Understanding South Africa's economic puzzles*


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    This article was prepared for the Harvard University Center for International Development Project on South Africa. The author has greatly benefited from the guidance and insights of Trevor Manuel, Alan Hirsch, Lesetja Kganyago, and Ismail Momoniat. The author also thanks Johannes Fedderke, Dave Kaplan, Ben Smit and members of the ‘Harvard’ team for feedback on the ideas presented here. Oeindrila Dube and Robert Mitchell provided research assistance.


South Africa has undergone a remarkable transformation since its democratic transition in 1994, but economic growth and employment generation have been disappointing. Most worryingly, unemployment is currently among the highest in the world. While the proximate cause of high unemployment is that prevailing wages levels are too high, the deeper cause lies elsewhere, and is intimately connected to the inability of the South African to generate much growth momentum in the past decade. High unemployment and low growth are both ultimately the result of the shrinkage of the non-mineral tradable sector since the early-1990s. The weakness in particular of export-oriented manufacturing has deprived South Africa of growth opportunities as well as of job creation at the relatively low end of the skill distribution. Econometric analysis identifies the decline in the relative profitability of manufacturing in the 1990s as the most important contributor to the lack of vitality in that sector.