officer
HSRC

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Acronyms
ABET Adult Basic Education and Training
ACDP African Christian Democratic Party
Actag Arts and Culture Task Group
AG Auditor General
AGOA African Growth and Opportunity Act
AIDS Acquired immune deficiency syndrome
AMA Africa Muslim Agency
Amps All-Media and Products Survey (produced by the
South African Advertising Research Foundation [SAARF])
ANC African National Congress
Apla Azanian Peoples’ Liberation Army
ART Anti-retroviral treatment
AU African Union
BASA Business and the Arts
BEE Black economic empowerment
BEEC Black Economic Empowerment Commission
BIG Basic income grant
BMATT British Military Advisory and Training Team
BNC Bi-national Commission (South Africa-Nigeria)
Cals Centre for Applied Legal Studies
CAP Community Arts Project
CEDAW United Nations Convention on the Elimination of All Forms of
Discrimination Against Women
CEO Chief Executive Officer
CESM Classification educational subject matter
CII Channel Islam International

CLRB Communal Land Rights Bill
Codesa Convention for a Democratic South Africa
Contralesa Congress of Traditional Leaders of South Africa
COP Community-oriented policing
Cosatu Congress of South African Trade Unions
CPF Community police forum
CPI Consumer price index
CSANDF Chief of the South African National Defence Force

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CTA Ciskei Territorial Authority
DA Democratic Alliance
DAC Department of Arts and Culture, South Africa
DACST Department of Arts, Culture, Science and Technology, South Africa
DEAT Department of Environmental Affairs and Tourism, South Africa
DFA Department of Foreign Affairs, South Africa
DG Director General
DISA Digital Imaging Project of South Africa
DLA Department of Land Affairs, South Africa
DoD Department of Defence, South Africa
DoE Department of Education
DoH Department of Health, South Africa
DoHA Department of Home Affairs, South Africa
DoL Department of Labour, South Africa
DoSD Department of Social Development, South Africa
DoSS Department of Safety and Security, South Africa
DP Democratic Party
DPLG Department of Provincial and Local Government, South Africa

DPRU Development Policy Research Unit
DPSA Department of Public Service and Administration, South Africa
DRC Democratic Republic of the Congo
DSAC Department of Sport, Arts and Culture, Eastern Cape
DTI Department of Trade and Industry, South Africa
DWAF Department of Water Affairs and Forestry, South Africa
ECD Early Childhood Development
ELSEN Education for Learners with Special Needs
EMIS Education Management Information System
EMS Economic and management sciences
EU European Union
FDI Foreign direct investment
FET Further education and training
FF+ Freedom Front Plus
GCIS Government Communications and Information System
GDP Gross domestic product
GEAR Growth, Employment, and Redistribution strategy
GET General Education and Training
GNU Government of National Unity
HDI Human Development Index
HE Higher Education
HIV Human immunodeficiency virus
HSRC Human Sciences Research Council
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HBU Historically black universities

HWU Historically white universities
IBA Independent Broadcasting Authority
ICT Information and communications technology
ICVS International crime victim survey
ID Independent Democrats
Idasa Institute for Democracy in South Africa
IDC Industrial Development Corporation
IEC Independent Electoral Commission
IES Income and expenditure survey
IFP Inkatha Freedom Party
IJS Integrated Justice System
INCD International Network for Cultural Diversity
INCP The International Network for Cultural Policy
IPCI Islamic Propagation Centre International
ISS Institute for Security Studies
IT Information technology
IUC Islamic Unity Conference
JMC Joint Monitoring Committee on the Improvement of the
Quality of Life and Status of Women
JSE Johannesburg Stock Exchange
KZN KwaZulu-Natal
LFPR labour force participation rate
LFS Labour force survey
LPM Landless People’s Movement
LPPPD Litres of water per person per day
LSM Living standard measure
MDC Movement for Democratic Change
MDG Millennium Development Goals
MK Umkhonto we Sizwe
MoD Minister of Defence

MTEF Medium-term expenditure framework
MJC Muslim Judicial Council
MP Member of Parliament
MPL Muslim Personal Law
MVA Manufacturing value added
MYM Muslim Youth Movement
NAC National Arts Council
NACCA National Action Committee for Children Infected and Affected by HIV/AIDS
Nacosa National AIDS Committee of South Africa
Nacsa Network for Arts and Culture in South Africa

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Naptosa National Association of Professional Teachers’ Associations of South Africa
NASA National Archives of South Africa
NCCS National Crime Combating Strategy
NCOP National Council of Provinces
NCPS National Crime Prevention Strategy
NDPP National Director of Public Prosecutions
NDR National democratic revolution
Nedlac National Economic Development and Labour Council
NEP New Economic Policy
Nepad New Partnership for Africa’s Development
NGO non-governmental organisation
NLC National Land Committee
NNP New National Party
NP National Party
NQF National Qualifictions Framework
NSB National Sorghum Breweries

NVQ National Vocational Qualification
NYSE New York Stock Exchange
OAMU Organisation of African Muslim Unity
OAU Organisation of African Unity
OHS October household survey
OSW Office of the Status of Women
PAC Pan Africanist Congress
Pagad People against Gangsterism and Drugs
Pansa Performing Arts Network of South Africa
PAT After-tax profit
PCAS Presidential Policy Co-ordination and Advisory Services
PCPD Portfolio Committee of Parliament on Defence
PEP Post-exposure prophylaxis
PFMA Public Finance Management Act
PIR Poverty and Inequality Report
PL Poverty line
PLAAS Programme for Land and Agrarian Studies
PMTCT Prevention of mother-to-child transmission
PR Proportional representation
PSC Public Service Commission
RDP Reconstruction and Development Programme
RWM Rural Women’s Movement
SAA South African Airways
SACP South African Communist Party
SACU Southern African Customs Union
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SADC Southern African Development Community
SADET South African Democracy Education Trust
SADF South African Defence Force
Sadtu South African Democratic Teachers’ Union
SAHRC South African Human Rights Commission
SALC South African Law Commission
Saldru South African Labour Development Research Unit
SAMP South African Migration Project
Sanac South African National AIDS Council
SANDF South African National Defence Force
SAOU Suid Afrikaanse Onderwysers’ Unie
SAP South African Police
SAPS South African Police Service
SAQA South African Qualifications Authority
SARB South African Reserve Bank
SAR&H South African Railways and Harbours
SARS South African Revenue Service
SASAS South African social attitude survey
Scopa Standing Committee on Public Accounts
SDI Spatial Development Initiative
SDP Strategic Defence Package
SEE Survey of earnings and employment
SGB Standards generating bodies
SIU Special Investigation Unit
SOE State-owned enterprises
SRNS School register of needs survey
Stats SA Statistics South Africa
STD Sexually transmitted disease
Swapo South West African Peoples’ Organisation

TAC Treatment Action Campaign
TI 2003 Transparency International corruption perception index
TIPS Trade and Industry Policy Strategies
Trac Transvaal Rural Action Committee
TRC Truth and Reconciliation Commission
UCDP United Christian Democratic Party
UCT University of Cape Town
UDM United Democratic Movement
UDW University of Durban-Westville
UMNO United Malays’ National Organisation
UN United Nations
UNDP United Nations Development Programme

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UNODC United Nations Office on Drugs and Crime
Unicef United Nations Children’s Fund
Unita National Union for the Total Independence of Angola
VIPs Ventilated improved privies
WC Western Cape
WTO World Trade Organization
Zanu-PF Zimbabwe African National Union-Patriotic Front
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Introduction: President Mbeki’s second term:
opening the golden door?

John Daniel, Roger Southall and Jessica Lutchman
The era’s beginning: are these ruined shacks,
these poor schools, these people still in rags and tatters,
this cloddish insecurity of my poor families,
is all this the day?
The Century’s beginning, the golden door?
Citation by President Thabo Mbeki of Chilean poet,
Pablo Neruda, in Parliament, 5 February 2004
The celebrations of ten years of democracy in South Africa are continuing,
and rightly so. The elections of 1994 marked the most significant juncture
ever in South African history, away from a society which employed race as its
fundamental organising principle and which condemned the majority of
people to poverty and oppression on grounds of colour, to one which aspires
to the abolition of race as a criterion of status, class and wealth, to political
equality and to ‘a better life for all’.
In 2004, South Africa remains confronted by a wholly formidable raft of prob-
lems: the majority of people are still appallingly poor, economic growth is
insufficient to guarantee mass improvement, social inequality remains rife,
and democracy itself faces major challenges. And yet South Africa is a differ-
ent country, a country which compared to ten years ago is more united, more
peaceful, more optimistic, more self-confident and more ambitious. Lest we
forget, it is a fundamentally better and morally far superior place than it was
in 1994. Yet it is also one where progress towards a better future cannot be
guaranteed, and depends significantly upon the choices that are made by gov-
ernment. It is therefore of considerable relevance that 2004 was a year in
which the African National Congress (ANC) government of President Thabo
Mbeki appeared to confirm a significant change in direction. But how big a
change was it? And where is it likely to lead?
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2004: a year of two speeches
The end of South Africa’s first decade of democracy was concurrent with the
holding of a third general election, which took place on April 14. The expected
return of the ANC to power would also see the beginning of Thabo Mbeki’s
second, and under the Constitution, his concluding term as president. These
were all key factors which rendered 2004 a year of not just the customary one
but of two presidential speeches on ‘The State of the Nation’. The first was
delivered on 6 February at the beginning of the last session of the outgoing
Parliament; the second on 21 May at the opening of the first session of the
new (Mbeki 2004a, 2004b). They were significantly different in style and con-
tent. The first celebrated achievement, reflecting Mbeki the seer, the visionary
and the poet; the second recorded ambition, emphasising Mbeki the leader
and the technocrat determined to make his mark on history.
During the latter half of 2003, the government had undertaken a ten-year
review of its record since taking power (PCAS 2003). This was to inform
Mbeki’s first presentation, but only after he had recalled the triumph over
apartheid and the way that it had ‘radically and irrevocably’ changed people’s
lives. For the black, especially African majority, he declared, liberation in 1994
had augured ‘a new dawn (that) proclaimed the coming of a bright day’, where
previously they had only known despair. Despite having been victims of
racism and violence, the masses had stood side by side with their former
oppressors at the voting booths and embraced dialogue, reconciliation and
peace. In so doing, they began the process of overcoming the fears of those –
like Afrikaans journalist Rian Malan – who had predicted majority rule as
ushering in an apocalypse. As demanded by Nelson Mandela when he had
delivered his own first ‘State of the Nation’ speech in 1994, South African
democracy had achieved ‘the frontiers of human fulfillment, and the contin-

uous extension of the frontiers of freedom’.
Borrowing from the ten-year review, Mbeki trumpeted the official statistics of
achievement. Between 1994 and 2004, over 1.9 million housing subsidies had
been provided and 1.6 million houses built for the poor; more than 70 per
cent of households had become electrified and an additional nine million
people had been provided access to clean water. By 2004, 63 per cent of house-
holds had access to sanitation, the previously racially divided education
system had been integrated (even though there was urgent need for more
STATE OF THE NATION 2004–2005
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resource allocation and capacity building in rural areas), secondary school
enrolment had reached 85 per cent, and nutrition and early childhood inter-
ventions had been established to improve the lives of children from poor
backgrounds. He could also have added, had he drawn more heavily from the
ten-year review, that 1.8 million hectares of land had been redistributed, and
1.6 million jobs had been created (even though unemployment had increased
because of job losses in established industries and the high rate of inflow of
new entrants to the labour market), and poverty rates had declined signifi-
cantly. But he did also stress that these delivery gains had been matched by the
reduction of a two-decade rate of double-digit inflation to less than 4 per cent,
a move from negative to the longest period of consistently positive growth
since the 1940s, and the transition from South Africa being a country con-
stantly in debt to one which was now in surplus. Much remained to be done
to meet outstanding challenges, and to eradicate poverty and underdevelop-
ment, but the policies needed to meet them were in place, and there was no
foreseeable reason to change them. What was now needed was their vigorous

implementation to create a ‘winning people-centred society’. The first decade
of democracy, proclaimed Mbeki (before concluding his speech with the
quotation from Chilean poet Pablo Neruda which is cited earlier), had laid the
sure foundation for even greater advances in the second.
Mbeki’s elegant first speech was more presidential than partisan, yet nonethe-
less presented the ANC’s platform for the forthcoming election. Not surpris-
ingly, with the polls in view, it put a strongly positive spin on the government’s
performance, glossed over its failures, and was strangely silent – no, mon-
strously silent – on the challenges presented by HIV/AIDS. Yet it also stressed
continuity over change, obscuring changes which had already begun to take
place in economic policy.
The story of the incoming ANC-led government’s shift from the social demo-
cratically-inclined Reconstruction and Development Programme (RDP) to the
conservative Growth, Employment and Redistribution strategy (GEAR) is a
familiar one. According to the government’s more radical critics, many of
whom reside within its partners in the Tripartite Alliance, the Congress of
South African Trade Unions (Cosatu) and the South African Communist Party
(SACP), it either ‘sold-out’ its liberatory ideals or buckled under pressure from
international, ‘neo-liberal’ forces (notably the International Monetary Fund
and World Bank). The outcome was its adoption of a home-grown structural
INTRODUCTION
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adjustment programme which, at the cost of jobs and the needs of the poor,
stressed debt reduction and inflation control, privatisation, deregulation of
financial controls, trade liberalisation, export promotion, and labour-market
flexibility in order to achieve a more internationally competitive economy. For

its part, the government maintained that global economic realities dictated
the need for it to arrest the alarming decline of an economy battered by years
of international isolation and domestic turmoil, and to win international
confidence. Only by addressing the country’s macroeconomic fundamentals
could the objectives of the RDP be realised. These issues and those discussed
in the two paragraphs that follow are examined in more detail in the chapters
by Stephen Gelb, Reg Rumney and Miriam Altman in the economy section of
this volume.
The government’s (relative) success in transforming a previously highly-
protected, inward-looking and inefficient economy to one that is financially
well-managed, market-driven and more competitive has become the stuff of
international fiscal legend. Furthermore, whatever their misgivings about the
conservative nature of policy, the majority of South Africans were apprecia-
tive of a government that was, in macroeconomic terms, self-evidently com-
petent, and much more so than the National Party (NP) government which
had preceded it. Not for nothing was Finance Minister Trevor Manuel able
to compound his high standing in international financial circles with
immense popularity within the ANC. However, the problem that increasingly
confronted the government was that its conservative strategies failed to
deliver the returns that global economic orthodoxy promised for it.
However much the government could redefine employment (to argue, in
essence, that job losses in declining industries were more than compensated
for by new ones in service industries and the informal sector), unemploy-
ment went on increasing (to a level of over 40 per cent in 2003). However
much it sought to tackle poverty (and the statistics are impressive that it
did), the government’s own instrument to examine the need and potential
for a comprehensive system of social security (the Taylor Commission for
the Department of Social Development) was to admit in 2002 that between
45 and 55 per cent of the population were poor, that 10 per cent of the
African population were malnourished and that 25 per cent of African chil-

dren are born stunted. And however much the government preached greater
equality, it was faced by the news that whilst income differentials between
STATE OF THE NATION 2004–2005
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white and black were narrowing, those within the African population and
the country as a whole were widening (SAIRR 2001:374 citing Stats SA
2000). The United Nations Development Progamme (UNDP) reported that
the percentage of the population living below US$1 per day had increased
from 9.4 per cent in 1995 (3.7 million) to 10.5 per cent in 2002 (4.7 million),
and that the extent of poverty in South Africa had increased absolutely
between those years (UNDP 2003:42). Alarmingly, too, life-expectancy had
declined from 57 to 55 years. For all the government’s macroeconomic
‘responsibility’, economic growth was insufficient to keep pace with South
Africa’s minimum demands, domestic saving remained low (16 per cent
in 2002) (SARB 2003:19), and international investors continued to look
askance. Indeed, between 1994 and 2002, the average flows of incoming
foreign direct investment (FDI) amounted to only 1.4 per cent of gross
domestic product (GDP).
Faced by strong indications of policy failure and mounting domestic political
pressures (notably around poverty and jobs), the government began to quietly
question its own orthodoxy in favour of a more interventionist economic
strategy. In the words of the Mail & Guardian (20–26.02.04), budgets from
2001 onward registered a thawing of the government’s self-imposed ‘ideologi-
cal ice age’ and ‘acceptance that an active state role in the economy is inevitable
in a country like South Africa’. This shift culminated in a pre-election budget
in February 2004 which featured a 9 per cent growth in government expendi-

ture featuring, inter alia, a large-scale public works programme, at a cost to the
state of over R15 billion over four years, and an increase in welfare and social
spending of 14 per cent over the next three years, following a 22 per cent rise
between 2002 and 2004. If market forces alone cannot resolve the problems of
poverty and unemployment, Mbeki had mused in mid-2003, then the gov-
ernment would have to intervene in the economy more directly. The public
works programme would be implemented through the private sector, which
would be invited to tender for labour-intensive infrastructural projects, yet
the government’s thinking now also stressed an increased role for the public
sector, with privatisation now taking second place to reform of the paras-
tatals (such as Eskom and Transnet) and public-private partnerships. ‘With
the renewed focus on poverty eradication,’ noted the prominent analyst
Robyn Chalmers (Business Day 31.05.04), ‘government has decided a new
approach is required, with the focus on parastatal investment rather than
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big asset sales’ – all at the same time as giving assurances to foreign investors
that it has not abandoned its privatisation policy! From 2000 onwards,
meanwhile, the government had also begun to adopt a more vigorous set of
policies towards black economic empowerment (BEE), taking the view that
if white capital was not able or willing to create a new class of black, ‘patri-
otic’ entrepreneurs, they should be propelled and assisted into doing so. For
more discussion of BEE, see Roger Southall’s chapter in the economy section
of this volume.
The Mail & Guardian (20–26.02.04) had opined that the language of the
Finance Minister’s pre-election budget speech had harked back to the ‘halcyon

days of the Reconstruction and Development Programme’. Mbeki’s post-
election address at the inauguration of the new Parliament confirmed that the
state was about to play a considerably more activist economic role. The gov-
ernment’s response to poverty and underdevelopment, he declared, rested on
three pillars, namely, encouraging the growth and development of the ‘first
economy’, increasing its potential to create jobs; addressing the challenges of
the ‘second economy’;
1
and building a social security net to meet the objective
of poverty alleviation.
What was so thoroughly remarkable about Mbeki’s plans for the first econ-
omy was that although they promised greater efforts at attracting greater
domestic and foreign investment, the overwhelming emphasis was placed
upon government and public-sector action. In recognition of the low rate of
domestic saving, institutional investors would be ‘engaged’ to locate five per
cent of their funds in the ‘real economy’ (that is, labour-intensive invest-
ments); the state-owned enterprises (SOEs) would announce new plans for
investment in September; the cost of doing business would be aggressively
tackled through the restructuring of the public infrastructure, notably the
ports, railways and electricity provision; there would be more official atten-
tion to the development of small and medium business, and the Agricultural
Credit Scheme re-established to provide capital for agriculture; and more
would be done to speed skills development, assist exports and increase
research and development. A Black Economic Advisory Council would be
established as a matter of urgency, and the National Empowerment Fund
would announce new measures within the next three months, mindful of the
government’s provision of R10 billion for BEE over the next five years.
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Plans for the second economy included the launch of the Expanded Public
Works Programme in September, concentrating on the 21 urban and rural
nodes identified by the government’s Urban Renewal and Integrated and
Sustainable Rural Development Programmes. The state’s extension of micro-
credit would soon come on track, and the Department of Agriculture would
intensify its support to agricultural activities in communal land areas and for
co-operative enterprises.
However, it was very much the target setting for poverty alleviation which
invited media comment that Mbeki meant serious business over the course of
his second term. Government, he declared, will work to ensure that social
grants reach all 7.7 million beneficiaries; it will add about 3.2 million children
to the child support grants register as the upper-age limit is raised to children
turning 14; it will allocate R166 billion over three years for social security; it
will ensure that all households have easy access to clean running water within
the next five years; it will provide 300 000 households with basic sanitation
during the current year; it will ensure that each household has access to elec-
tricity within the next eight years. Other targets, notably within the health
sphere (including a promise that 113 health facilities would be fully opera-
tional by March 2005 to cope with the Comprehensive Plan on HIV and
AIDS) and with regard to safety and security, were also proclaimed.
This time round, a concluding poetical flourish was eschewed in favour of a
blunt instruction to the South African people to ‘get down to work’.
Mbeki, opined one columnist, was ‘a man in a hurry’. Unlike his predecessor,
Nelson Mandela, he had not had sainthood thrust upon him, and he had a
single remaining term to make his mark on history. But why set up such tight
deadlines? Because in three years the battle for the succession within the ANC
would be raging, and he would be a lame-duck president. Unless he secured

rapid achievements, he would, according to Justice Malala, become ‘a blip in
South Africa’s history’ (ThisDay 25.04.04).
Mbeki’s embarkation upon his final term was clearly a major factor in defin-
ing the pace and direction of the government’s priorities. However, the bigger
question is whether the second ‘State of the Nation’ speech represents merely
a pragmatic shift in government strategy or points to the consolidation of a
grander vision for South Africa’s transformation.
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