Deepening Integration in SADC - Macroeconomic Policies and Their Impact South African Country Study 3rd – 6th April 2006 Zambezi Sun Hotel, Livingstone, Zambia

Target Indicators on Macroeconomic Stability and Convergence (1) TargetsActual Values of Target Indicators Inflation (%) Budget Deficit (% of GDP) External Debt (% of GDP)60 26 Current Account Deficit (% of GDP) Growth Rate (%) External Reserves (Import Cover in Months) Central Bank Credit to Government Domestic Savings Rates (% of GDP)

Target Indicators on Macroeconomic Stability and Convergence (2) SA is on track for most of 2008 targets Main challenges -growth rates, current account deficit and domestic savings On growth rates 7% appears too ambitious Current account, strength of the currency

Macroeconomic Policies (1) Broad Policy Approach (GEAR) –Main areas were fiscal, monetary, trade and labour market. –to link fiscal prudence with the ability to ease monetary policy –encourage private local and foreign investment -clear goals and objectives to benchmark the economic performance

Macroeconomic Policies (2) Origin of Policies –Mainly National, –Very little alignment to SADC Policies, but the trade aspect had regional context –Lack of consideration for regional issues has direct impact on the failure of the policy in some areas –However, under GEAR, SADC tariffs were lower than any other trading partner –Main disappointments: investment and job creation

Impacts of the Macroeconomic Policy Approach (1) Linkages with Social Impacts –No significant impact on unemployment, income distribution and poverty –Increase in social security expenditure –Increase in health expenditure - HIV/AIDS –The EPWP - national initiative to create temporary jobs –increase the uptake of candidates and participants in other skills development programme –Improve investment in technical colleges –Facilitate completion of immigration regulations

Impacts of the Macroeconomic Policy Approach (2) Institutional and legal reforms –Labour market reforms, enhancement of job skills –The introduction of a MTEF –PFMA was passed -establishes strict transparency –Transformation of the health system –Most departments were strengthened to focus on regional and continental agenda, i.e. SADC, NEPAD and AU

Other Issues that impact on SA’s RI process in SADC The accession to the WTO South Africa has a trade agreement with the EU SA’s SACU membership Investment in the region Capacity constraints, immigration laws and relatively high wages Relatively developed manufacturing sector Infrastructure (transport, financial and telecommunications) Diplomatic and peace-keeping role

Conclusions / Recommendations (1) Main Constraints –Lack of Human Capital, –HIV/AIDS, –Inadequate infrastructure, –Low Savings rates Critical Policy Issues –Investment in education to close the skills gap that exists in the economy –Upgrade of personnel, facilities and management, especially with the ARV roll out. –Addressing rigidities, skills deficiencies and relatively high costs of labour –Strengthen skills development programs

Conclusions / Recommendations (2) Effects on Policy Approach –Long term growth –Regional spillover effects –Drive harmonization with SADC policies –employment of non-citizens, labour migration Social Impact Consideration –business, labour, government and community representatives are involved. –consensus on issues of social and economic policy –engages in research and information

Conclusions / Recommendations (3) General Recommendations –Movement of labour in the region –Facilitate harmonisation of trade codes –The need for adjustment of SADC trade, economic and environmental policies –Efficient institutional framework/institutional capacity –Possibility of SADC manufacturing hub –Political will