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Possible Effects and Analysis of the NGP by Siyaduma Biniza.pdf

Possible Effects and Analysis of the NGP by Siyaduma Biniza.pdf

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Published by Siya Biniza
This is a an undergraduate research paper written about possible effects of the New Growth Path in South Africa. The approach is on the set of macroeconomic policies in place in South Africa and their relation to some of the key restraints on growth and development.
This is a an undergraduate research paper written about possible effects of the New Growth Path in South Africa. The approach is on the set of macroeconomic policies in place in South Africa and their relation to some of the key restraints on growth and development.

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Published by: Siya Biniza on May 15, 2013
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09/17/2013

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Possible Effects and Analysis of the New Growth Path
Written by Siyaduma Biniza* 
 South Africa is facing many socioeconomic challenges as the world recovers from the2008 global recession. The New Growth Path (NGP) proposed by government isprimarily aimed at solving unemployment and income inequality which are amongstthe most pressing of these challenges. The NGP is a set of policies proposed bygovernment in order to change the growth path of the South African economy andaddress these socioeconomic challenges. This essay analyses the job creation strategiesoutlined in the NGP and their possible effects to the South African economy using theAD-AS economic model.Firstly, a short description of the South African economy is necessary to understandwhat motivates the NGP. South Africa is still challenged by the legacy of Apartheidwhich was the foundation of its socioeconomic inequality. The South African economy
is “relatively narrow due to the relatively small population, low employment levels anddeep inequalities” (
Patel, 2011a). The challenges faced by South Africa, which areresiduals of the Apartheid South Africa, are high levels of income inequality and spatialinequality. This is further exacerbated by high unemployment. This is why creation of employment is the most important priority outlined in the NGP.Government a
cknowledges that, South Africa’s unemployment rate of 25%, by strict
definition, is crisis (Mantashe, 2011).
South Africa’s unemployment problem is largely
due to a largely unskilled labour force
. This is worsened by the domestic economy’s
shift from a dependence on labour intensive mining and agriculture sectors to adependence on the tertiary and service sectors. For example, the manufacturingindus
try’s contribution to gross domestic product (GDP) fell from 23% in the 80’s to
 
15% (McCarthy, 2011). This has led to increased unemployment which furtherameliorates the income inequality. This situation has been exacerbated by the globalrecession of 2008. Currently,
less than half of all working-age South Africans hadincome-earning employment, compared to a
n international norm of almost two thirds”
(Patel, 2011a). These levels of unemployment, which rank amongst the worst globally,are what further ameliorate the inequality. The challenges of inequality and unemployment are worsened by the fact that manySouth Africans do not have decent work. The definition for decent work is acontentious issue. However, when we consider the statistics, there is littledisagreement that most South Africans have disconcerting employment conditions.
According to Statistic South Africa, in “2008, half of all employed people earned lessthan R2500 a month and over a third earned under R1000 a month” (
Patel, 2011a). This
brings perspective to the government’s concerns about not only employment but
employment conditions as well. Such working conditions are what strengthens theincome inequality and keep South Africa under the legacy of Apartheid. These are
some of the domestic conditions that inform government’s decision on a new
economic growth path. The NGP is therefore a set of policies and strategies by government
“to restructure the
economy and set it on an employment and growth generating path
” (COSATU 2010).
 The NGP is thus primarily aimed at curbing unemployment, income and spatialinequality and quality of work. The emphasis of the NGP is employment growth but theNGP also has policies that target competitiveness, interest rates and other strategiceconomic proposals which drive at the same end. The NGP also plans to create adevelopmental state
with all parties in a “n
ational consensus on wages, prices andsavings in order to ensure a significant increase in the number of jobs in the economy
 
while addressing the concerns of vulnerable workers and re
ducing income inequality”
(Patel, 2011a). Therefore, government hopes that it can bring all stakeholders in theSouth African economy to a consensus that will see the economy take a differentgrowth path. Thus the NGP aspires at a paradigm shift in growth to so that theeconomy will increase its employment ability to solve the socioeconomic problems. Sohow will government do this? The NGP states government
’s
plans to channel resources into areas of the economy
that “cr
eate employment on a large scale [and] encourage stronger investment by theprivate and public sectors to grow employment-creating activities rapidly whilemaintaining and incrementally improving South Afr
ica’s core strengths in sectors”
(Patel, 2011a). In this regard, govern
ment identifies a few “job drivers” which have the
capacity to meet its job creation goals, one of these being infrastructure development.Infrastructure and skills development is vital for any developing economy. Government
claims that “public investment can create 250 000 jobs a year in energy, transport,
water and co
mmunications infrastructure and in housing” in the next five years (
Patel,2011a). Furthermore, the assertion is that infrastructure development will improveefficiency across all sectors allowing for further growth and employment opportunities(Patel, 2011a). Therefore government plans to invest in infrastructure development tocreate large-scale employment in the hope that this will result in a multiplier effect thatwill be felt throughout the economy. Thus not only will infrastructure developmentcreate employment opportunities but further growth will result which be doublyeffective.Government also plans to maintain its
public investment with a sustainable stepchange
backed by investment in skills development and measures to prevent non-competi
tive pricing by contractors” (
Patel, 2011a). These have been the areas where

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