Globalisation and InternationalRelations: Challenges and

Opportunities for Provinces

31 August–1 September 2000Kromme Rhee

Stellenbosch

Introduction 5Dirk Brand, Director: Intergovernmental Relations, Western Cape Provincial Government

Opening Remarks 7Dr Michael Lange, Resident Representative, Konrad Adenauer Foundation, Johannesburg

The Role of International Organisations and their Effect on Provinces: The Case of the 9World Trade OrganisationProf. Nico Steytler, Director: Community Law Centre, University of the Western Cape

The Constitutional Accommodation of International Trade Relations, With Specific 15Reference to ProvincesProf. Gerhard Erasmus, University of Stellenbosch

The Challenge of Globalisation: Drawing the Poor into the Economic Mainstream 19– A Perspective from the Western CapeProf. Servaas Van der Berg, Department of Economics, University of Stellenbosch

Including the Poor in the Economic Mainstream: From Survivalism to Wealth 31Creation through EntrepreneurshipMs Claudia Mutschler, Anglo American Chairman’s Fund Latin American Research Fellow, South African Institute of International Affairs

The European Union–South Africa Trade, Development and Cooperation Agreement 43and its Potential for the ProvincesMr Neil van Heerden, Executive Director, South Africa Foundation

The European Union–South Africa Trade, Development and Cooperation Agreement 47and its Potential for the ProvincesMs Talitha Bertelsmann-Scott, Department of Political Science, University of Stellenbosch

Table of Contents

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Globalisation and the Nation-State 55Dr Leopold Scholtz, Die Burger

Programme 65

Participants’ List 67

Seminar Reports 69

Occasional Paper Series 71

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Table of Contents

“Globalisation” is a popular term used by governments, businesses, academics and a range of diversenon-governmental organisations. It also, however, signifies a new paradigm within world politics andeconomic relations. While national governments for many years dictated the international political andeconomic scene, international organisations such as the World Bank, International Monetary Fund andthe World Trade Organisation have now become significant roleplayers. In this “global village” nation-al governments have lost some of their importance and perhaps their powers in favour of these majorinternational organisations.

Within the variety of federal systems found around the world there is at least one common denomina-tor, namely that there is more than one level or sphere of government with constitutionally allocatedpowers and functions. In these systems the changes in global or international relations referred to abovehave an additional effect on the particular countries. It causes provinces, states or Länder to re-evaluatetheir role, in particular their role in international relations. Global matters – for example the creation ofa free trade area – impacts at both the national or federal level of government, as well as at the provin-cial level.

The effect of globalisation on government – in particular on provincial government – is an issue thathas not been debated much in South Africa. It is against this background that an initiative was taken tohave an in-depth discussion on various aspects of globalisation within the South African context.

Dirk BrandDirector: Intergovernmental RelationsWestern Cape Provincial Government

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Introduction

INTRODUCTIONOn behalf of the Konrad Adenauer Foundation(KAF), I would like to extend a very warmwelcome to you all.

This is the first conference that KAF hasjointly organised with the Directorate forIntergovernmental Relations of the Office ofthe Premier of the Western Cape and I amdelighted that, together with our good friendDirk Brand and his colleagues from the direc-torate, we have succeeded in bringing you alltogether today.

The forthcoming deliberations will focus onan area of special interest to KAF, since theissue of globalisation in international relationsplays a major role in our ongoing efforts tocontribute to the consolidation of new democ-ratic political dispensations, not only in SouthAfrica but in different parts of the world aswell.

1. A BRIEF BACKGROUNDFor those wondering what kind of organisationKAF is, allow me to sketch a brief backgroundto the German political foundations and to out-line some of the reasoning behind the involve-ment of KAF in academic endeavours of thisnature.

The German political foundations are aunique feature of today’s democratic culture inGermany and the move behind their creation –which dates back to the 1960s – has been theexpectation that political and civic educationwould help develop and consolidate democracyin post-war Germany.

Both in Germany and abroad, these founda-tions seek to develop further and to encourage

people to engage in the political debate, thusstrengthening democracy and promoting a plu-ralistic society. By engaging in a variety ofactivities, they help to strengthen the conceptof human rights, assist economic developmentand help to implement social justice and therule of law.

KAF is one of six political foundations inGermany today and is closely affiliated to theChristian Democratic Union Party – a centristpolitical party – founded after the SecondWorld War. It proudly bears the name of one ofits founding members, Konrad Adenauer, whosubsequently became the first chancellor ofpost-war Germany.

KAF has been cooperating with partnersthroughout the world for almost 40 years now.Currently, some 80 colleagues oversee some200 projects and programmes in more than 100countries. In this manner, the Foundationmakes its unique contribution to policies serv-ing peace and justice in international relations.

2. KAF IN SOUTH AFRICAKAF currently has wide-ranging programmesin different parts of Africa, as well as in thedifferent provinces of South Africa. TheFoundation cooperates not only with academicinstitutions, but also with governmental bodies,as you will note from today’s event.

Since establishing offices in South Africa,KAF has been actively involved in projectsconcentrating on, among other things, constitu-tional development at federal, provincial andlocal levels. A large number of our researchstudies and seminar publications have tackledconstitutional issues.

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Opening Remarks

Michael Lange

8

Lange

3. FEDERALISMGermany – as most of you know – is a federalstate. During the Kempton Park negotiationswe believed strongly that the new South Africacould gain from our particular experiences withsuch a federal system of governance.

This conviction formed the basis of a stronginteraction ever since between the German gov-ernmental aid agencies – like the GTZ andother semi- or non-governmental bodies, suchas the German political foundations – andSouth African partners, with the aim of provid-ing knowledge and experience from our strug-gle with federalism.

At the Kempton Park constitutional negotia-tions, some parties argued for more powers forthe provinces while others were more centralis-tically inclined.

Eventually, South Africa’s new constitutionalsystem, designed at the Kempton Park confer-ence and further refined by the ConstitutionalAssembly in Cape Town, was to be a decen-tralised system of government or, put different-ly, a system with certain federal characteristics.

South Africa has developed a rather uniquepolitical dispensation with much less provincialpowers than is the case in the Federal Republicof Germany, but with a certain degree of inde-pendence that extends to foreign relations aswell.

I am happy that my home country, Germany,with its federal approach to governance sets agood example in favour of provincial autono-my, regarding the definition of rights andresponsibilities especially in areas of particularconcern to provinces such as culture, education,local government and taxation.

4. FOREIGN AFFAIRSWhen it comes to the particular concern of thisconference – foreign (economic) relations – thesituation in Germany is particularly complex.

Foreign affairs form part of the exclusive leg-islative competence of the federation, whileeconomic affairs are an area of concurrent leg-islation. One might say that the foreign eco-nomic relations of federal states are a jointresponsibility of the state and the provincealike.

As the unification of Europe develops evenfurther, the shift in the allocation of powers

towards the European Parliament and theCommission is changing considerably the polit-ical role of the different spheres of governmenteven in the Federal Republic of Germany. Moreand more legislation is coming from the“European sphere”, some of which has a directimpact on the core legislative functions of theGerman federal states (Länder).

Although the German federal states can influ-ence the voting pattern of the GermanGovernment in Brussels via their role in theBundesrat it is not without reason that theGerman federal states fear that their well guard-ed independence is being challenged.

That is why our provinces or federal statestoday not only have representative (interest)offices in the capital of Germany but also inBrussels, where they seek cooperation not onlywith the different organs of the EuropeanUnion itself, but with other federal or provin-cial bodies of neighbouring countries too.

Far from being perfect, the German federalsystem is constantly under scrutiny as is theSouth African system right now, and there isalways room for improvement when it comes todefining the rights and responsibilities ofprovinces vis-à-vis the federal state.

The South African Minister of Provincial andLocal Government recently published a reportwherein it was stated that the government ischallenged to reassess the roles, responsibilitiesand relationships between the provinces and thenational government.

Several aspects of the current system ofcooperative governance in South Africa havecome under scrutiny and certain suggestionshave been forwarded.

CONCLUSIONThis conference is designed not only to stimu-late debate on the general role of provincialgovernments in the current South African con-stitutional framework, but also to answer thedifficult question as to the extent to which aprovincial government can and should engagesuccessfully in foreign relations.

Let these proceedings be regarded as ourhumble contribution to the resolution of thesedifficult challenges. I wish you fruitful deliber-ations and can only hope you find the forth-coming dialogue inspiring and worthwhile.

INTRODUCTIONIt is no longer possible to speak in the SouthAfrican context of three spheres of government– national, provincial and local. There is also afourth sphere of government – supranationalgovernance institutions that set rules governingstate conduct both nationally and provincially.

In the area of international trade, we proba-bly have the most sophisticated and advancedform of global governance. At a regional level,we see this in the Southern African Develop-ment Community and the signing on 1 Septem-ber 2000 of its free trade agreement. The realimpact of international governance lies, howev-er, with the World Trade Organisation (WTO)and the agreements it administers.

The question that this paper addresses is howthis fourth sphere of government impacts onthe provincial sphere. At the same time wehave to ask whether provinces can (or should)impact on this supranational sphere of govern-ment.

1. IMPACT OF THE WTO ON PROVINCESIt requires little argument that WTO agree-ments impact dramatically on subnational enti-ties. The General Agreement on Tariffs andTrade (GATT) and other agreements prescribea trade regime that may restrict the powers ofprovinces in the area of trade and industrialpromotion. This very issue lies before theIndian Supreme Court. The states of Rajasthan,Orissa and Tamil Nadu have challenged theUnion government’s accession to the WTOagreement on the basis that the agreementaffects their exclusive constitutional powersand forces them to share power with the Union

in violation of the basic structure of the Consti-tution. The thrust of the argument is that thetreaty-making power of the Union may dis-solve Indian federalism.2

2. WTO AND FEDERAL STATESAn intriguing feature of the GATT system, andnow the WTO, has been the recognition of fed-eral systems. It could not have been otherwise.Some of the most prominent founding mem-bers of the GATT in 1947 were federations.The United States (US), Canada and Australiainsisted on a “federal clause” on the groundsthat in a federal system the central governmentdid not have the constitutional power to controlsubnational governments with regard to fiscaland other measures.3 The same arguments pre-vailed at the Uruguay Rounds. Both the 1947GATT and the WTO agreements thus cater to alimited extent to countries with federal arrange-ments.

2.1 1947 GATT The 1947 GATT contained the following pro-vision in Article XXIV:12

“Each contracting party shall take reason-able measures as may be available to it toensure observance of the provisions of thisAgreement by the regional and local gov-ernments and authorities within its territo-ries.”

In the jurisprudence that followed, a restrictiveinterpretation was given to this clause. In the1980s South Africa brought a complaintagainst Canada, because the province ofOntario, in giving effect to economic sanctionsagainst the apartheid regime, refused to allow

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The Role of International Organisationsand their Effect on Provinces: The Case

of the World Trade Organisation1

Nico Steytler

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Steytler

the selling of Kruger rands. The Panel Report4(which was not adopted because of the Cana-dian veto) saw the provision as a qualificationof a country’s commitments. This qualifica-tion, the panel said, applied in view of its draft-ing history,

“only to those measures taken at the region-al or local level which the federal govern-ment cannot control because they fall outside its jurisdiction under the constitu-tional distribution of competence.”5

This qualification of the basic obligation allowsstates to accede to the General Agreement with-out having to change their federal distributionof legislative competencies in order to ensurethat all subnational units comply with theGATT. Article XXIV:12 is thus an exception tothe general principle of international law that aparty to a treaty may not invoke its internallaws as a justification for not complying with atreaty obligation.

This qualification may, however, cause anundue imbalance between unitary and federalstates’ GATT obligations because, the panelnoted, it grants “a special right to federal Stateswithout giving an offsetting privilege to unitaryStates”.6 To minimise the impact of the provi-sion, it must therefore be interpreted narrowly.It does not exempt subnational units from theapplication of the GATT obligations; it merelylimits the obligation of federal states to securethe implementation of the provisions by subna-tional units.7

Whether a member has taken “reasonablemeasures” to secure compliance by subnationalunits of the GATT obligations, entails an objec-tive assessment. A 1988 Panel Report8 foundthat a member state had to demonstrate to othercontracting parties that it had taken all reason-able measures available and that it would thenbe for the other contracting parties to decidewhether that was indeed the case.

2.2 GATT 1994During the Uruguay Rounds, Article XXIV:12was also subjected to negotiations. Some coun-tries sought its repeal while federal states againasserted the importance of its inclusion.9 In theUnderstanding on the Interpretation of ArticleXXIV in GATT 1994, the following gloss wasgiven to subarticle 13:

“Each member is fully responsible underGATT 1994 for the observance of all provi-

sions of GATT 1994, and shall take suchreasonable measures as may be available toit to ensure such observance by regional andlocal governments and authorities within itsterritory.”

Although the general principle of ArticleXXIV:12 is reiterated, the scope of its applica-tion appears to have been significantly reduced.The dispute settlement provisions in ArticlesXXII and XXIII may be invoked for violationsby a subnational unit. If the Dispute SettlementBody has ruled that there has been a violation,the responsible member state must take suchreasonable measures available to it to ensure itsobservance. However, in the 1994 Understand-ing on Article XXIV:12, the matter is taken astep further. Where it is not possible for a mem-ber state to secure observance of the DisputeResolution Body’s ruling, the provisions relat-ing to compensation and suspension of conces-sions apply. The effect is that a country as awhole may be subject to enforcement measures,although only one part of it is in default of theGATT obligations. Indirectly, then, a subna-tional unit is bound by the obligations taken onby its national state.

2.3 The General Agreement on the Trade inServices (GATS)The existence of subnational units and otherindependent bodies in the constitutionalarrangements of member states is also recog-nised in other agreements under the WTO.

The General Agreement on the Trade inServices (GATS) contains a provision similarto that of Article XXIV:12 of GATT 1994.Article I:1 of GATS provides that theAgreement applies to all “measures byMembers affecting trade in services”, whichinclude measures taken by:

“(i) central, regional or local governmentsand authorities; and(ii) non-governmental bodies in the exerciseof powers delegated by central, regional orlocal governments or authorities.”

Again, the duty of the member state is to take“such reasonable measures as may be availableto it to ensure their observance by” these subna-tional authorities within its territory.

2.4 Government Procurement Agreement(GPA)Subnational entities also feature prominently in

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the plurilateral Agreement on GovernmentProcurement (GPA) under the WTO. Unlikethe GATT and the GATS where subnationalunits provide for the exception, the aim of theGPA is specifically to bind these subnationalunits into the liberalisation of government pro-curement.

The first step in this direction was taken in1979 when a number of significant countriessigned the 1979 GATT Government Procure-ment Code.10 The Code applied only to centralgovernment procurement of specified goods.The negotiations during the Uruguay Roundsresulted in the WTO GPA, one of the pluri-lat-eral agreements applicable only to the signato-ries.11 The new agreement now covers not onlygoods but also construction contracts and pro-curement of services. Included in principle aresubnational units and government-owned utilitycompanies. Attached to each contracting par-ty’s accession to the agreement is an appendixcontaining a list of entities, both at national andsubnational level, that are bound by the agree-ment.12

In conclusion, although the WTO systemgives recognition to the existence of subnation-al units, the consequences of this recognition islimited. It does not enable a subnational unit toescape a country’s general commitments.

3. SOUTH AFRICA AND THE “FEDERAL CLAUSES”The question therefore is whether, if at all, thelimited protection provided by the “federalclauses” is available to South African provin-ces.

3.1 Provincial powersProvinces play an important role in the area oftrade, primarily with regard to goods, but to alesser extent in services. Functional areas con-currently exercised with the national govern-ment13 include trade, industrial promotion,provincial public enterprises and agriculture.Other functional areas of concurrent jurisdic-tion that may impact indirectly on trade areconsumer protection and the environment.Functional areas of exclusive provincial legisla-tive competence14 are less, but may be signifi-cant. They include abattoirs, liquor licences andveterinary services.15

One must therefore ask whether provinces, inexercising their legislative and executive pow-ers, could impinge on WTO obligations. More

directly, can they impose tariffs or other mea-sures which result in unfair competition?

The main concern of the GATT has been thelowering of tariffs. In this area provinces haveno power to levy any tariffs on the importationof goods. Section 228(1)(a) of the Constitutionprovides that a provincial legislature mayimpose “taxes, levies and duties other than ...customs duties”. The direct imposition of cus-toms duties in the form of tariffs is thus not per-missible. The imposition of levies or dutiescould, however, be to the same effect. In thisregard the conclusive answer to provinces ven-turing in this area is that section 228(2) pro-vides that the power to impose taxes, levies, orduties, which in any event must be regulated byan act of Parliament, “may not be exercised in away that materially and unreasonably preju-dices national economic policies”. Commit-ments under the WTO would certainly consti-tute national economic policy, and levies andduties contrary to WTO commitments wouldprejudice such a policy.

3.2 National overridesThe second string to the WTO bow is to ensurethat, in the absence of tariff impositions, thereare no internal measures which distort interna-tional trade.

Take two examples: in order to promoteindustrial development – a Schedule 4 concur-rent competence – a province could indulge inan array of subsidisation activities, producing(unfairly) a competitive local product for theinternational market. The second examplewould be in exercising a Schedule 5 exclusivecompetency, for example, regulating the granti-ng of liquor licences with stipulations whichwould inhibit things such as the sale of foreignwines in the Western Cape.

In the case of non-compliance by a provincein an area which falls within a functional areaof concurrent competence, national legislationmay readily override such provincial legisla-tion. National legislation prevails over provin-cial legislation on a number of grounds, themost likely being section 146(3) of the Consti-tution. In terms of this section national legisla-tion prevails over provincial legislation if it is:

“aimed at preventing unreasonable actionby a province that,(a) is prejudicial to the economic ... interestof the country as a whole; or

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Steytler

(b) impedes the implementation of nationaleconomic policy.”

Where a province’s measure may lead to thesuspension of concessions against the countryas a whole, national prejudice has been estab-lished and a strong case can be made for theoverride provision. Similarly, non-compliancewith WTO obligations – which also apply toprovincial governments – impedes the imple-mentation of a national economic policy as evi-denced by the country’s membership of, andcommitments to, the WTO. The failure of thenational government to take such actions wouldbe indicative that it has not taken “reasonablemeasures” to ensure compliance.

Other override grounds in section 146 thatmay be relied upon are that national legislationprevails if it is necessary for “the maintenanceof economic unity” or “the protection of thecommon market in respect of the mobility ofgoods, [and] services”.16

Where the provincial measure falls within theexclusive provincial legislative competence ofSchedule 5, the same grounds as above apply.Parliament may intervene in this area when it isnecessary “to prevent unreasonable actiontaken by a province which is prejudicial to ...the country as a whole”.17 Again, the prospectof the suspension of concessions and othermeasures against the country as a whole, willconstitute prejudice to the country.

As far as the vertical dispersal of powers isconcerned, the limited federal features con-tained in the Constitution are unlikely to giverise to claims under the WTO’s federal clauses.

4. DOMESTIC INTERGOVERNMENTAL RELATIONSThe fact that no autonomous trade regime ingoods or services is possible for provincial orlocal governments, does not dispose of the mat-ter. International trade regulation may impactprofoundly on the well-being of provinces andlocal authorities. When the national governmentcommits the country to WTO obligations – theimpact of which will fall also on the provincialand local spheres of government – it should bedone within the context of intergovernmentalrelations and cooperative governance.

4.1 Cooperative government One of the central principles of cooperativegovernment is the duty of all spheres of govern-ment to cooperate with one another “in mutual

trust and good faith” by “informing one anotherof, and consulting one another on, matters ofcommon interest”.18

Where WTO commitments made by thenational executive may have far reaching con-sequences for provincial governments, a dutyfalls on the national government both to informand, more importantly, to consult with the othertwo spheres. Consultation entails that beforemaking a decision, the national governmentinforms other interested parties of the pendingdecision, invites them to comment and consid-ers such comments in good faith. Such a dutyshould thus be discharged before the nationalgovernment commences or concludes negotia-tions on various offers to the WTO.

4.2 South African practice In practice, a number of state departments dealwith WTO matters. The principal department isthe Department of Trade and Industry (DTI),which has been responsible for the GATT andWTO negotiations and has a permanent repre-sentative at the WTO in Geneva. Anotherdepartment directly involved is the Departmentof Agriculture in the light of the specific agree-ment on agriculture. The issue is how thesedepartments relate to their counterparts in theprovinces.

The present practices of the DTI suggestsound intergovernmental relations. The processof consultation with the provinces takes placethrough three monthly meetings between theMinister of Trade and Industry and the provin-cial Members of the Executive Councils(MECs) responsible for Economic Affairs – theMinmec meetings. These meetings can thusserve both as a forum for information distribu-tion as well as consultation.

The DTI has also in the past included provin-cial representation in their delegation to WTOtrade negotiations. At the first MinisterialConference of the WTO in Singapore inDecember 1996, Minister Alec Erwin invitedtwo delegates from the provinces to accompanyhim and one MEC for Economic Affairs in theEastern Cape.

4.3 Legislative intergovernmental relations:NCOP and ratification of treatiesApart from intergovernmental relations at anexecutive level, provinces have the final advan-tage when it comes to the ratification of inter-

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national treaties, including the commitmentsundertaken by the national government in termsof the WTO.

Through the National Council of Provinces(NCOP), provinces can play an important andindependent role in the ratification process oftreaties. Unlike its limited role in legislation,the NCOP has a veto power with regard to theratification of international treaties. TheConstitution is clear:

“An international agreement binds theRepublic only after it has been approved byresolution in both the National Assemblyand the National Council of Provinces.”19

This provision does not fit comfortably with theNCOP’s role of protector of provincial inter-ests, and is more akin to the US Senate vetoright in international relations.

This veto power could be significant whereWTO commitments, agreed to by the nationalexecutive, impact adversely on provincial inter-ests. This provision also places provincessquarely on the map as equal players in theinternational arena. However, to exercise thispower meaningfully the NCOP should not beconfronted with a complex negotiated deal,where one part cannot be changed without the

whole deal collapsing. To avoid being con-fronted with an all or nothing choice, theNCOP (and the National Assembly) should beconsulted during the negotiation process.

CONCLUSIONThe WTO signifies an important step in thedevelopment of global governance. Within thecontext of the South African constitutionalstate, it should be seen as a further, but mostsignificant, building block of a fourth sphere ofgovernment alongside the national, provincialand local spheres.

Portraying supranational governance as thefourth sphere of government not only reflectsthe actual distribution of power, but alsoemphasises the imperative of sound intergov-ernmental relations and cooperative govern-ment between all four spheres. Because interna-tional governance impacts on provinces, theimportant principle of cooperative government– the duty to consult20 before decisions areeffectively made – must be adhered to. Thisentails that, in practice, the national govern-ment must, with regard to WTO trade issues,consult with provincial governments during thenegotiation process.

1) Based on an earlier paper: “Global gover-nance and national sovereignty: The WorldTrade Organisation and South Africa’s newconstitutional framework” (1999) 2 Law,Democracy and Development p.89.

2) See Rajeev Dhavan & Geetanjali Goel“Indian federalism and its discontents: Areview” in Gert W Kueck, Sudhir ChandraMathur and Klaus Schindler (eds)

Federalism and Decentralisation: Centre-State Relations in India and Germany(1998) p.54.

3) John H Jackson, William J Davey & AlanO Sykes Legal Problems of InternationalEconomic Relations (1995) p.323.

4) “Canada - Measures Affecting Sale ofGold Coins” L/5863 unadopted report, 17September 1985, §§ 53.

ENDNOTES

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5) § 56.6) § 63.7) See also “Canada – Import, Distribution

and Sale of Certain Alcoholic Drinks byProvincial Marketing Agencies”, PanelReport DS17/R, adopted on 18 February1992; “United States – Measures AffectingAlcoholic and Malt Beverages”, PanelReport DS23/R, adopted on 19 June 1992.

8) “Canada – Import, Distribution and Sale ofAlcoholic Drinks by Canadian ProvincialMarketing Agencies” L/6304, adopted on22 March 1988.

9) World Trade Organisation Guide to GATTLaw and Practice (1995) vol 2, p.830.

10) See generally Joseph F Dennin & Jamie LBoucher “1996 WTO Agreement on

Government Procurement” in Dennin (ed)Law and Practice of the World TradeOrganisation Commentary, Vol. 1 (1995).

11) The signatories are the European Union,the United States, Canada, Finland, Israel,Japan, Korea, Sweden, Norway,Switzerland.

12) Appendix I.13) Listed in Schedule 4 of the Constitution.14) Listed in Schedule 5 of the Constitution.15) See sanitary and phytosanitary measures

agreement.16) S 146(2)(c)(ii) & (iii) Constitution.17) S 44(2) Constitution.18) S 41(1)(h)(iii) Constitution. 19) S 231(2) Constitution.20) S 41(1)(h) Constitution.

INTRODUCTIONWhen compared to the dispensation before1994, the present South African Constitutionprovides for a completely new arrangementregarding the conduct of foreign affairs. Theprevious emphasis on a dominant executive,prerogative powers, practically no role for thejudiciary and limited parliamentary involve-ment, has been replaced by a new order. Ingeneral terms the present approach reflects thesupremacy of the Constitution and its emphasison the rule of law, democracy, transparency,accountability, judicial review and separationof powers.

The political transition in South Africa alsogave birth to a new internal structure of government involving nine provinces with constitutionally protected powers in respect oflegislation and administration.

This paper discusses certain aspects of inter-national trade, the conclusion of internationaltrade agreements and the domestic applicationof such agreements. It will also focus on theposition of the provinces within this context.

It is probably safe to maintain that since theend of the Cold War, international affairs arelargely dominated by a new paradigm – that of“globalisation”. This involves internationaltrade, access to markets, the penetration of thenation-state, supranational decision making andinternational demands regarding the quality ofdomestic governance. The latter results in, forexample, trade and development agreementsthat now often contain clear provisions ondemocratic rule, respect for human rights, therule of law and an end to corruption.

These trends are often resisted by invoking

the sovereignty of the state and the prohibitionof interference in domestic affairs. Suchdefences have limited relevance now. If nationswant to prosper and grow they have littlechoice but to become part of the new interna-tional order. This does not mean that the domi-nance of certain states or trading blocs in inter-national trade organisations has to be acceptedunconditionally. It does, however, mean thatthese bodies and their policies will have to beengaged and that the needs of especially devel-oping countries should receive adequate atten-tion and accommodation. But this will requirenew approaches, constructive engagement andthe necessary skills and expertise within devel-oping nations.

Development aid is now increasingly linkedto the demands of the new international order.The East cannot be played off against the Westanymore and taxpayers in donor countries wantto know where their money goes and whoseinterests are served. (See the recently conclud-ed Cotonou Agreement.)

1. THE MECHANISMS FOR CONDUCTINGINTERNATIONAL TRADEThe international trade dispensation comprisesthe multilateral structure of the World TradeOrganisation (WTO), several regional tradingarrangements and bilateral agreements.

The WTO is a rules-based legal structureresponsible for implementing the GeneralAgreement on Tariffs and Trade (GATT), theGeneral Agreement on the Trade in Services(GATS), TRIPS and the DSU. It aims at a uni-versal trade system based on the ideas of liberaltrade, interdependence and comparative cost

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The Constitutional Accommodation ofInternational Trade Relations, With

Specific Reference to Provinces

Gerhard Erasmus

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Erasmus

advantage, fairness in trade and enhancingcompetition. Trade covers much more than themovement of goods and payments; it has impli-cations for intellectual property, the environ-ment, human rights, technical standards andmany trade-related aspects.

The mechanisms for regulating all theseaspects consist of numerous internationalagreements, often implemented by internationalorganisations such as the WTO, the EuropeanUnion (EU), the Southern African CustomsUnion (SACU), the Southern African Develop-ment Community (SADC) and the NorthAmerican Free Trade Area (Nafta).

One result is that there may be considerableoverlap in membership and legal obligations.The necessary skills and expertise are requiredin order to apply the relevant rules correctlyand to coordinate technical aspects such asrules of origin, tarrification, licensing, permitsand customs and excise. (See examples ofWTO, SACU, SADC and Cotonou Agreement.All Southern African states are members of allthese arrangements. South Africa has a separatefree trade agreement with the EU.)

For the purposes of this paper, the main focuswill be on the conclusion and implementationof these international trade agreements. Theyaim at two basic objectives: • Laying down rules and standards for further-

ing liberal trade under conditions of fairnessand non-discrimination.

• Creating structures (such as the WTO) toimplement these rules and to provide for thesettlement of trade disputes between states.

All these objectives are to be achieved throughlegal arrangements between states, and themain instrument for doing so is public interna-tional law. Its main manifestation is treaties(international agreements).

Owing to the sovereignty of states (there isno world government) legal obligations bindingstates inter se can in principle only come aboutthrough treaties or customary international law.International trade law is, for all practical purposes, to be found in international agree-ments.

Implementation of international obligationsdoes not end once an agreement has been con-cluded. The real practical issues depend on thedomestic implementation of these internationalagreements. National legislation now becomesimportant.

The nature of these international rulesinvolves negative (e.g. not to increase tariffs) aswell as positive (e.g. protect trade marksdomestically) obligations for a state. Domesticlegislation is, therefore, an important aspect inthe broader picture of international trade.

Corporations or individuals (both foreign andlocal) rely on domestic legal rules for conduct-ing trade. A failure to adopt the necessary legis-lation will impact negatively on the potential totrade and may involve violations of internation-al obligations. (See example of anti-dumpingmeasures.)

South Africa also has an important regionaland international role (the African Renaissance)which includes:• addressing the neglect of intra-African trade• the link to good governance in African states• the link to peace-keeping, peace-making,

refugee problems, etc.• how to secure investments through invest-

ment protection agreements.

2. TWO LEVELS OF LEGAL OBLIGATIONSInternational legal obligations involve bothinter-state and intra-state dimensions.

The first consists of international agreementsthat come about through a process involvingnegotiations (by government obligations), thesigning of a text, a process of ratification andfinally entry into force.

Ratification requires the consent by a state tobe bound by the agreement – since states arenot automatically bound by international agree-ments. Such consent often involves a domesticparliamentary role. In the case of South Africansections 231–233 and Chapter 5 of theConstitution are the applicable provisions.

3. THE CONSTITUTIONAL POSITION OFPROVINCESProvinces are involved in the approval of cer-tain international agreements through theNational Council of Provinces (NCOP). (TheSADC Trade Protocol is an example.)

Provinces enjoy certain powers in terms ofSchedules 4 and 5 of the Constitution. Some ofthem (environment, agriculture, conservation,pollution, trade, etc. in Schedule 4 and veteri-nary services under Schedule 5) may involveaspects of international trade. The nature of leg-islation on these matters is to be determined.

Section 146 contains the criteria for deter-

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mining what legislation will prevail when thereis a conflict between national and provinciallegislation under Schedule 4.

The executive powers of provinces in princi-ple flow from legislation of a national andprovincial nature.

Provinces are not entitled to conclude inter-national agreements, however, they can enterinto other types of international arrangementssuch as “sister agreements” and “twinningagreements”.

CONCLUSIONThe main issues are therefore how to tackle thechallenges of globalisation and internationaltrade, and how we can ensure domestic growthand development.

The challenges of international trade, bothpositive and negative, also cannot be ignored.Here the elements of skills, expertise andcapacity come into play. To conclude, effectivecooperation between national and provincialgovernments will be essential.

“The distribution of physical and humancapital emerges from the theoretical andempirical literature as the key to distribu-tional consequences of growth, and as thedeterminant of growth itself.”

– Ravi Kanbur (1998: 20)

INTRODUCTIONGlobalisation offers new challenges and oppor-tunities for all developing countries. After aquarter of a century of poor economic growthduring which per capita incomes declined,combined with great inequalities of income,South Africa needs to utilise the new opportu-nities offered by reintegration into a globalisingworld economy. Economic growth requiresgreater reintegration into the world economy,both in terms of trade and in terms of foreigndirect investment:• To benefit from trade, South Africa must be

internationally competitive, which requiresinter alia high levels of productivity and util-ising technological know-how.

• To benefit from foreign investment requiresthe ability to attract and absorb such capitalinflows, i.e. what has become known as“social capability”.

It is with these issues that this paper is con-cerned. For South Africa to become an interna-tional economic player requires the develop-ment of technical and managerial skills, as wellas a skilled labour force.

At the global, national and regional (provin-cial) level, the exclusion of countries or peoplefrom the economic mainstream results largelyfrom deficiencies of education, institutions andpolicies. In many circles there is concern about

South Africa’s capacity to compete internation-ally and that it may remain unattractive for for-eign investors. Others argue that some parts ofthe South African population may be drawninto the global economic mainstream, but thatthe gap between the privileged and the disad-vantaged within South Africa will only grow.

Education determines productivity and eco-nomic growth, but also how labour marketearnings are distributed. With the requiredskills base, South Africa could harness thefruits of globalisation, which would allowmuch more rapid economic growth. But global-isation in itself creates new challenges, ofwhich the major one is drawing the poor intothe economic mainstream, by equipping themwith the required education and technicalexpertise.

In this paper we shall look at:• poverty and inequality in South Africa in the

global context• how prospects for economic growth are inti-

mately linked to the global economy• how educational deficiencies among the poor

may effectively exclude many from full par-ticipation in the benefits of the global econo-my

• the implications for education policy.Although the analysis largely relates to thenational level, I shall also sometimes refer tothe provincial level, i.e. to the challenge facedby the Western Cape, a richer province, butfaced in microcosm with all the many problemsendemic to South Africa.

1. POVERTY AND INEQUALITY IN SOUTH AFRICAApartheid has left South Africa with a racially

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The Challenge of Globalisation: Drawingthe Poor into the Economic Mainstream–

A Perspective from the Western Cape

Servaas Van der Berg

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highly divided society. Table 1 shows the mas-sive differentials in racial income and unem-ployment at the end of the apartheid era. Asemployment is the major source of income,reduced unemployment would considerablyincrease black incomes. Beneficiaries of eco-nomic progress are those with access to educa-tion, as an analysis of socio-economic datashows. Moreover, the position in the socio-eco-nomic spectrum largely determines who aremost likely to gain from globalisation and whoface the greatest risks of being excluded fromits benefits. In general, most whites are privi-leged, but the privileged are no longer over-whelmingly white, as Table 2 shows.

Dividing the population by quintiles is usefulfor understanding the proximity of differentsegments to the economic mainstream:• The affluent top quintile of households, no

longer dominantly white, exhibit high levelsof education, wages and income. Almost all

children enrol for secondary education and asubstantial proportion go on to tertiary educa-tion, thus this income class reproduces itself.They face limited economic risks even in aglobalising economy, as they and their chil-dren are equipped to face the tough produc-tivity challenge that globalisation brings.

• Quintile 4, the largely urban working class, isalso fortunate in having access to paid urbanemployment. They place strong emphasis onenrolling children in secondary and tertiaryeducation, which makes them an upwardlymobile group. They nevertheless still riskfalling victim to unemployment because oflower levels of education and skills.

• Quintile 3 is mixed in terms of both employ-ment status and geographic origin. Access tojobs is tenuous due to limited skills and loweducational levels, while high risks of unem-ployment subject many to fluctuating for-tunes. When the duration of unemployment isappreciable and households have no otheremployed earner, many slip down the incomeladder. On the other hand, those with someskills and education who do obtain regularemployment may graduate to the secondquintile.

• The poorest two quintiles consist predomi-nantly of rural black people, mainly poorlyeducated (most household heads have noteven completed primary education). Socialstress is evident in high rates of absencefrom rural areas of able-bodied males whowork in the cities. Unemployment and low

Table 1: Per capita income and unemploy-ment by race, 1996

Per capita income Unemployment per annum (broad definition)

Blacks R3 240 42.5%Coloureds R6 552 20.7%Indians R12 444 12.2%Whites R27 048 4.5%Total R6 398 33.8%

Source: Calculations from 1996 census, 10% sample

Table 2: Socio-economic situation of different income classes, 1993

Income/consumption quintiles TotalQ1 Q2 Q3 Q4 Q5

Per capita income R 390 R 1 056 R 1 974 R 4 158 R 20 478 R 5 611Household income R 2 406 R 6 372 R 11 550 R 22 458 R 82 536 R 30 630Unemployment 53% 43% 30% 17% 4% 30%Wage share of income 23% 44% 67% 79% 65% 65%% rural 76% 68% 46% 33% 15% 47%% metropolitan 10% 14% 29% 40% 58% 30%% black 96% 93% 82% 68% 25% 73%% white 1% 1% 3% 16% 66% 17%Household size 6.3 6 5.9 5.4 4.2 5.5% electricity in home 15% 28% 49% 77% 98% 53%Stunting children under 5 38% 27% 23% 18% 6% 27%

Note: Figures not fully comparable across dimensions, as criteria for division into quintiles differed (e.g. income/con-sumption group, quintile of households/individuals, etc.)Sources: Compiled from: World Bank 1995; Saldru 1994; Janisch 1996; Klasen 1996

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wage levels means that wages are a smallpart of their incomes. Those with a perma-nent job or a social pension usually move upthe income ladder, unless the burden ofdependants is too large. The poor nutritionalstatus is shown by stunting rates of one inthree children under five. Social assistance(social old age pensions, disability grants,etc.) is vital for this group and is the mainincome source for a quarter of such house-holds.

Despite apartheid, the past 30 years saw agrowing black middle class, with the conse-quence that growth in the consumer marketnow largely depends on the growth of blackincomes. Two competing forces affectedincome distribution among blacks:• A combination of trade union pressure, the

scrapping of job reservation, rising blackskills, improved education, reduced discrimi-nation and currently also affirmative action inappointments led to rising wages that liftedthe earnings of a significant minority of blackworkers far above previous levels andincreasingly drew them into the economicmainstream.

• Unemployment resulting from rapid labourforce growth in combination with poor eco-nomic growth and increased capital intensitydetrimentally affected mainly the least edu-cated and the most vulnerable, who wereoverwhelmingly black.

The black population is indeed becoming moreheterogeneous in terms of economic and socialstatus. Black “insiders” are increasingly adopt-ing lifestyles historically associated withwhites, while the socio-economic distancebetween them and black (mainly rural) out-siders is growing. The income ratio between thetop decile and the next decile is exceedinglyhigh at 262%, comparable to Latin America’s260% and far above the United States’ (US’s)160% (Inter-American Development Bank,1999:1), but still below the 308% for all ofSouth Africa.

While poverty and inequality can be reducedto some extent by various interventions, thelong-term solution lies in accelerating econom-ic growth. Growth contributes most to reducingpoverty if it utilises the major assets of thepoor, particularly their labour (De Haan et al.,1997), which requires, in a globalising worldeconomy, improvements in the quality of their

labour. Growth can reduce poverty directly,even without improved distribution, but mayalso allow redistribution without engenderingincreased conflict. Thus it is to economicgrowth that we turn next.

2. SOUTH AFRICAN ECONOMIC GROWTH IN CONTEXTFollowing the rapid growth of the 1960s, politi-cal conflict prevented the revival of the econo-my after the oil shock of 1973. Poor growthalso exacerbated unemployment, which furtherfanned social and political instability. The abo-lition of apartheid enhanced opportunities foreconomic growth, mainly by the re-incorpora-tion of South Africa into the world economy.The political transition eliminated the need tosustain large net outflows on the capitalaccount of the balance of payments to repayforeign loans and even brought the possibilityof renewed capital inflows. It also made possi-ble the long overdue shift from import-substi-tuting industrialisation to an outward-lookingdevelopment strategy – an opportunity graspedthrough negotiations within the GeneralAgreement on Tariffs and Trade (GATT)framework. Simplifying and substantiallyreducing tariff protection forced industries thatfor long had been able to survive while operat-ing relatively inefficiently to become more pro-ductive or survive against foreign competitors.After painful adjustments, most producers havemanaged to adapt to international competition.This productivity enhancing adjustment processalso created a base for expanding into exportmarkets – the other side to the shift in trade pol-icy. Economic growth has improved modestly,and the manufacturing capital stock againshows some growth. The challenge now is toimprove growth at least to the pre-stagnationlevels.

Despite these improvements, some areas ofeconomic concern remain: • Continuing weakness of the balance of pay-

ments (BoP) is still the major constraint togrowth.

• The weak investment response to the newopportunities offered by an economy freed ofthe shackles of apartheid and isolation.

• Volatility of the foreign exchange market andof investor confidence.

• The consequent failure to achieve highgrowth and to reduce unemployment.

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• Fiscal stress and the tight budgetary con-straints to providing social services to thepoor.

• The poor performance of public social andeconomic service delivery (e.g., education,health, housing, transport), in terms of bothquantity and quality of services.

• Continuing distributional conflict and thefailure to reduce poverty substantially.

• Still low multi-factor productivity, despiteimproved productivity growth.

2.1 The Growth, Employment andRedistribution (GEAR) strategyFaced with these problems – particularlyextreme volatility on the foreign exchange mar-ket in early 1996 – the government formulateda macro-economic strategy, GEAR (Growth,Employment and Redistribution), directedtowards using the opportunities offered by re-integration into the world economy.

GEAR aimed at enabling redistribution boththrough creating employment and through thegovernment budget, by moving the economyover the medium-term to levels of growth com-mensurate with employment and fiscal resourceneeds. The importance of unemployment onpoverty can be gauged from the fact that of the3.9 million unemployed, 1.1 million lived inhouseholds where no individual earned a regu-lar income; the probability of severe householdpoverty is almost halved if at least one memberis in wage employment. GEAR illustrated thatcreating jobs would dramatically increase theincome of the poorest, while all other attemptsto address poverty will fail in the absence ofemployment creation. To create jobs requires,inter alia, higher economic growth, within aframework of responsible economic policiesand social stability. Economic modelling of theGEAR assumptions pointed to export growthand the investment response – the two enginesof growth in this strategy – to be crucial.

The need for export growth and foreigninvestment derives in large part from the BoP,long the major constraint to South African eco-nomic growth. A high import propensity meantthat rising incomes during economic boomsincreased imports of consumer goods and capi-tal goods (machinery) for investment. If theconsequent strain on the BoP during economicbooms could not be alleviated through higherforeign capital inflows or enhanced exports,

BoP pressure had to be relieved through reduc-ing import demand or the exchange rate had tobe allowed to depreciate. The South AfricanReserve Bank wanted to limit currency depreci-ation due to its detrimental effect on importprices, inflation, wage increases, and therebyinternational competitiveness, which lead tolower exports and further BoP pressure. To pre-vent this spiral, the Reserve Bank in the past(particularly in the sanctions era) quite oftenintervened to protect the BoP when economicgrowth approached about three per cent perannum, through tighter monetary policies(higher interest rates) that dampened consumerand investor spending and thereby reducedimport demand. However, this also dampenedeconomic growth. Since the political transition,capital inflows provide some of the foreign cur-rency required to finance import requirements,but substantial long-term capital inflows firstrequire a track record of economic growth,social stability, and responsible and predictableeconomic policies.

GEAR saw the exchange rate depreciation of1996 as an opportunity for greater exports. Alower exchange rate improved internationalcompetitiveness, as long as this benefit was noteroded through rising production costs arisingfrom accelerated inflation and wage increases.If higher import prices were to feed their wayright through the economy, the competitiveadvantage of the depreciation would soon beeroded. A spiral of depreciations and inflationmay destroy long-term growth prospects unlessa real depreciation can be maintained. Thisrequired steps to combat inflation. Thus theGEAR strategy was quite simply to maintainthe opportunity of improved international com-petitiveness flowing from a lower exchangerate, but to limit the inflationary consequencesby tight monetary and fiscal policies, and wagerestraint.

The above shows the crucial role allocated toSouth Africa’s international economic positionin the government’s macro-economic strategy.Critics on the left – critical especially of the fis-cal discipline imposed by GEAR – have thusfar failed to provide an alternative way to over-come the crucial BoP constraint. No matterhow well trained or productive the labour force,if this cannot be translated into an improvedBoP, growth will remain constrained by theinability to obtain the foreign exchange

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required to finance import requirements both ofconsumer goods and machinery.

Not surprisingly, however, GEAR forecastserred on the side of optimism, particularly withregard to employment. Forecasts of this sort arenotoriously difficult, for they are conditionalupon certain permutations of policies, eventsand private sector responses. Where theassumptions do not eventuate, outcomes arelikely to deviate from the forecasts. Further-more, the employment projections did not ade-quately take cognisance of discouraging devel-opments in the labour field on job creation.

While GEAR is a medium-term strategy, itattempts to provide a bridge to long-termgrowth, which is universally accepted todepend on improved education and training,and improving productivity (e.g. through open-ing up the economy to international competi-tion and the benefits of international technolo-gy). A 1994 World Bank study mentioned fivepolicy directions that need attention in a SouthAfrican development strategy: raising skills,encouraging exports, creating jobs throughrural restructuring and encouragement of smallbusiness, raising government investment andother expenditures directed towards disadvan-taged communities, and maintaining sound fis-cal and monetary policies. I shall now discussthe first of these, education, because it is socrucial a determinant of long-term growth andbecause of the role the provinces can play inthis field in assisting economic growth andincorporating the poor into the growth process.

3. THE ROLE OF EDUCATION3.1 Education, growth and earningsThe new growth literature has again empha-sised the importance of human capital and tech-nology for economic growth. This spawned anew array of cross sectional empirical studiesattempting to isolate the crucial variables ininternational growth. Although such attemptshave been relatively unsuccessful, most econo-mists ascribe this to data deficiencies and vari-able specification rather than to the absence ofsuch a causal relationship flowing from humancapital to growth. (There is also no doubtingthe flow of reverse causality as well, whichcomplicates empirical analysis.) A more gener-al explanation is also possible, viz. that humancapital with institutions, governance, etc. formpart of “social capability”, which determines

how well countries are able to attract interna-tional investment or utilise available technolo-gy (Abromovitz, 1989).

International research has shown the impor-tance of education for labour force participa-tion, employment and earnings. For instance,between one-quarter and one-third of incomedifferentials between households in Chile canbe ascribed to differences in the educationalattainment of the household head, a far greaterproportion than captured by any other charac-teristic of the household (Ferreira and Litch-field, 1998:32). In South Africa, too, Bhoratand Leibbrandt (1999) show that educationaffects the propensity of blacks to participate inthe labour force, the probability of their beingemployed as well as the earnings of thoseemployed, with the returns to secondary educa-tion being particularly high. Other recent workbroadly confirms the importance of educationfor black earnings (Moll, 1998; Mwabu &Schultz, 1996; Fallon & Lucas, 1998; Hofmeyr,1998).

Moll (1998) shows that earnings inequalitydecreased between race groups between 1981and 1993, whilst it increased within racegroups. Improved black educational attainmentprobably played only a minor role. Moll ratherascribes the growth within group inequality tothe removal of labour market discrimination,with some blacks benefiting from new opportu-nities for upward occupational mobility, whilepoorly educated whites lost the protection theyhad historically enjoyed. Thus even thougheducation was not directly responsible forchanges in earnings, its distribution determinedwho could and who could not benefit from thenew opportunities for blacks in the labour mar-ket.

A distinguishing feature of those formingpart of the economic mainstream is that theymanage to educate their children better thanpoorer members of society. Precious few of thepoor get access to good quality educationwhich allows them to rise above the constraintsset by their environments. Without sufficientproductive jobs, education largely determineswho get these jobs.

International experience points to growingdemand for skills; without an acceleration inthe availability of such skills, educational pre-mia are likely to remain high. In the US, onlyan enormous expansion in secondary schooling

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after 1910 made possible a reduction in theeducation returns until the 1950s, after whichtime returns again rose as skills demand out-stripped their supply because of “skill-biasedtechnological change” (Goldin & Katz, 1999:25; for more recent evidence, see also Murphy& Welch, 1994). Bhorat & Hodge (1998) haveshown that South African labour demand pat-terns also reflect a growing demand for higherskilled labour and a declining demand for low-skilled workers. Thus reducing labour marketinequality would require substantial improve-ment in the supply of skills through more andbetter quality education.

3.2 Racial inequalities in educationSchooling inequality between races as reflectedin years of education completed (unadjusted forthe quality of education) has been substantiallyreduced in the past decades. For instance, Lam(1999) shows (Table 3) the decline in inequali-

ty in years of education completed between twobirth cohorts separated by 30 years.1 Figure 1shows that schooling inequality between thedifferent races also greatly declined, as reflect-ed in mean years of schooling by birth cohort.Blacks in the cohort born in 1920 had a meanbacklog of 8.0 years of education compared towhites; those born in 1950 had a 6.0-year back-log, the 1960 cohort a 4.6-year backlog, and the1970’s cohort a backlog that had been reducedto only 3.2 years.

One should not forget, however, that SouthAfrican education quality still varies consider-ably. The old dividing lines of race haveblurred with many black pupils now attendingformerly white schools,2 but there is great qual-ity diversity in mainly black schools, whichgenerally still perform much more poorly thanformerly white schools. Judging by the highmatriculation failure rates of more than half in1998 (with only 13% obtaining universityexemptions) (Edusource, 1999:5), promotion tohigher standards may still be too rapid, despitehigh repetition rates at lower standards. Thuseducational attainment measured as years ofeducation completed may exaggerate blackcognitive levels mastered at levels belowmatric.

Quality differentials are also reflected in thequality of the matriculation itself, in terms ofthe standard at which matric is passed as wellas the subject choice. Only 45% of all matricu-lation candidates wrote mathematics in 1997

Table 3: Educational inequality for two SouthAfrican cohorts, 1995

Cohorts Cohorts 55-59 25-29

Mean 5.77 9.05Standard deviation 4.51 3.60Coefficient of variation 0.78 0.40Gini 0.44 0.21

Source: Lam, 1999: Table 2

Figure 1: Mean years of education by race and birth cohort, 1995 (three-year moving averages)

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(with a marked male bias); only 21% passed,and most only attempted Standard GradeMathematics, a standard far below what is con-ventional in developed countries. The percent-ages who wrote and passed Science were evenlower at 25% and 16% respectively. Only 50%and 42% of teachers teaching mathematics andscience have studied these subjects beyond sec-ondary school level. Even in the Western Cape– the province with the best matriculationresults – only 24% of matriculation candidatesattempted mathematics at the Higher Grade,and only 20% passed.

Another indication of inequality in education-al output at higher standards can be gleanedfrom data for the Western Cape. As WesternCape pass rates are almost uniformly high(almost 80% of all candidates pass matric), dif-ferences in pass rates between schools are rela-tively low, as Table 4 shows. However, if more

demanding levels of school performance areevaluated (percentage A-aggregates or universi-ty exemptions achieved), inequality increasesconsiderably, with a Gini coefficient of 0.56and 0.80 respectively.

Figure 2 shows literacy and numeracy testscores for 1993 for blacks and whites aged 13to 18, where questions have been set at approx-imately Grade 7 (age 12) level (see also Fulleret al., 1995). Not even the performance ofwhites is very encouraging, but what is particu-larly alarming is that blacks perform far worseon both tests – despite the fact that educationallevels attained by blacks and whites differ rela-tively little at age 13. The poor black attain-ment at higher levels, and particularly inmatric, are partly the delayed effect of lowercognitive achievement levels before the age of13. Although blacks aged 13 to 18 in 1995 hadattained between 78% and 86% of white yearsof education, in 1993 their literacy scoresranged only between 50% and 63% of whitelevels, and their numeracy scores lagged evenfurther behind at 36% to 47% of white levels.Using the same data, Case and Deaton (1999,Table 8) show that, keeping all other factorsconstant, the backlog in literacy and numeracytest scores of black teenagers was equivalent toa backlog of almost 10 years of education com-pleted.

This illustrates the inability of the formerblack school system to provide the educationalquality required to integrate most schoolleavers into a modern economy – the yardstick

Table 4: Inequality of educational outcomesbetween schools in the Western Cape, 1997

Passes Uni. A-Exemp. agg.

Mean 80.6% 23.0% 2.6%Standard deviation 22.5% 22.0% 5.0%Coefficient of variation 0.28 0.96 1.94Gini coefficient 0.15 0.56 0.80

Source: Own calculations from Western CapeEducation Department data

Figure 2: Literacy and numeracy scores of black and white teenagers (12–18 years), 1993(Scores on 8-point scale converted to percentages; ratios relative to white scores)

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by which, from an economic viewpoint, theeducational system must be measured.

Considering these quality differentials, racialwage differentials for persons with similar edu-cation and experience may result less fromlabour market discrimination than from pre-labour market discrimination in school quality.Within a given job grade and standardising forgender differentials, racial wage differentialsdeclined considerably since the mid-1970s, asshown in Table 5, i.e. the “rate for the job” isincreasingly applied (though this says nothingabout differential access to particular jobs). Asearly as 1989, black wages were barely 15%lower than those of whites in a similar jobgrade and of the same gender, a substantialreduction in discrimination since the 43% dif-ferential of 1976. Using other data sources,Moll (1998:1 & Table 10) came to a similarconclusion: total discrimination fell from 20%of the black wage in 1980 to 12% in 1993.

3.3 Educational inequalities among blacksAmong blacks, growing inequality of educa-tional attainment largely follows the lines ofincome: more affluent families are better ableto support their children through school, so thatthere is increasing stratification within blacksociety. Case & Deaton (1999:21) concludethat private resources (expenditures) were amajor factor determining differential black edu-cational outcomes under apartheid. Figure 3shows that on average children from the toptwo black deciles progress considerably betterthrough the school system than their poorercounterparts and only at age 15 start fallingbehind whites.

Furthermore, greater recent access to former-ly white schools for more affluent blacks mayhave accentuated qualitative educational differ-entials among blacks. In some Latin Americancountries, where private education offers an

important route to quality education, significantdifferentials in labour market earnings of peo-ple from different economic backgrounds resultfrom differential quality of education.

“Estimates show that individuals from thelower deciles receive a primary educationwhose quality (measured in terms of incomegeneration capacity) is 35% lower than thatof the next decile above” (Inter-AmericanDevelopment Bank, 1998:54).

Data from the 1996 census (see Table 6) showmean earnings of full-time employed blackworkers who are children of household headsstill resident in the household to be substantial-ly higher where the household head has at leastmatriculated at levels of education similar tothat of the child. In some way the better educa-tion of the parent (household head) translatesinto higher earnings for their children evencompared to other young workers who alsohave matric only, but where the parent had lesseducation, although such premia decline toabout 9% once children graduate. It is not clear,however, whether this measures the quality ofeducation, or some other non-observed aspectof human capital transmitted from parents tochildren.

4. IMPLICATIONS FOR EDUCATION POLICYSouth Africa allocates, by international stan-dards, a large share of its national resources topublic education; its public education spendingratio of about 7% of gross domestic product(GDP) is almost the highest in the world (evenwithout including the training levy on the wagebill). Moreover, education spending has alreadyincreased relatively rapidly. As the growth inpupil numbers still exceeds the growth rate ofthe economy, the government team investigat-ing the medium-term expenditure framework(South Africa, 1998) concluded that there willbe a major funding problem in education incoming years. Shifting further fiscal resourcesto education does not appear to be a viableproposition. Moreover, larger financial flows toeducation in the past five years did not in factincrease real resources for education commen-surately, as fiscal resource shifts were over-shadowed by wage increases for teachers. Thetotal equivalent number of teachers employedfull time may even have marginally declined,while pupil numbers continued to rise. Cut-backs in educational personnel in some of the

Table 5: Relative wage levels by race for similar gender and job grade (% of white levels)

White Coloured Indian Black

1976 100% 62.2% 67.0% 57.1%1985 100% 78.8% 87.3% 78.2%1989 100% 79.9% 89.4% 84.7%

Source: McGrath 1990:97

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richer provinces were therefore not matched byincreases in personnel in educationally morepoorly endowed provinces, despite large fiscalshifts. As Donaldson perceptively remarkedsome years ago:

“... the constraint at work ... is not (only)finance, but the limited real resources avail-able to the economy. Competent teachers,nurses, doctors and community workers arescarce, as is the capacity to produce books,medical supplies, and building materials. Sothe growth and improved distribution ofsocial services must be viewed as thegrowth and improved distribution of theinputs required for delivering these ser-vices” (Donaldson, 1993:147).

Considered from an economic efficiency pointof view, the malaise of the South African edu-cational system lies less in terms of allocative

inefficiency than in x-inefficiency. Reallocatingresources from one level of education to anoth-er – as many suggest for developing countries(Gupta et al., 1999) – would bring little gain inSouth Africa. There is perhaps a stronger casefor shifting more financial resources to non-personnel teaching resources; personnel spend-ing is so dominant that even a small relativeshift could greatly increase the availability ofclassroom teaching resources.

The major inefficiencies are in what used tobe the black school system, by far the largestpart of the system, where the quality of learningin schools is often abysmal. Political leaders(the President, his predecessor, and the Ministerof Education) have in recent years publicly putthe blame for poor education results on poordiscipline within schools, particularly amongteachers. The Colts (Culture of Learning,

Table 6: Mean monthly earnings of full-time employed black children of head of household by education and whether head of household has matriculated, 1996

Mean monthly income by educationMatric Matric + diploma Matric + Degree

or certificate other non-degree

Head of household matriculated R1 731 R2 658 R2 849 R3 388Head of household not matriculated R1 380 R2 285 R2 164 R3 104Premium for parent being matriculated 25.4% 16.3% 31.6% 9.1%

Note: Cases where the worker reported being in full-time employment but reporting no income were excluded. This hadonly a very minor effect on the premia.Source: Own calculations from Census 1996, 10% Sample.

Figure 3: Years of education by age (5–25 years), race and income group

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Teaching and Service) campaign, launched in1996, “was the first more or less official recog-nition of the fact that efficiency and work effortproblems, rather than funding by itself, were atthe heart of the problems in the education sec-tor” (South Africa, 1998: 35).

There is a paucity of information for the edu-cation authorities to analyse the educational sit-uation and their policy options. Presently, theonly measure of educational output available tothem is matriculation results, but these still donot identify the roots of the problem (nor arethey properly analysed at the school level). Ithas been shown above that as early as age 13,black literacy and numeracy levels are alreadyfar below par. Allocating resources based onmatriculation results alone cannot adequatelyaddress a problem which may require muchearlier intervention. Whether to direct resourcesto the secondary or the primary level, even ifmatriculation pass rates were the criterion, can-not be decided without more information on thequalitative performance of different parts of theschool system. This requires large scale andcontinued efforts at measuring cognitiveachievement throughout the educational sys-tem, in order to better understand the relation-ship between home background of pupils, edu-cational inputs, and enhanced cognitiveachievement. Moreover, identifying poorly per-forming schools and the causes thereof, in orderto take remedial action, requires a better under-standing of how schools perform.

CONCLUSIONDespite a narrowing racial gap in educationalattainment, aggregate attainment levels are stillfar from satisfactory and qualitative differen-tials in education large. Thus a large part of thepopulation is extremely poorly placed to benefitfrom the opportunities for growth that globali-sation brings. Moreover, if globalisation alsofurther strengthens the trend towards job-shed-ding, many may become further marginalised.South Africa may become, to use a Germanphrase, a two-thirds society, where one-third ofthe population remains largely excluded fromthe benefits of economic growth. This in turnwould undermine social stability and endanger

growth itself, to the detriment of the other two-thirds as well.

To avoid this outcome requires particularattention to education and training. It wasargued above that more resources are not thesolution to the need for expansion of education-al outputs. In fact, educational access is nolonger a major problem, as more than 90% ofchildren of all race groups remain at schooluntil at least age 16.

Government policies have already shiftedsubstantially towards poverty alleviation. Yetthe greatest need of the poor is to be drawn intothe mainstream economy. This can only takeplace if a proper educational foundation is laid.Fiscal resource constraints leave limited scopefor initiatives requiring additional resource out-lays. Thus educational improvement needs totake place within the constraints of presentresources, which implies a need for substantial-ly improved educational productivity. Can thisbe done? A look at some Western Cape data isagain instructive. For the 37 poorest schools, 13had matriculation failure rates of more than50%, an abysmal performance. In contrast, 10schools in this same category performed betterthan the provincial average with failure rates ofless than 20%. Failure rates differ enormously,from 0% to 85%. It does not appear that fiscalor even teacher resources, which are equallyscarce in all these schools, are the crucial fac-tors determining pass rates, in schools withpupils from similarly poor socio-economicbackgrounds. The crucial factor seems to bewhat is happening in the school itself, which toa large degree is a matter of commitment andmanagement.

Thus, given the extremely poor productivityof large parts of the school system at present,productivity improvement requires the urgentattention of policy makers at all levels, movingbeyond debates about curricula and educationalresource allocation to actually improving edu-cational outcomes for all South Africans. Thisis essential if we hope to avert the danger of thecontinued exclusion of the poor from the eco-nomic mainstream in this period of globalisa-tion, and so that South Africa can benefit fromglobalisation.

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ABROMOVITZ, MOSES. 1989. Thinking aboutgrowth, and other essays on economicgrowth and welfare. Cambridge UniversityPress: Cambridge.

CASE, ANNE & DEATON, ANGUS. 1999. Schoolinputs and educational outcomes in SouthAfrica. Quarterly Journal of Economics.

DE HAAN, ARJAN; LIPTON, MICHAEL;DARBELLAY, ELIANE; O’BRIEN, DAVID; &SAMMAN, EMMA. 1997. The role of govern-ment and public policy in poverty alleviationin sub-Saharan Africa. Review of the litera-ture prepared for the African EconomicResearch Consortium’s collaborative projecton Poverty, Income Distribution and LabourMarkets. Mimeo. Sussex: Poverty ResearchUnit.

DE VILLIERS, AP. 1996. Effektiwiteit in Suid-Afrika se onderwysstelsel: ‘n Ekonomieseanalise. Unpublished Ph.D. thesis.Stellenbosch: University of Stellenbosch.

EDUSOURCE. 1999. Edusource Data News 24.

Johannesburg: Education Foundation. March. FALLON, PETER & LUCAS, R. 1996. South

African labour markets: Adjustment andinequalities. Informal discussion paper No.12on aspects of the economy of South Africa.Washington, DC: World Bank.

FERREIRA, FRANCISCO H. G. & LITCHFIELD,JULIE A. 1999. Calm after the Storms:Income Distribution in Chile, 1987-1994.World Bank Policy Discussion Paper 1960.Washington, DC: World Bank. 49pp.

FILMER, DEON & PRITCHETT, LANT. 1998. Theeffect of household wealth on educationalattainment around the world: Demographicand health survey evidence. World BankPolicy Research Paper 1980. Washington,DC: World Bank.

FULLER, BRUCE; PILLAY, PUNDY; SIRUR, NEETA.1995. Literacy trends in South Africa:Expanding education while reinforcingunequal achievement? Mimeo. Saldru:University of Cape Town.

1) Interestingly, Lam’s results comparing edu-cational inequality between Brazil andSouth Africa are supported by the work ofFilmer and Pritchett (1998), who find thatLatin American educational inequality isstill larger even than in many countries ofSouthern and Eastern Africa (though SouthAfrica was excluded from their sample).Londoño (1996) confirms that LatinAmerican educational performance, interms of years of education completed, lagsfar behind most other countries at this levelof economic development. Thus, if SouthAfrica has a problem of providing manywith the skills to benefit from globalisation,this may apply even more to the LatinAmerican countries.

2) Data for 1997 for seven provinces (all butMpumalanga and Eastern Cape) showedthat about 22 000 (or 5.4%) of the 400 000pupils in mainly white schools (defined asthose with more than 70% white pupils)were blacks, while in “mixed” schools(where no race group constituted more than70% of pupils), 197 000 out of 488 000(40.3%) were black, and 104 000 (21.3%)white. Indian schools had the greatest pene-tration by blacks: 15 000 (15.2%) wereblack pupils. Nevertheless, most blackpupils (95.8%) were still in schools whichwere predominantly black. (Own calcula-tions from Department of Education data).

ENDNOTES

REFERENCES

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GOLDIN, CLAUDIA & KATZ, LAWRENCE F. 1999.The returns to skills in the United Statesacross the twentieth century. NBER WorkingPaper 7126. Cambridge, Mass.: NationalBureau of Economic Research.

GUPTA, SANJEEV; VERHOEVEN, MARIJN; &TIONGSON, ERWIN. 1999. Does higher govern-ment spending buy better results in educationand health care? IMF Working Paper. Wash-ington, DC: International Monetary Fund.

HOFMEYR, J AND LUCAS, R. 1998. The Rise inUnion Wage Premia in South Africa. Institutefor Economic Development Discussion Paper83. Boston: Boston University.

JANISCH, CATHERINE ANN. 1996. An analysis ofthe burdens and benefits of taxes and govern-ment expenditure in the South African econo-my for the year 1993/94. Masters disserta-tion. Pietermaritzburg: University of Natal.

KANBUR, RAVI. 1998. Income distribution anddevelopment. World Bank Working PaperWP98-13. Mimeo. Washington, D.C.: WorldBank.

KLASEN, STEFAN. 1996. Poverty and inequalityin South Africa. Mimeo. Cambridge: Centrefor History and Economics, King’s College.

LAM, DAVID. 1999. Generating extremeinequality: Schooling, earnings, and inter-generational transmission of human capitalin South Africa and Brazil. Mimeo. AnnArbor: University of Michigan.

LEE, JONG-WHA & BARRO, ROBERT J. 1997.Schooling quality in a cross section of coun-tries. NBER Working Paper 6198. Cam-bridge, MA: National Bureau of EconomicResearch.

LONDOÑO, JUAN LUIS. 1996. Poverty, inequali-ty, and human capital development in Latin

America, 1950-2025. World Bank LatinAmerican and Caribbean Studies: View-points. Washington, D.C.: World Bank.

MOLL, PETER. 1998. Discrimination is decliningin South Africa but inequality is not. SANERWorking Paper 5. Cape Town: South AfricanNetwork for Economic Research.

MURPHY, KEVIN M. & WELCH, FINIS. 1994.Industrial change and the rising importanceof skills. In: Danziger, Sheldon & Gottschalk,Peter. 1994 (Eds.). Uneven tides: Risinginequality in America. Russel SageFoundation: New York: 101-132.

MWABU, G. AND SCHULTZ, T. 1996. Educationreturns across quintiles of the wage function;Alternative explanations for the returns toeducation by race in South Africa. AmericanEconomic Review 86(2): 335-339.

SALDRU. 1994. South Africans Rich and Poor:Baseline Household Statistics. Cape Town:Saldru.

SOUTH AFRICA, BUDGET OFFICE. 1998. 1998medium term expenditure review: Education.Pretoria: Department of Finance.

SOUTH AFRICA, CENTRAL STATISTICAL SERVICE.1996. Living in South Africa: Selected find-ings of the 1995 October Household Survey.Pretoria: Central Statistical Service.

VAN DER BERG. 2000. An analysis of fiscalincidence of social spending in South Africa,1993-97. Report to the Department ofFinance, Pretoria and funded by DeutscheGesellschaft für Technische Zusammen-arbeit, Stellenbosch: Mimeo.

WORLD BANK. 1995. Key Indicators of Povertyin South Africa. Prepared for the Reconstruc-tion and Development Programme Office.Pretoria: Government Printer.

INTRODUCTION: THE WORLD(S) WE LIVE INThe world we live in is integrating at a seem-ingly ever increasing speed and with far-reach-ing scope. Phenomenal technological advancesare driving faster connection and growinginterdependence of people across nationalboundaries in economy, technology, cultureand governance. Subsumed under the termglobalisation, these forces have dominated andshaped the 20th century, and look set to do thesame in the new millennium.

The forces of globalisation are not new – anumber of writers have pointed out that theworld was more economically integrated a cen-tury ago2 – but the age of globalisation we areexperiencing, particularly the past decade, islinking people’s lives more deeply, moreintensely and more immediately than everbefore.3

As the Human Development Report 1999summarises, we live in a world of:

“10 New and larger markets: Worldexports reached US$7 trillion in the 1990s.This is nearly a fifth of the goods and ser-vices produced yearly in the past decade,compared to 17% of a much smaller grossdomestic product (GDP) in the 1970s. Weare also experiencing growing markets inservices such as banking, insurance andtransport. Foreign direct investment (FDI)topped US$400 billion in 1997, which isseven times the level in real terms in the1970s. The daily turnover in the foreignexchange market increased from aroundUS$10–20 billion in the 1970s to US$1.5trillion in 1998. 20 New tools: The remarkable advances in

communication technology have providedus with faster and cheaper tools to workwith. They have for all intents and purposescollapsed geographic boundaries. TheInternet links people around the globesimultaneously and provides instantaneous-ly access to a hitherto unprecedented poolof information. Global media networksbring issues of the world to individualsthrough newspapers, the radio, the televi-sion and the Internet. Satellite and particu-larly cellular phone technology is connect-ing people everywhere, while faster andcheaper modes of air, rail and road trans-port allows people much greater mobility.These new tools of interaction have stimu-lated exponential growth in the globalexchange of ideas and information. 30 New actors: The emergence of newglobal actors best reflects the changes in theglobal structural power. In addition to thesovereign state globalisation has seen theemergence of the World Trade Organisa-tion (WTO) which is the first multilateralorganisation with enforcement authority;multinational corporations (MNC) thatoften have greater economic assets thanstates; and networks of non-governmentalorganisations (NGOs) and other transna-tional civil society actors. In addition, stateshave organised themselves into regionalblocs such as the European Union (EU) andthe Southern African Development Com-munity (SADC), as well as policy coordi-nating groups such as the Organisation forEconomic Cooperation and Development(OECD), the G-7 and the G-77.

31

Including the Poor in the EconomicMainstream: From Survivalism to Wealth

Creation through Entrepreneurship

Claudia Mutschler1

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40 New rules and norms: The growinginteraction among states and people has ledto the establishment and at times codifica-tion of new rules and norms. In the econom-ic sphere free market policies emphasisingprivatisation, liberalisation and deregulationhave been widely adopted both in responseto the perceived exigencies of globalisationas well as in line with multilateral agree-ments on trade, services and intellectualproperty rights. Much of the world has alsoturned to democratic governance. Moststates are now independent and more than70% of the world’s population live underrelatively pluralist democratic regimes.There is also growing international consen-sus around human rights standards as wellas instruments to monitor and enforce thesenew rules and norms. The recently con-vened United Nations Millennium GeneralAssembly session stresses ’the right todevelopment’4 thus showing that advanceshave been made towards defining globaldevelopment goals.”

A brief review of basic economic statisticsshows that the world has never been more pros-perous than now. The average per capitaincome has more than tripled as global GDPhas increased nine-fold, from US$3 trillion toUS$30 trillion in the past 50 years. The share ofpeople enjoying medium human developmentrose from 55% in 1975 to 66% in 1997 and theshare in low human development fell from 20%to 10%.5

But this is only half the picture. Notwith-standing arguments put forward that increasedtrade and foreign investment together withadvances in information technologies arefuelling economic growth to provide significantscope for human advancement and particularlythe global eradication of poverty, globalisationis not only about benefits, but also costs.

There has certainly been significant globaleconomic growth, but as the HumanDevelopment Report 1999 shows, the benefitsof global opportunities are very unevenly dis-tributed. While many are becoming richer,many more are faced on a daily basis with themost basic problem of survival. An estimated1.3 billion people live on an income of less thanUS$1 a day. (See Figure 1 in Appendix.)

Inequality is rapidly rising between countries.While world inequality has been increasing for

nearly two centuries, an analysis of long-termtrends in world income distribution betweencountries shows significant differences betweenthe richest and poorest country. This differencewas about 3 to 1 in 1820, increasing to 11 to 1in 1913. The difference then jumped to 35 to 1in 1950, and 44 to 1 in 1973, and further to 72to 1 in 1992.6

A quick look at human development index(HDI) rankings which is a composite indexmeasuring life expectancy, literacy and percapita income, indicates wide disparitiesbetween the developed and the developingworld with Canada placed highest and SierraLeone scoring lowest. Large disparities are alsoevident between regions. (See Figure 2 inAppendix.)

Inequality is not only widening betweencountries, but also within countries. Thoughconcentrated in the developing world, povertyis not only a phenomenon of the South. Thehuman poverty index (HPI) – bringing togethera long and healthy life, knowledge, economicprovisioning and social inclusion – was devisedby the Human Development Report to gaugepoverty globally. These dimensions are usedfor both developing and industrialised coun-tries, though the indicators to measure them dif-fer to reflect the different realities in the coun-tries. HPI-1 reflects poverty in developingcountries while HDI-2 shows poverty levels inindustrialised countries.

A short survey of HPI-1 figures reveals thatpoverty ranges from a low 2.6% in Barbados toa high of 65.5% in Niger. In almost 40% of thedeveloping countries surveyed a third of thepeople live in poverty, while in 15% of thecountries more than half the population isaffected by poverty and deprivation. HPI-2 fig-ures show that human poverty is not confinedto developing countries. Though arguably notcomparable to the deprivation experienced inparts of Africa, Asia and Latin America, agrowing number of people are also excludedfrom the economic mainstream in countriessuch as the United States (US) and the UnitedKingdom (UK).7

Similarly, the world is definitely much moreintegrated, but again, significant inequalitiesexist in the degree of integration. In short,while new information and communicationstechnologies are driving globalisation they arealso polarising the world into the connected and

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the isolated. By implication just as the worldcan be divided into the “haves” and “have-nots”, a line can also be drawn between the“knows” and the “know-nots”. Given theincreasing importance of the knowledge-basedeconomy, the growing importance of address-ing the widening digital divide and the develop-ment problems of living in parallel worlds is ofcentral importance in any strategy to addresspoverty and inequality both globally andnationally.

1. THE SOUTH AFRICAN SITUATION One of the major challenges the South Africangovernment faced after the 1994 election wasto address poverty and inequality. Despite thecountry’s relative wealth in GDP terms, themajority of South Africans lived in poverty, orwere continuously vulnerable to sliding intopoverty. Furthermore, the distribution ofincome and wealth in South Africa was one ofthe most unequal in the world. The apartheidlegacy of quality services to the privilegedminority at the expense of systematic underde-velopment of the majority of the population,meant that the government was confronted withan enormous backlog in development chal-lenges along race lines.

Post-apartheid South Africa faced a dualchallenge: externally, to re-integrate itself intothe fast globalising economy and to catch upwith the industrial countries; and internally, for

the poor and marginalised to be integrated intothe economic mainstream and to catch up to theliving standard of the wealthier parts.

At the time of drafting the Constitution, theAfrican National Congress (ANC) argued,“what do all these classical political rightsmean if the majority remain landless, are poor,hungry and jobless?”. Given the ANC’s stancethat “attacking poverty and deprivation must ...be the first priority of a democratic govern-ment”,8 Nelson Mandela’s government firstsought to address the so-called internal chal-lenge by means of the Reconstruction andDevelopment Programme (RDP) launched in1994. The principles underlying the RDPwere:9• an integrated and sustainable approach to

harness all the country’s resources towardsredistribution and development

• a people-driven process which would beinclusive of all regardless of race, sex, urban,rural, rich or poor and which would lead tothe empowerment of people

• the promotion of peace and security• nation building to unify the country and pro-

mote national and regional interests• linking the needs for reconstruction of soci-

ety with development that serves the interestsof people as opposed to purely economicgrowth

• the democratisation of South Africa.By early 1996 it was obvious that sustainableeconomic growth greater than 3% a year wouldnot be achieved without particular governmentinitiatives. A growth rate of less than 3% annu-ally would not allow government to make muchheadway in poverty alleviation, inequalityreduction or job creation. With this in mind theRDP office was closed in June 1996 and gov-ernment instead launched the Growth,Employment and Redistribution Strategy(GEAR).

In essence, GEAR has sought to addressSouth Africa’s external challenge to establishan enabling environment conducive to job cre-ation and the overall aims of poverty alleviationand reduction in inequality.

GEAR identified several related elements inthis regard, including:10

• speeding up fiscal reform• gradually relaxing exchange controls• consolidating trade and industrial reforms• restructuring the public sector

Table 1: Internet usage – a global enclave

Regional population Internet users (as % of (as % of

world pop.) regional pop.)

United States 4.7 26.3OECD (excluding US) 14.1 6.9Latin America & Caribbean 6.8 0.8South East Asia & Pacific 8.6 0.5East Asia 22.2 0.4East Europe & CIS 5.8 0.4Arab States 4.5 0.2Sub-Saharan Africa 9.7 0.1South Asia 23.5 0.04World 100.0 2.4

Source: UNDP, Human Development Report 1999.New York: Oxford University Press, 1999.

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• encouraging flexible collective bargaining• supporting a social accord to facilitate wage

and price moderation• prioritising social spending in the budget.Soon after the introduction of GEAR the Inter-Ministerial Committee for Poverty andInequality was convened by the then-DeputyPresident Thabo Mbeki to specifically re-focuson the initial RDP aims. Mbeki’s office alsotasked a group of consultants to assess andquantify poverty and inequality in SouthAfrica. The subsequent Poverty and InequalityReport in South Africa11 released in May 1998was the first comprehensive analysis of SouthAfrica’s poverty and inequality since theSecond Carnegie Inquiry into Poverty led bythe University of Cape Town in 1984.

2. POVERTY, VULNERABILITY AND INEQUALITYThe Poverty and Inequality Report in SouthAfrica provided a comprehensive statisticalupdate on who and where the poor are, as wellas identified groups vulnerable to slip intopoverty. The Report also gave an analysis ofthe causes of poverty and inequality, as well asassessed government policies to address pover-ty and inequality and made further recommen-dations in this regard.

To consider how best to move people out ofpoverty and to redress South Africa’s inequali-ties, it is useful to recall the definitionsemployed by the authors of the report forpoverty, inequality and vulnerability.

To justifiably define what poverty means topoor people it is imperative to move beyond thestatistical “poverty line” that reflects the mone-tary value of consumption separating the“poor” from the “non-poor”.

As 1998 Nobel Prize winner in Economics,Professor Amartya Sen, clearly outlines in hisDevelopment as Freedom12 that poverty ismore than “a mere lowness of income”. Insteadof this standard determinant, poverty shouldinstead be seen as the “deprivation of basiccapabilities”.

The authors of the Poverty and InequalityReport in South Africa thus defined poverty asthe “inability of individuals, households orentire communities to command sufficientresources to satisfy a socially acceptable mini-mum standard of living”.13

Though poverty is clearly multifaceted andexperienced differently, the Report found that

poverty is perceived by poor South Africans toinclude: • alienation from the community• food insecurity• crowded homes• lack of safe and efficient sources of energy• lack of adequately paid and secure jobs• fragmented families. Inequality was defined to refer to a “state ofsocial organisation that does not enable or giveequal access to resources and opportunities toall members”.14

Polices to remedy inequality thus need to,among other things:• increase the relative income share of the least

well-off• facilitate upward mobility• promote economic inclusion• avoid perpetuating the advantages conferred

by wealth. The authors of the report also took great care tospell out that poverty is not a static condition.Rather, they recognised that while some house-holds are permanently poor, others move in andout of poverty. This vulnerability to povertymay be the result of crises (illness of a bread-winner, shock in external economic conditionsand natural or man-made disasters) and/or long-term trends (various forms of social discrimina-tion, life cycle changes, environmental degra-dation and macroeconomic trends). The assetsand resources held mitigate vulnerability topoverty. In other words, the more assets peoplehold and the better these assets are managed,the less vulnerable they are to poverty.Conversely, the greater the erosion of people’sassets, the greater their insecurity and associat-ed vulnerability to poverty. It is equally impor-tant to recognise that poverty is characterisednot only by an overall lack of assets but also byan inability to devise appropriate coping ormanagement strategies in times of crises. Inother words, poverty is a lack of assets plusincome-generating capabilities.

Using various quantifiable money-metricmeasurements and broader composite indica-tors of deprivation, the report unsurprisinglyfound that South Africa comparedunfavourably with other middle-income coun-tries in measures of human development suchas life expectancy, infant mortality and adultliteracy. Again, unsurprisingly, the reportshowed that these indicators varied widely by

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race group, gender and geographic locationwithin the country.

The report showed that the majority of poorpeople were black, while only one per cent ofthe poor were white. In human developmentterms the white and Indian population groupsfall within the HDI range equivalent to “highhuman development” and comparable to Israeland Canada. The coloured and black popula-tion, however, fall within the lowest bracket of“medium human development” with HDIscores far lower than Egypt and Swaziland.(See Figure 3 in Appendix.)

Poverty is not only unevenly distributedbetween races but also between the country’sprovinces. Poverty rates were found to be thehighest in the Northern Province and the FreeState, although the depth of poverty (theamount required to move all individuals abovethe poverty line) is highest in the Free State andthe Eastern Cape.

In human development terms, this means thatthe Western Cape and Gauteng have a highHDI score, while the Northern Province’s HDIis comparable to that of Zimbabwe andNamibia. The report also showed a strong cor-relation between provincial poverty distributionand race group. In the Northern Province,which scores the lowest HDI, 90% of the popu-lation is black. In comparison, in the WesternCape only 17% of the population is black. (SeeTable 2.)

In addition to the uneven distribution ofpoverty among provinces, there is also a sharpdivide in rural–urban poverty occurrence. An

overwhelming majority of poor people live inrural areas. (See Table 3.)

In addition to poverty measurements, quan-tification of inequality was equally sobering.Using the Gini coefficient which ranges fromzero (absolute equality) to one (absoluteinequality), South Africa (currently at 0.58)was considered the most unequal country.Inequality can also be examined by looking atthe share of total income of groups of house-holds arranged in order of income level. A dis-aggregated analysis showed that between-raceinequality accounts for 37% of total inequality.Furthermore, inequality within race groups isstark too. Black households have a Gini coeffi-cient of 0.54, which is almost as high as thenational average. The rural–urban divide is alsosharp with black and coloured median incomesin the rural areas about half the black andcoloured median incomes earned in urbanareas. (See Table 4.)

3. SIX YEARS ONWhere is South Africa now, six years after theend of apartheid rule, in terms of addressingpoverty and inequality?

Despite some advances made, MeasuringPoverty – a study mapping poverty in SouthAfrica released by Statistics South Africa inSeptember 2000 – showed that there is stillmuch to be done. Figures show that up 30% of

Table 2: Provincial distribution of poverty(1993)

% households % individuals living in poverty living in poverty

Eastern Cape 40.4 50.1Free State 56.8 64Gauteng 29.7 41KwaZulu Natal 36.1 47.1Mpumalanga 33.8 45.1North West 15.4 21.1Northern Cape 38.2 48Northern Province 61.9 69.3Western Cape 14.1 17.9SOUTH AFRICA 35.2 45.7Source: DBSA 1993, quoted in May, Woolard andKlasen, pg. 30.

Table 3: Rural–urban distribution of poverty(1995)

Location Population Poverty Poverty share (%) share (%) rate (%)

Rural 50.4 71.6 70.9Urban 49.6 28.4 28.5All 100 100 49.9

Source CSS, 1995, quoted in May, Woolard andKlasen, pg. 30.

Table 4: Comparison of richest and poorest

% of households % of % of population income

Poorest 40% of households 50 11Richest 10% ofhouseholds 7 40

Source: May, Woolard and Klasen, pg. 27.

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South African households live in poverty,which translates into just above half the popula-tion of the country.15 Moreover, MeasuringPoverty found that inequality has been rising inSouth Africa between and within race groups.The most pronounced increase has been withinthe black population group.

As an editorial in the Business Day said inresponse to Measuring Poverty’s release, “thepoverty study ... must make uncomfortablereading for the ANC government”.16 Thoughthere are acceptable reasons for parts of thesetrends – economic restructuring has led to joblosses, advancement policies have unblockedblack advancement opportunities – there is ris-ing dissatisfaction among the bulk of the people“at the bottom of the pile” with regard to thelack of delivery on the “economic freedoms”fought for in the anti-apartheid struggle.Moreover, reports of millions of rands ear-marked for poverty and inequality alleviationprogrammes lying unspent in government cof-fers is attracting criticism. Significant mediaattention focused on the unspent proceeds ofthe national lottery, for example. In addition,reports shortly after the release of MeasuringPoverty pointed to the “spending constipation”of R855 million in the Umsobomvu Fund aspart of a youth job creation programme. Themoney has been accumulating since early 1998from the levies on the demutualisation proceedsof Old Mutual and Sanlam.17 In short, it is notonly about insufficient funds, but the lack ofcapacity to implement anti-poverty projects.

In addition, there have been a number of pub-lic spats within the ANC, South AfricanCommunist Party (SACP) and Congress ofSouth African Trade Unions (Cosatu) allianceon economic management issues. Both theSACP and Cosatu favour a more interventionistrole for government.18 The increasing frustra-tion with persistent poverty and inequalitytrends also surfaced at the Racism Conferenceconvened by the South African Commission forHuman Rights held in Johannesburg at the endof August 2000.

4. WHERE IS SOUTH AFRICA HEADING?Given these harsh realities, where is SouthAfrica, and particularly where are poor andmarginalised South Africans, heading? This is aparticularly vexing question in the context ofgeneral agreement that South Africa’s econom-

ic fundamentals are sound. South Africa hasattempted to follow the main policy compo-nents regarded as central to a strategy promot-ing growth: namely, ensuring sound macroeco-nomic management and macroeconomic stabili-ty, boosting domestic demand by monitoringreal interest rates, adopting fiscal discipline,introducing institutional reform and promotinggood governance. But it still does not seem tobe enough.

In May 2000, the cover story of the FinancialMail19 included an article outlining three roadsthat South Africa’s future can take at this junc-ture. The article described the “low road” asthat of “increasing informalisation of formalemployment”. With the increased pressures ofglobalisation South Africa could see the alreadyalarming number of poor and vulnerableincrease much further. Of particular concern isthe mushrooming of “fourth-world” jobs – i.e.unskilled, low paid and completely deregulatedjobs. While these jobs may provide a survivalistincome they do not add significantly to higherhuman development, nor do they equip SouthAfricans to compete effectively in a globalisedeconomy based on knowledge and information.

The “middle road” South Africa could take asoutlined by the Financial Mail article wouldentail addressing the country’s skills shortagehead-on. South Africa’s economic shortcom-ings cannot merely be blamed on the “negativeside-effects of globalisation”. Other developingcountries face similar globalisation-inducedchallenges as South Africa. Moreover, crime –often put forward as the main reason for the asyet disappointing inflows of FDI – is as preva-lent in Brazil and Argentina for example, yetdoes not appear to be deflecting investors there.The reasons for South Africa’s limited econom-ic growth rate have to be found beyond (thoughadmittedly not exclusive of) crime concerns. Inthe moving target of identifying FDI deflectionreasons, the nature of our workforce has beingrecognised as decisive. South Africa simply hasthe “wrong” workers. Instead of the “surfeit ofunskilled and unemployed workers”, SouthAfrica needs management, financial and infor-mation technology skills. As the Financial Mailputs it, “we need a new workforce for a moremodern economy, rich in tourism, financial ser-vices and high-ended manufacturing forexports.” (See Table 5.)

Lastly, the “high road” according to this arti-

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cle is the very long-term view of the positivecumulative effects of addressing South Africa’sskills gap, appropriate economic restructuringand incentive dispersal to tap into global oppor-tunities within the context of real progressmade in terms of integrating Southern Africaeconomically.

Clearly, it is in South Africa’s interest not tostray too far down the “low road”. Almost 20%of South Africa’s economically active popula-tion is already “employed” by the informal sec-tor. With privatisation expected to gainmomentum over the next two years, the numberof people made vulnerable to a slide into pover-ty may only increase further. South Africa sim-ply has to grapple with the exigencies imposedby globalisation. This includes recognising thatskills development is central to the country’sfuture. While economic growth is a necessarycondition for the alleviation of poverty, it is nota sufficient condition. Even the World Bank’sAttacking Poverty: Opportunity, Empowermentand Security20 report released in September2000 debunks the long-held assumption thatrapid economic growth will automatically trig-ger redistribution of income and wealth.Instead, as the 1999 Human DevelopmentReport summarises “it must be pro-poor growththat expands the capabilities, opportunities andlife choices of poor people”.21

The focus on capabilities, opportunities andlife choices echoes the writings of ProfessorSen. His welfare analysis of reduced povertyand inequality reduction moves far beyond theclassic capitalism/socialism schism to consider

the relationship between what he calls “individ-ual agency” and “social arrangement”.22 Senargued that individual agency is ultimately cen-tral to addressing poverty and deprivation. Hefurther argues that this individual agency is,however, also “inescapably qualified by thesocial, political and economic opportunitiesavailable” in the broader “social arrangement”.The proverb “give a man a fish and he’ll eat fora day, but teach a man to fish and he’ll eat for alifetime”, is only half true. If the man does nothave tools to fish nor a place to fish, all theknowledge in the world as well as individualagency to act will not produce the next day’scatch.23

Any meaningful poverty alleviation pro-gramme thus has to recognise both the centrali-ty of individual freedom and the social influ-ences that impact on the extent and reach ofindividual freedom. As the title of his bookstates, Sen sees development as the removal ofvarious types of “unfreedoms”24 that leave peo-ple with little choice and opportunity to exer-cise their individual reasoned agency. In short,Sen sees the expansion of freedoms and capa-bilities both as the primary end and the princi-pal means of development.

Importantly, Sen’s analysis stresses that poli-cies to help the poor and marginalised do notonly have to be typical “hand-outs”. Policiesneed to include specific components to allowthe poor and marginalised to unlock alreadyheld, yet often difficult to quantify, resourcesand capabilities for income-earning opportuni-ties.

Some of these difficult to quantify resourcesand capabilities are summarised by Julian Mayin terms of four broad categories of assets,claims and resources:25

• human capabilities• natural resources• social and institutional assets• human-made assets.Recognising that there is a wide array of assetsand resources to tap into for poverty alleviationpurposes besides state coffers, is arguably amuch more effective, empowering and sustain-able way to address the scourge of poverty than“mere charity”. To make globalisation work forpeople, and not merely for profits, governmentshave to play a decisive role. The emphasis maybe on rolling back the state from economicactivities, but not from the responsibility of

Table 5: Jobs – winners and losers

WINNERSSectors Jobs gainedWholesale, retail, motors and hotels 53 115 (6.4%)

LOSERSSectors Jobs lostGovernment 65 907 (4.2%)Manufacturing 30 742 (2.3%)Construction 29 267 (11.5%)Mining and Quarrying 26 780 (6.0%)Transport, storage and communications 10 493 (4.2%)Financial 8118 (3.8%)Electricity 3284 (8.8%)

Source: Financial Mail, 12 May 2000.

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governance, both at a national and internationallevel. Though our understanding of sovereigntyhas undoubtedly changed dramatically in thepast few years, states and governments (at leastfor now) remain the only legal entities interna-tionally.

It is up to governments to provide theenabling environment for citizens to captureglobal opportunities in trade and capital flowsby negotiating favourable provisions in multi-lateral agreements. It is also for governments toput in place national and international measuresto shield people from the excesses of globalisa-tion in the form of global financial volatility. Itis also for governments to recognise theirresponsibility to help their citizens adapt to thedramatic changes in the labour market.

As stated before, it appears that the nature ofour workforce lies at the core of South Africa’seconomic shortfalls. While this is clearly along-term problem to address, government’srecent calls for “life-long learning” appear to bethe first step in the direction of South Africaembarking on the middle, or even the highroad, as opposed to the low road outlined by theFinancial Mail. Besides formal schooling, life-long education in this regard refers to in-serviceand pre-service training to allow individuals to

compete in a skills-based and constantly chang-ing world economy. To build this new work-force, South Africa has to take a multifacetedapproach. In the long-term, it is obviouslyimperative to upgrade the formal schooling sys-tem. Making adult education more accessible,improving on-the-job training and developingcommunity structures to assist educationbeyond the classroom, are aspects of life-longeducation which can arguably be approachedwithin shorter time frames and with moreimmediate results.

The Skills Development Act has the potentialto contribute significantly to address SouthAfrica’s skills shortage and to allow the currenteconomically active generation to participate inthe economic mainstream. According to theAct, businesses have to pay a payroll traininglevy of 0.5% in the first year and 1% thereafterwhich can be refunded if they do in-housetraining. Government hopes the levy will bringin about R1 billion.

Government plans to divert the bulk of themoney to workplace training. About 20% of thefunds are earmarked to retrain retrenched work-ers, prepare workers for new investments aswell as teach small business skills to the unem-ployed.

Human Capabilities

labour

technical, administrativeand entrepreneurial

skills

health and nutritionalstatus

knowledge and education

capacity to adapt andcope

Social and InstitutionalAssets

legal claims on the stateand private sectors

(pensions)

legal and moral claimson household and com-munity (maintenance,

charity)

access to individual andcommunity decision-

making power and structures

access to horizontal andvertical networks and

institutions

norms and values (trust,altruism or rule

breaking)

Natural Resources

land

ground and surfacewater

common property (com-munal grazing land and

woodlots)

ground cover and itsbio-diversity (forests

and wildlife)

Human-made Assets

finance (savings andaccess to credit)

machinery and tools

crops and livestock

housing and other build-ings

productive infrastructure(roads and dams)

domestic infrastructure(schools and energy or

water reticulation)

social infrastructure(community halls)

Table 6: Wealth Base or Asset Portfolio

Source: May, pg. 10.

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5. FROM SURVIVALISM TO WEALTH CREATIONIt is beyond the scope of this paper to considera full range of policy options to address povertyand inequality. I will instead focus here merelyon the small-, medium- and micro-sized enter-prises (SMMEs) as entrepreneurial income-generating vehicles to escape poverty.

It was with much excitement that the govern-ment initially endorsed and promoted pro-grammes to assist SMMEs as a means toinclude the poor into the economic mainstream.It was argued that SMMEs could strengthenexisting coping mechanisms and offer alterna-tive livelihoods for individuals and householdsengaged in the survivalist informal economy.Government believed that SMMEs would beuseful agents to attain several different objec-tives including black empowerment, employ-ment generation, income distribution and theenhancement of competition. The NtsikaEnterprise Promotion Agency and KhulaEnterprise Finance facilitated the government’sSMME strategy.

It soon became apparent, however, that whilewell-intentioned, the government’s SMME pro-gramme has not delivered all that was expectedof it.

First, the government’s SMME programmewas obviously far too ambitious in terms of itsobjectives from the outset. Some analystsdescribed it as “full of internal contradictionsand too diverse objectives.”26 Given that thereare finite resources, a more realistic assessmentof achievable goals needs to be made andobjectives need to be reprioritised accordingly.

Second, the initial strategy did not take fullcognisance of the fact that the SMME sector isvery diverse. The SMME sector is not a homo-geneous entity but highly segmented witharound 195 000 survivalist enterprises of theinformal economy; 396 000 so-called growth-oriented micro-enterprises; and a 228 000-strong formal SMME sector mainly dominatedby white-owned enterprises. It would be mis-leading to conceive all participants in theSMME sector as potentially successful.Consequently, the equation of SMME promo-tion with employment creation was equallymisleading, as was the assumption that the jobscreated in this sector would have high humandevelopment potential. Some do, many don’t.

Third, the government also underestimatedseveral vital institutional factors. These includ-

ed problems related to establishing new supportinstitutions; the capacity problems of these newsupport institutions to establish and implementa wide range of new policy initiatives; and thelimited capacity of existing NGOs with regardsto both financial and non-financial support forSMMEs. For example, from the start significantblockages existed in the network and operationsof the Local Business Service Centres.

Fourth, these institutional limitations wereparticularly harmful with regards to financialsupport mechanisms for SMME development.Though Khula has only been in operation sinceJanuary 1997, officials concede that the volumeof loans granted is insufficient to meet theneeds of the SMME community.27 Further-more, a short survey shows that urban-basedSMMEs received the bulk of funds dispersed,plus there was a definite bias in lendingtowards established SMMEs as opposed to sur-vivalist enterprises. In addition, credit has beendifficult to obtain by SMMEs as commercialbanks have been very reluctant to becomeinvolved with this sector.28

CONCLUSIONClearly, South Africa’s SMME programmedemands significant policy attention and fine-tuning. Per definition, entrepreneurship hasinherent income-earning potential and can thusmake a significant contribution to moving peo-ple beyond survivalism to wealth creation. Thechallenge lies in devising appropriate govern-ment policies to provide, in Professor Sen’s ter-minology, the enabling social arrangement forindividual agency to kick in. • SMME polices need to be better targeted to

be of use in poverty alleviation efforts. Sup-portive policies to help survivalist and micro-enterprises to become wealth-creating need tobe prioritised.

• SMME development would also benefitgreatly from stronger horizontal and verticalcoordination and cooperation among the dif-ferent stakeholders and support structures.

• The problem of limited access to credit has tobe addressed urgently. A number of analystsare pointing to the micro-lending sectors asable to step into this debilitating void.29

• In addition to general policies to raise literacyand numeracy levels, skills training to runsmall businesses and tap into national andglobal opportunities must remain of central

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importance. Programmes at national andprovincial levels therefore need to be contin-ued and expanded. Mentoring programmescan play an important role in this regard too.Business Partners, a SMME financier, recent-ly launched a mentoring service that could

yield some important pointers in this regard.30

• In addition to continued education, access toinformation is imperative. Initiatives and pro-grammes to allow SMMEs to utilise newinformation technologies in this regard needto be strongly encouraged and supported.

Figure 2: Human development variesamong regions

Figure 1: Stark Disparities between rich and poor

Source: UNDP, Human Development Report1999. New York: Oxford University Press,1999, p.2.

Source: UNDP, Human DevelopmentReport 1999. New York, Oxford UniversityPress, 1999. p.129.

APPENDIX

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1) The author expresses her appreciation forthe assistance of Kurt Morais andNthabiseng Nkosi, both Konrad AdenauerFoundation interns at the South AfricanInstitute of International Affairs (SAIIA),in the writing of this paper. All views,however, remain the author’s own.

2) See for example Björn Hettne (ed.)International Political Economy:Understanding Global Disorder, (London:Zed Books, 1995), and Tim Dunne,Michael Cox and Ken Booth (eds.), TheEighty Years’ Crisis: InternationalRelations 1919-1999 (Cambridge:Cambridge University Press, 1998).

3) United Nations Development Programme(UNDP), Human Development Report1999, (New York: Oxford UniversityPress, 1999), p. 1.

4) World leaders vow to improve people'slives, Business Day, 6 September 2000.

5) United Nations Development Programme(UNDP), Human Development Report1999, (New York: Oxford UniversityPress, 1999), p. 25.

6) United Nations Development Programme(UNDP), Human Development Report1999, (New York: Oxford UniversityPress, 1999), p. 38.

7) United Nations Development Programme(UNDP), Human Development Report1999, (New York: Oxford UniversityPress, 1999), p. 131.

8) Julian May, Growth, Development, Po-verty and Inequality, in Julian May (ed.),Poverty and Inequality in South Africa:Meeting the Challenge, (Cape Town:David Philip Publishers, 2000), p. 1.

Figure 3: Poverty rate by population group

Source: CSS, 1995, quoted in May, Woolard & Klasen, p.32.

ENDNOTES

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Mutschler

9) National Report on Social Development1995-2000, South African Ministry ofWelfare, Population and Development,May 2000, www.polity.org.za/govdocs/reports/welfare/intro.html.

10) Renosi Mokate, “acro-Economic Context,in Julian May (ed.), Poverty andInequality in South Africa: Meeting theChallenge, (Cape Town: David PhilipPublishers, 2000), p. 59.

11) See www.polity.org.za/govdocs/report/poverty.html and www.polity.org.za/gov-docs/reports/ poverty2.html for the text ofPoverty and Inequality in South Africaand Julian May (ed.), Poverty andInequality in South Africa: Meeting theChallenge, (Cape Town: David PhilipPublishers, 2000) for an edited book ver-sion of the Report.

12) Amartya Sen, Development as Freedom,(New York: Random House/Alfred AKnopf, 1999), p. 87.

13) Julian May, Growth, Development, Po-verty and Inequality in Julian May (ed.),Poverty and Inequality in South Africa:Meeting the Challenge, (Cape Town:David Philip Publishers, 2000), p. 5.

14) Ibid. p. 6. 15) Jonathan Katzenellenbogen, Free State,

Eastern Cape poorest, Business Day, 7September 2000.

16) Business Day, 8 September 2000.17) Business Day, 11 September 2000.18) Mazibuko Jara, Interventionist state a

must in drive to develop a job-creatingeconomy, Business Day, 15 September2000 and Irene Louw, Beleaguered Cosatufaces challenge of uncertain future,Business Day, 15 September 2000.

19) Ferial Haffajee, Three Roads to theFuture: The Choice is Ours, FinancialMail, 12 May 2000, p. 52.

20) www.worldbank.org/poverty/ wdrpover-ty/report/index.htm

21) United Nations Development Programme(UNDP), Human Development Report1999, (New York: Oxford UniversityPress, 1999), p. 94.

22) Amartya Sen, Development as Freedom,(New York: Random House/Alfred AKnopf, 1999), p. i-ii.

23) Julian May, Chris Rogerson and AnnVaughan, Livelihood and Assets, in JulianMay (ed.), Poverty and Inequality in SouthAfrica: Meeting the Challenge, (CapeTown: David Philip Publishers, 2000), p. 229.

24) Amartya Sen, Development as Freedom,(New York: Random House/Alfred AKnopf, 1999), p. 36.

25) Julian May, Growth, Development, Po-verty and Inequality, in Julian May (ed.),Poverty and Inequality in South Africa:Meeting the Challenge, (Cape Town:David Philip Publishers, 2000), p. 10.

26) Julian May, Chris Rogerson and AnnVaughan, Livelihoods and Assets, inJulian May (ed.), Poverty and Inequalityin South Africa: Meeting the Challenge,(Cape Town: David Philip Publishers,2000), p. 230-1

27) William Grant, Micro Lending andImplications for the Micro-enterpriseFinance in South Africa, Traders, Issue 2,April-July 2000, p. 37.

28) Wyndham Hartley, Council makes plea toparliament, Business Day, 15 June 2000.

29) William Grant, Micro Lending andImplications for the MicroenterpriseFinance in South Africa, Traders, Issue 2,April-July 2000, p. 37.

30) Siyabulela Qoza, Matching Mentors toBridge the Gap, Financial Mail, 15September 2000, p. 33.

INTRODUCTIONThis paper deals with the European Union(EU)–South Africa free trade agreement (FTA)which came into force on 1 January 2000,within the context of the new globalised worldorder. I will try to look specifically at whatthese developments have in store for ourprovinces.

I find it particularly appropriate to considerglobalisation and the EU–South Africa FTA intandem, since the former is more or less ines-capable whereas the latter provides us with, asit were, a self-chosen opportunity to prepareourselves for the rigours of markets ruled byglobalised conditions (apart from determiningthe rules of trade with the most important focusof our trade, of course.)

1. POSITIVE ASPECTS OF THE FTAIn terms of South African business, theEU–South Africa Trade, Development andCooperation Agreement (TDCA) has the fol-lowing advantages:• It is a unique agreement establishing a

bridgehead, or access, to the largest, mostprosperous and stable trading bloc with anopen-ended time-frame and a provision forreview after five years.

• It is unique because it is the first of its kindin scope with any country outside the EU,also because it includes agricultural products.

• It improves the trading environment by pro-viding a measure of certainty – an aspect ofgreat importance to business.

• Lower tariffs on component imports from theEU provides leverage for the expansion ofexisting industries and the establishment of

new ones, which will attract domestic andforeign investment. The same benefits arederived from lower tariffs on the EU side.

• As such the agreement will reward entrepre-neurs and create jobs.

• It provides a real test of competitiveness – ifwe cannot compete in the EU where highcost structures prevail, we will have greatdifficulty doing so elsewhere in the globalenvironment (one must assume this was partof the government’s thinking to assist inbringing about restructuring in the economy).

• The agreement provides for a CooperationCouncil which will be a point of institution-alised contact and review – this is a consider-able improvement over the current situation.

• In addition, safeguards against import surgeswhich threaten domestic producers areincluded as well as non-reciprocal provisionsfor South Africa to take exceptional mea-sures to protect infant industries.

• It is estimated the FTA could add 1% toSouth Africa’s gross domestic product(GDP) over the next four to five years andadd R12 billion in new trade of which R7 bil-lion will be in South Africa’s favour. Thesebenefits are bound to be felt throughout theregion.

• The agreement refers to continued develop-ment assistance to South Africa at least atcurrent levels, which amount to R900 milliona year. This together with South Africa’squalified access to tenders under the LoméConvention constitutes a significant factorfrom which South African companies canbenefit.

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The European Union–South Africa Trade,Development and Cooperation Agreement

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Neil van Heerden

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2. NEGATIVE ASPECTS OF THE FTA• Whereas South Africa’s exports constitute

only 1% of EU imports, one-third of SouthAfrica’s total imports come from the EU,making our economy more exposed to theconsequences of the FTA, be they good orbad.

• The issue of non-tariff barriers to trade, towhich emerging economies are vulnerable,are not directly addressed in the agreement.Presumably, however, these will be legiti-mate issues for discussion in the CooperationCouncil.

• The agreement makes provision to challengecompanies that enjoy a dominant marketposition, ostensibly to promote competitionand investment. The nature of the SouthAfrican economy would suggest that EUcompanies operating in South Africa wouldbe in a relatively strong position to challengemergers and take-overs here while it is fearedSouth African companies will be less suc-cessful in this area when their interests arethreatened in the EU.

• There is serious concern about the capacity ofour customs and related authorities to policethe agreement which could be used by thirdparties to gain preferential access to our mar-kets.

As regards the impact of the FTA on specificsectors, I will limit discussion to some generalremarks in view of the fact that more than 8000tariff lines are involved. But first, I refer you toTable 1 wherein the figures reflect SouthAfrica’s trade with the rest of the world for thefirst six months of 2000 compared with 1999.

Table 1 provides some feel for the relativeimportance of the European market in our glob-al trade.

3. THE FTAFor the first time agricultural products havebeen included in an FTA with the EU.Exclusions were reduced from the original 46%of South Africa’s agricultural exports to 39%.If one takes into account the tariff quotas thatwere provided for in respect of some of the sen-sitive products including wine, canned fruit, cutflowers and cheese, exclusions were effectivelyreduced to 26% of South Africa’s exports. Inaddition, this reserve list of tariff quotas is sub-ject to regular review. Whereas EU agriculturalsubsidies remain of serious concern, provisionis made for compensatory adjustments and anon-reciprocal safeguard clause in cases whereproof exists of harm to domestic industry. Hereit is important to note that the onus rests onSouth Africa to put in place an effective moni-toring system. All in all, this is a significantachievement given the notorious sensitivity ofthe Europeans in this area and the fact thatexports make a huge difference to the incomesof our farmers.

Industrial products cover 86% of SouthAfrica’s exports to the EU. This category willbenefit more from the FTA than others andincludes product lines that are not currentlyexported to the EU. While EU tariffs in thisarea are already low, the removal of tariffs (thatwill mostly take place within four years) willgive South African exporters a relative advan-tage over competitors. Although our textiles

Table 1: Totals in millions of rand according to world zones and ships’ and aircraft stores(January–June 2000)

World Zones Imports Exports1999 2000 1999 2000

Africa 1784.9 1991.2 9910.8 12427.6Europe 32877.7 37526.7 25672.3 29046.1America 12827.6 11956.8 7417.3 10121.7Asia 19320.2 29383.9 14500.7 18122.9Oceania 1624.2 2355.3 1327.9 1481.4Other unclassified goods and balance of payments adjustments 68.3 242.0 18323.0 25471.8Ships’/Aircraft Stores 631.9 40.5GRAND TOTAL 68502.9 83455.9 77783.9 96712.0

Source: SA Revenue Service

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will not benefit to the same degree from theasymmetry in tariff reductions, average dutieson South African textile exports to the EU willdecline from 6% in year one to 0% in yearseven. By 2004 all quotas on textiles will beremoved by the EU and South Africanexporters should use the FTA to gain a footholdin the market by then. In the increasinglyimportant South African automobile exportindustry, the FTA will reduce costs throughlower tariffs on imported inputs from the EU.The EU agreement reduces protection fasterthan our own motor industry development plan,with attendant consequences for competitivebalance between European and other foreignmanufacturers in the domestic market. As far asimports by South Africa of items that are usedin manufacturing in general are concerned,including capital equipment, they are alreadysubstantially duty free.

Table 2 illustrates statistics from the Depart-ment of Trade and Industry which show the

growth in the value of our trade this year basedon the FTA with the EU.

The figures could indicate the quite dramaticimpact of the agreement although seasonal fluc-tuations and the rise in the platinum pricewould also have had an influence.

Turning to the Western Cape specifically,Table 3 shows the contribution of the varioussectors to the gross regional product for 1999.

Of these sectors agriculture and manufactur-ing will be mainly effected by the FTA with theEU, although other areas such as construction,tourism and financial services will be influ-enced by trade and financial flows with Europe.

The EU farming and agriculture lobby isextremely powerful – in the 1998/99 seasonexport subsidies to this sector amounted to US$40 billion. A cursory glance in local supermar-kets reveals an increase in the prevalence of EUdairy products, canned goods and manufacturedfoodstuffs. However, United Kingdom andother EU supermarkets are filled with agricul-tural products from countries in Latin Americaand the East which have no preferential accessto the EU, and this represents an opportunityfor South African producers – especially in thehighly lucrative organic foods market.

Many Western Cape industries have not beengranted the access hoped for. The wine andspirits agreement, as we now know, will nottake effect on 1 September 2000 as planned,due to disagreements over the final text. Thesewill presumably be sorted out in the not too dis-tant future. Canned goods and certain other

Table 2: Value of trade based on the SouthAfrica–EU FTA (million rand)

Month Exports Imports Balance

Jan 5.1 2.9 2.2Feb 53.2 6.7 46.6Mar 134.2 14.3 119.9April 109.8 20.7 89.2May 201.2 26.3 174.8June 213.8 26.6 187.2

Table 3: Western Cape sector statistics – 1999 (estimates)

Value added (GRP) EmploymentR Billion Percent No. Percent

Agriculture, forestry, fishing and mining 7.0 6.2 156 400 9.4Manufacturing 26.5 23.6 243 200 14.6Construction and repairs 4.1 3.7 104 400 6.3Electricity. gas and water 3.1 2.8 11 500 0.7Trade 13.5 12.0 125 500 7.5Tourism (incl. Catering/accommodation) 10.2 9.0 145 500 8.7Transport & Communication 9.3 8.3 107 200 6.4Financial and business services 18.4 16.4 99 400 5.9Social and personal services 4.5 4.0 103 800 6.1Government & community services 15.7 14.0 269 000 16.1Survival activities (n.i.e.) & unemployed (0.5) – 304 100 18.3Total 112.3 100 1.67m 100

Source : Wesgro Estimates

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Van Heerden

agricultural products remain subject to restric-tion and quotas, albeit at lower levels.

There are several opportunities that manufac-turers in the Western Cape can exploit, howev-er. Industries that could potentially benefit arethose such as textiles and footwear (again sub-ject to certain restrictions), jewellery manufac-turing, plastics and packaging and furniture.Furniture is particularly interesting in that thetrend in Europe is increasingly towards pur-chases of good quality and higher priced items.The Western Cape furniture sector is obviouslywell placed to take advantage of this. Jewellery,art and crafts are potentially lucrative markets,especially given the South African govern-ment’s determination to drive increased exportsof gold and other precious metal jewellery.Packaging should receive a boost fromincreased exports of agricultural products andfoodstuffs.

Increasingly, European companies are buyinginto the South African market in order to gain afoothold, rather than through exports. Theseinvestments are in industries or sectors thatoffer good potential to develop locally and thatare competitive in the export market. Cape-based companies should therefore expect a fairdegree of interest from their European counter-parts. A prime example of this is the dairyindustry with the entry of Danone (French) andParmalat (Italian).

In the UK an interesting marketing tool isbeing used by Australian companies offeringholiday competitions to buyers of their goods.

This is good for both exports of goods and ser-vices (tourism).

CONCLUSIONI regard the EU–South Africa TDCA as a goodagreement. It presents us with both challengesand opportunities. We should be reminded thatSouth Africa would still be facing the challengeof adjusting its structures of commerce, produc-tion and marketing to the exigencies of theglobal economy, irrespective of this FTA. Wewill have to identify sectors vulnerable to com-petition and encourage their restructuring. Atthe same time we need to remind ourselves thatthe potential benefits of the EU agreement willdepend on South African exporters seizingopportunities – European firms will certainly bedoing precisely that. Our exporters should alsolook beyond the agreement with the EU at thewider globalisation of markets and the effectthat has on their businesses.

In order to do these things effectively, theprivate sector will have to take upon itself thetask of being accurately informed of the fullcontents of the new agreement – what are theopportunities, where is there a need for moni-toring competitive imports and where shouldsafeguards be pursued?

Each industry and individual company willhave to look incisively at its position in termsof the agreement. In order for this to be suc-cessful, closer mechanisms for liaison betweengovernment and business must be established ina true partnership.

INTRODUCTIONWhen historians try and track the origins ofglobalisation, they most often go back to theend of the Second World War. The world waschanging, the world economy was slowly start-ing to boom after the devastation of the warsand the leaders of the world were thinking ofways in which to ensure that no third worldwar would ever break out.

On the political front, developments includedthe formation of the European Coal and SteelCommunity, which would become the forerun-ner of the European Union (EU) as we know ittoday. Political leaders argued that if Germanyand France could be united in a common goal,they would not go to war with one another everagain – a theory which has thus far beenproved correct. The shared economic interestsof France, Germany, Italy and the Beneluxcountries, soon cemented their political ties.The core principle of the EU is the breakingdown of borders and the establishment of freetrade, a concept which has brought theEuropean continent great riches.

The example that Europe set was soon emu-lated throughout the world; regional organisa-tions similar to the EU were established – suchas the North American Free Trade Area(Nafta), the Association of South East AsianNations (Asean), Mercosur and the SouthernAfrican Development Community (SADC) –and generally countries started to lower theirtariffs and borders to foreign competition. TheEU itself did not stop at forging open trade tieswith its members but actively seeks out freetrade with a number of other trading partners. Italso plays a pivotal role in the World Trade

Organisation (WTO) that was established topromote and secure free trade across the globe.This drive to open borders and to competeinternationally, to move goods, people andmoney from one corner of the world to another,soon became know as “globalisation”. Thereexists no clear definition of globalisation, butone can identify a number of its elements:

“First, there has been a massive increase inglobal capital mobility. The share of trans-border capital flows to gross domestic prod-uct (GDP) increased by a factor of 10between 1980–1992. Capital is now man-aged around the clock in globally integratedmarkets working in real time, connectingcurrencies, savings and investments world-wide. An estimated US$1.5 trillion is tradedworldwide each day – of which some 85%is believed to be ‘hot’ money, portfolioflows rather than foreign direct investment(FDI). Private investment in Africa, forexample, rose from less than US$1 billionannually at the start of this decade toUS$11.7 billion in 1996, or half of the capi-tal flowing into the region. The level of for-eign investment is now a (some wouldargue ‘the’) critical determinant of the paceof economic growth.

Second, trade has increased substantially.In 1963, world exports stood at US$154 bil-lion. This grew to US$1 trillion in 1977,and to over US$2.5 trillion today. The glob-al customer, wherever located, has becomeking. The best buy is the key spending cri-terion, rather than concerns about the coun-try of origin, local unemployment or tradedeficits. This offers great opportunities to

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The European Union–South Africa Trade,Development and Cooperation Agreement

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Talitha Bertelsmann-Scott

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globally competitive corporations, but posesthreats to those which are inefficient and nolonger protected. It has become an article offaith that free trade equals economic growththrough the importation of technology, andimprovements in competitiveness and pro-ductivity. Studies show that developingcountries with open economies grew by4.5% annually in the 1970s and 1980s; butthose with closed economies expanded byonly 0.7%. Developed, open economiesgrew by 2.3% annually; closed ones by0.7%. Closed economies are defined asthose with the features of high import tariffand non-tariff barriers, a socialist economicsystem, a state monopoly on importantexports, and a big gap between official andblack-market exchange rates. It is difficultto work out whether protected economiesdo badly because they are cosseted, orbecause they have unsound macroeconomicpractices. Yet this does not challenge theessential argument of the ‘free tradegrowth’ thesis concerning developing coun-tries – that there is a striking correlationbetween export growth and overall GDPgrowth.”1

1. SOUTH AFRICA AND GLOBALISATIONIt is therefore clear that free trade is the agentof globalisation. It has also become clear thatactive participants in the globalisation processare reaping great benefits including increasedeconomic output and activity. ThroughoutPresident Mbeki’s term in office he has madestatements to the effect that South Africa has tobecome part of the global economy and globali-sation. It has become clear to most that non-participants in the global economy are econom-ically less well off than those countries that par-ticipate actively. It is for this reason that theSouth African government has been activelysearching for ways in which to open its econo-my to global competition and participation.This process was started during the Mandelapresidency. When South Africa became a mem-ber of the WTO, tariffs were dramatically liber-alised, the idea of free trade in Southern Africawas first suggested and negotiations with theEU were initiated.

2. NEGOTIATIONS WITH THE EUNegotiations with the EU are of great concern

to South Africans, as the EU is our largest trad-ing partner if we look at total volumes of trade– although Southern Africa is South Africa’slargest export market. It was therefore vitallyimportant that South Africa secure a positivedeal with the Europeans and it is largely for thisreason that the negotiations were so protracted.The agreement is being reached in phasesbetween the two parties – with only the fishingagreement still outstanding at the moment –and can be best understood if seen as if restingon three pillars: • Three agreements on cooperation in the fol-

lowing fields: science and technology, wineand spirits, and fisheries.

• South Africa’s partial accession to the LoméConvention.

• A Trade and Cooperation agreement to coverall aspects of the relationship not addressedin Lomé.

A more detailed analysis of these follows.

3. COOPERATION AGREEMENTS These agreements are not concerned with theliberalisation of tariffs, but with quality andstandards and avenues towards cooperation inthese fields.

3.1 The agreement on science and technologycooperationOn 5 December 1996, the first mutual coopera-tion agreement between the two parties wassigned. The agreement provides for scientificand technological cooperation between SouthAfrica, the European Community and its mem-ber states. A joint Science and TechnologyCooperation Committee will be established inorder to administer the agreement. In SouthAfrica, the Department of Arts, Science andTechnology, in conjunction with theDepartment of Finance, is responsible for theimplementation of the agreement.

3.2 The wine and spirits agreementTowards the end of the negotiations the sepa-rate cooperation agreement in wine and spiritsproved to be one of the major stumbling blocksin reaching a deal. A number of constituenciesin Europe wanted South Africa to phase out useof the names “port” and “sherry” for SouthAfrica’s fortified wines. They argued that theseterms refer to geographical locations inPortugal and Spain and should therefore be

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used exclusively by these two countries. SouthAfrican producers have, however, used thenames for generations.

It took a number of meetings between thetwo chief negotiators to come to a compromiseon the highly publicised issue. A political com-promise was eventually reached in January atDavos. Minister Erwin agreed to phase out theuse of names of port and sherry in exports tothird countries. South Africa will, however, beallowed to continue to use these terms on itsdomestic market throughout the 12-year transi-tional period. After this period the use of thesenames would be reviewed. In return for theseconcessions, Commissioner Pinheiro agreed togrant the wine sector duty-free quotas forexports to the EU market and financial assis-tance for the restructuring of the industry.

The EU ministers, however, could still notaccept the agreement and referred it back fordiscussion. Although Minister Erwin initiallyinsisted that the Davos agreement was SouthAfrica’s final offer, he eventually accepted aslightly watered down version. The adjustmentperiod was lowered to 10 years and greatercommitment was given to the phasing out theseterms.

3.3 The fishing agreementIn addition to the wine and spirit agreementcausing extreme difficulties in concluding adeal, the fishing agreement proved to be anoth-er major obstacle. The Spanish government isseeking access to South Africa’s fishing waters.It, however, seeks the access without any com-mitments. In other words, it would like to fishand then take the fish right back to Spain to beprocessed. South Africa, by contrast, is onlywilling to grant the access if it will be to themutual benefit of both parties. Under theseterms South Africa would grant Spain access tofish in its waters, but would insist on Spaindocking the fish on South African soil for pro-cessing before being exported to Spain. Thiswould lead to employment opportunities forSouth Africans and the transfer of technology.In addition, South Africa would have greatercontrol over how much Spain would fish.Currently South Africa does not have the nec-essary patrolling vessels or legislation in placein order to prevent over-fishing.

In a political effort to conclude the talks,agreement was reached in December 1998 that

both parties would endeavour to negotiate andconclude a cooperation agreement in the fishingsector no later than the end of the year 2000.Until such time the EU will hold back on tariffconcessions for South African fish exports.South Africa in turn will abolish its tariffs onfisheries’ products only in parallel to theCommunity.

4. ACCESSION TO THE LOMÉ CONVENTIONSouth Africa initially rejected the Europeanproposals of partial Lomé accession and a freetrade agreement (FTA), as it was intent on pur-suing full participation in all the institutions ofLomé.

This approach was a contentious one fromthe start, as South Africa’s economic situationis unique.

4.1 The terms of South Africa’s accessionSouth Africa’s accession to the LoméConvention remains effectively a politicalaccession rather than an economic one. Themain economic benefit will be the ability totender for European Development Fund (EDF)projects in all African, Caribbean and Pacific(ACP) countries, which could have importanteconomic benefits for South Africa and theregion as a whole, enabling these countries totender for contracts worth R45 billion. In addi-tion, South Africa will benefit from the cumula-tion of origin clause. South Africa will furtherparticipate in Lomé projects on technical, cul-tural and social cooperation, regional coopera-tion, industrial development, and investmentpromotion and protection. It will not, however,be eligible for non-reciprocal trade benefits andwill receive development aid separately fromthe Lomé Convention.2 The special protocolson bananas, rum, beef and veal, sugar, and coaland steel products will also not be applicable toSouth Africa.

5. FREE TRADE AGREEMENT The third pillar of the proposed agreement isthe FTA. Faizel Ismail, Chief Director ofForeign Trade Relations, has said that the SouthAfrican negotiators are “diplomats in the ser-vice of development”. This laid the foundationsfor the South African negotiating mandatewhich proposed a Trade and DevelopmentAgreement, rather than a classical FTA. In thisway, South Africa hoped to secure more com-

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pensation and development aid from the EUand – most importantly – a more favourabletrade agreement.

South Africa objected to the European FTAmandate, basing its objections firstly on theproposed exclusion of 39% of South Africanagricultural products; secondly, on the fact thatSouth Africa would have to lower its tariffs farmore than the EU; thirdly, on the brief asym-metrical implementation period; and finally onthe adverse effects the agreement would haveon the Southern African Customs Union(SACU) and on SADC.

Despite negative publicity and the fact thatthe negotiations dragged on for some years,South Africa did manage to secure a deal thatmany analysts would call “the most favourableagreement South Africa could have reached”.

The FTA itself has several components, con-sisting of:• political dialogue• provisions for a free trade area• trade-related issues• economic cooperation• financial assistance and development cooper-

ation• social and cultural cooperation.

5.1 Political dialogueOne of the major stumbling blocks that threat-ened the conclusion of the agreement was thenon-execution provision. The EU wanted toinclude a clause in the agreement that wouldallow for the discontinuation of the agreementin the event of South Africa violating therespect for democratic principles, fundamentalhuman rights, the rule of law and good gover-nance.

The EU traditionally includes the first threeconditions in any agreement it concludes. Thishas led to the collapse of a number of tradetalks that the EU has been involved in. Mostrecently, the EU failed to reach agreement withAustralia, as these clauses were found unac-ceptable.

The inclusion of a “good governance” clauseis, however, a new stipulation, which is proba-bly aimed at future agreements with the previ-ous Lomé countries in the ACP. It is a clausethat has traditionally been included in the Loméagreements in order to promote democracy andaccountability in fragile, developing countries.

South Africa, however, took exception to the

inclusion of this clause, as it feared that thiswould lead to the unilateral definition of theseconcepts by the EU. In addition, it feared set-ting a precedent for the Lomé negotiations thatcould impact negatively on its partners in theregion. Although all four clauses were in theend included on the deal, the agreement allowsfor consultation before suspension, in the eventof the violation of these principles by any of thetwo parties.

5.2 Free trade areaThe EU will fully liberalise 95% of importsfrom South Africa by the end of a 10-year tran-sitional period – which should start in January2000. By contrast South Africa will only needto liberalise 86% of European imports over a12-year period. Sectors that have been identi-fied as sensitive by South Africa will be pro-tected for a number of years. These productsinclude automobiles and components, textilesand clothing, red meat, sugar, winter grains anddairy. The agricultural sector will enjoy theleast coverage (although arguably the best cov-erage possible) but provision has been made fora regular revision process. A major negotiatingvictory achieved by South Africa is the com-mitment to provide funds to compensate themember countries of the Southern AfricanCustoms Union (SACU) for the adjustmentcosts they might suffer from the agreement.

5.3 Industrial sector• South Africa: The industrial sector accounts

for around 86% of total South Africanexports to the EU. South Africa alreadyexports industrial products under beneficialtariff lines to the EU. However, the furtherelimination of tariffs will give South Africa aslight advantage above its competitors on theEuropean market.

• EU: Most South African companies will beallowed 12 years to adjust to the agreement,whereas automobiles and parts will remainon a reserve list without any tariff eliminationor reduction for the foreseeable future.Sensitive products in textiles and clothingwill be given eight years to liberalise toaround a 20% tariff. By the end of the 12-year period, these tariffs will further bereduced to a level where the EU would enjoybetter access than the Most Favoured Nation(MFN) tariff as stipulated by the WTO.

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5.4 Agricultural sectorThe most contentious issue within the agricul-tural sector was the EU’s Common AgriculturalPolicy, which makes provision for export subsi-dies for European agricultural exports. Clearly,South Africa did not manage to change theEuropean agricultural policy and it was impos-sible to exclude agriculture from the overalltalks. To the credit of the negotiators SouthAfrica managed to achieve a number of conces-sions from the EU.

South Africa will be eligible for compensa-tion in the event of EU changes to its agricul-tural policy that could adversely affect the bal-ance of concessions made in the trade agree-ment. In addition, South Africa will have theright to challenge the EU should there be proofthat increased imports of agricultural productsare causing harm or threatening to cause harmto the domestic industry. South Africa furthermanaged to increase the coverage of duty freeSouth African agricultural exports to the EUfrom the suggested 54% to 62%. The introduc-tion of tariff quotas effectively means that only27% of South Africa’s agricultural products arecompletely excluded from the deal.

5.5 Trade-related issuesSouth Africa identified this area as one thatcould set a positive or dangerous precedent forthe future Lomé agreement. The WTO andWorld Intellectual Property Rights Organi-sation (WIPO) have not as yet reached world-wide agreement on some of the issues that theEU proposed to be included in the SouthAfrican trade agreement. Pretoria managed toavoid making any commitments ahead of glob-al agreement and only committed itself to anumber of minor concessions that were essen-tial to the proper functioning of the trade agree-ment.

Future FTAs or customs unions that eitherparty should enter into could have adverseeffects on the South Africa–EU FTA. For thisscenario, the agreement provides for consulta-tion on the effects that domestic interest mightsuffer. This mechanism will soon be tested asthe EU is preparing for enlargement towardsEastern Europe and South Africa is concludingan FTA with its neighbours in Southern Africa.Consultation mechanisms have also beenagreed on to discuss anti-dumping measuresand countervailing measures.

In order to protect infant industries in bothSouth Africa and the SACU countries, SouthAfrica insisted on comprehensive safeguardmeasures. These include regular safeguards thatprovide for measures to be taken in the case ofa sudden massive increase in European exportswhich threat or cause damage to domestic pro-ducers.

In addition, South Africa alone will be enti-tled to take exceptional measures to protectinfant industries or sectors in SACU facingserious difficulties caused by increased importsduring the transitional period. These safeguardclauses in effect allow South Africa to slowdown the liberalisation pace if it finds that theeffects are too many to handle immediately.

A number of additional concessions weregranted to South Africa in the areas of usedgoods, competition policy, public aid and thedispute settlement mechanism.

5.6 Economic cooperationThe agreement provides for cooperation in avariety of fields including industrial restructur-ing and modernisation, investment promotion,trade development, development of small andmedium sized enterprises, information andcommunication technology, energy, mining andminerals, transport, tourism, services and con-sumer protection. This aspect is especiallyimportant to South Africa. Studies have shownthat the weaker party in an FTA predominantlygains from the transfer of technology anddevelopment and not from tariff liberalisation.

6. THE IMPACT ON THE SOUTH AFRICANPROVINCESThe impact this agreement will have on SouthAfrica’s provinces to a large extent depends onthe type of economic activity prevalent in thespecific province. Large and small companieswill be affected in different ways. Differentindustries will each be affected in their ownway. Some industries might have nothing tofear from European competition, whereas oth-ers can expect to be shifted out of the market.Some enterprises will do well on the Europeanmarket, whereas others will gain nothing fromfree trade with Europe.

Briefly, there are five elements of theEU–South Africa Trade, Development andCooperation Agreement (TDCA) that willaffect businesses in the provinces:

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• The speed of the tariff liberalisation schedulein their particular sector.

• Rules of origin.• Potential non-tariff barriers.• Their products’ competitiveness vis-à-vis

similar products in the European market.• Their products’ foothold and market share in

the South African market and their domesticcompetitiveness as an indicator of their abili-ty to fend off competition from the Europeanplayers.

7. THE POTENTIAL FOR SMME DEVELOPMENT INTHE WESTERN CAPEAs already pointed out the South Africa–EUTDCA contains a large development compo-nent. Given South Africa’s economic and socialprofile, it has long been the priority of both theSouth African government and the EU to pro-mote the development of small-, medium- andmicro-sized enterprises (SMMEs). This aspectis also not neglected in the FTA and an entireArticle is dedicated to SMMEs stating that:

“The Parties shall aim to develop andstrengthen micro enterprises (MEs) andsmall- and medium-sized enterprises(SMEs) in South Africa, as well as to pro-mote cooperation between SMEs in theCommunity and in South Africa and theregion in a manner that is sensitive to gen-der equality. The parties shall, inter alia:

a) Cooperate, where appropriate, in thecreation of enabling legal, administrative,institutional, technical, tax and financialframeworks for the setting up and expan-sion of MEs and SMEs;

b) Provide assistance required by MEsand SMEs, whatever their legal status, in

areas such as financing, skills training, tech-nology and marketing;

c) Provide assistance to companies,organisations, policy makers and agenciesproviding services referred to under para-graph (b) through appropriate technical sup-port, information exchange and capacitybuilding;

d) Establish and facilitate appropriatelinks between South African, SouthernAfrican and Community private sectoroperators in order to improve the flow ofinformation (relating to strategy formulationand implementation, business trends andopportunities, networking, joint venturesand transfer of skills).”

The Article provides a very broad frameworkfor SMME assistance. It will therefore be up tothe South African government – especiallyprovincial governments – and private sector tomaximise the opportunities provided by theagreement and approach the EU for assistanceand potentially beneficial links with SMMEs inEurope. Again, the proof of the success of anyFTA lies in the manner in which it is imple-mented.

Given the fact that SMMEs in South Africaare predominantly micro or survivalist orientat-ed and that most of the economic activityoccurs in a selection of three to four provinces,one could assume that only a small fraction ofSouth African SMMEs will be affected by theTDCA.

(The enterprises which may be most signifi-cantly affected by the agreement are bolded inthe table below.)

From the above table it is clear that theWestern Cape has great potential to make use

Estimated distribution of enterprises by provinces and size-class, 1995

Survivalist Micro Micro 1-4 Very small Small Medium Large Total

Gauteng 21% 35% 32% 42% 46% 48% 49% 34%Kwazulu 23% 17% 20% 15% 16% 17% 16% 18%Western Cape 9% 13% 15% 16% 12% 13% 12% 13Eastern Cape 17% 10% 11% 7% 6% 6% 7% 11%Northern Province 11% 9% 6% 3% 3% 3% 3% 7%North West 7% 6% 4% 5% 5% 4% 3% 6%Mpumalanga 6% 5% 3% 4% 4% 4% 5% 5%Free State 5% 4% 5% 5% 5% 4% 4% 5%Northern Cape 1% 1% 4% 2% 2% 1% 1% 2%Total 100% 100% 100% 100% 100% 100% 100% 100%

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of the agreement especially in order to promotesmall business development.

CONCLUSIONThe benefit of any FTA – especially one thatcontains such a large development aspect – liesin the implementation by the signatories.Although the EU has for many years beenactive in development programmes in SouthAfrica through the European Programme forReconstruction and Development, it is up to the

South African government to also make a com-mitment to the correct implementation of theagreement. A number of impact studies are cur-rently being conducted to gauge the impact ofthe agreement on the various sectors. Theprovinces would be wise if they would tap intothese studies or commission some of their ownin order to prepare their economies forEuropean competition and to assist those com-panies – large or small – that could benefitfrom the agreement.

1) Bertelsmann-Scott, T; Gibb, R & Mills, G,2000. The Global Context of the SA-EUTDCA.

2) It is interesting to note that South Africacurrently receives more development aid

than any of the Lomé countries through theEuropean Programme for Reconstructionand Development. South Africa receivedR1236.75 million in the year 1998/1999.

ENDNOTES

INTRODUCTIONThe future of the nation-state is one of the mosthotly debated issues of the post-Cold Warworld. Will the nation-state survive? Three“threats”, if one may call it that, come to mind.The one is the economic globalisation of theworld, and the question is whether moderngovernments still have the power to direct theirown economies in the way they used to adecade and longer ago. The second is a verynew phenomenon: the intervention of the inter-national community in the form of bodies suchas the United Nations (UN) or the NorthAtlantic Treaty Organisation (Nato) in placeslike Bosnia and Kosovo, as well as the interna-tionalisation of the prosecution of those whocommit crimes against humanity. In the thirdplace there is the development of internationaland regional bodies, such as the UN and alliedorganisations, the Organisation of AfricanUnity (OAU), the Southern African Develop-ment Community (SADC), etc. Does the grow-ing importance of these phenomena not limitgovernments’ freedom to manoeuvre in almostevery respect?

These questions are, of course, not exactlynew. Even in 1919, the economist JohnMaynard Keynes wrote in an often quoted pas-sage about Europe before the First World War:

“The inhabitant of London could order bytelephone, sipping his morning tea in bed,the various products of the whole earth, insuch quantity as he might see fit, and rea-sonably expect their early delivery upon hisdoorstep; he could adventure his wealth inthe natural resources and new enterprises ofthe world … The projects and politics of

militarism and imperialism, of racial andcultural rivalries appeared to exercisealmost no influence at all on the ordinarycourse of social and economic life, theinternationalisation of which was nearlycomplete in practice.”1

These questions are of great importance to gov-ernments worldwide, simply because they haveto know what the limits of practicality willallow. Any government that fails to realisewhere the art of the possible ends, willinevitably be penalised by the practical situa-tion. The events in Zimbabwe of the past fewmonths immediately come to mind as an illus-tration of a government refusing to acknowl-edge the practical limits on its sovereignty. Inthis paper I will therefore attempt to explorethe limits to state sovereignty in the presentworld in the light of globalisation.

1. HISTORICAL BACKGROUNDThe nation-state is one of those fixtures ofpolitical life without which one cannot imaginethe world. Yet, as things go, it is a relativelyrecent phenomenon, no more than five cen-turies.

Approximately 1500 is usually taken as thepoint of origin of the modern nation-state inWestern Europe. The main intellectual builderof this concept was the Dutch legal pioneerHugo de Groot, who mainly wrote under hisLatinised name Grotius. Grotius is regarded asthe father of modern international law in thathe was the first to create a legal code for statesto interact. He did not innovate all that much,but mostly codified usages which already exist-ed. Nevertheless, his work meant that the state

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for the first time became the basic legal andpolitical unit in the network of internationalrelations, and that state sovereignty became oneof the bedrocks of international law.

The nation-state is therefore a typicallyWestern phenomenon. Other states – such asthe various Arab kingdoms, the Roman Empireor the Chinese Empire – were actually rathermultinational conglomerates. In Africa, onemay perhaps regard kingdoms such as that ofthe Zulu, Mali or Ghana as rudimentary nation-states.

Under modern international law a few legalfictions were created to regulate states’ interac-tion. For instance, all states – great and small,powerful and weak – were regarded as equal inlaw. No state had the right to interfere in theinternal affairs of another state. In theory, everygovernment exercised sovereign power withinits borders. (Of course, in constitutional law, itbecame a question of who exactly was the sov-ereign, the monarch – parliament or the people– but that is a different matter.)

Like all things in life, theory and practice didnot always see eye to eye. In practice, smallerand weaker states were frequently forced bybigger and stronger states to regulate theirinternal affairs differently, which in turnimpinged on their sovereignty. Also, geopoli-tics, for instance, forced the British and Dutchto become trading and maritime nations. Fortheir part, the Germans’ central geographicalposition in Europe made them extremely vul-nerable to strategic encirclement from the west,south and east, and this complicated warfare forthem immeasurably.

Economic realities also fettered state sover-eignty. The economic crisis which started withthe Wall Street catastrophe in 1929 narrowedthe limits of the possible to a great extent. Thiswas exactly what the Hertzog government inthe Union of South Africa had to learn when, inthe name of state sovereignty, it tried to cling tothe gold standard, but was forced to abandon itafter a while when huge amounts of moneystarted to leave the country. After the govern-ment bowed to the dictates of the market, theoutflow was reversed.

In the same way, apartheid and communismin the end failed, mostly because they did nottake account of economic realities. Here, also,state sovereignty was not strong enough toallow a government to do what it felt was right.

(Obviously, the fact that both systems wereimmoral is immaterial to this argument.)

The point is, then, that the idea of state sover-eignty remained a legal fiction which neverexisted unfettered in practice. The balance ofmilitary power, economic laws and geopoliticsalways conspired to limit state sovereignty toan extent that differed widely according to anygiven historical situation.

2. ECONOMIC GLOBALISATIONEconomic globalisation is defined by theInternational Monetary Fund:

“as a historical process, the result of humaninnovation and technological progress. Itrefers to the increasing integration ofeconomies around the world, particularlythrough trade and financial flows. The termsometimes also refers to the movement ofpeople (labour) and knowledge (technolo-gy) across international borders. There arealso broader cultural, political and environ-mental dimensions of globalisation that arenot covered here.”2

As is clear from the Keynes quotation abovethat globalisation is not exactly new. The occu-pation of most of the world by Europe in previ-ous centuries led to a first wave of globalisa-tion, which reached its zenith in the yearsbefore 1914. As the American historianWilliam R. Keylor observes:

“These impediments to the free movementof labour in search of jobs, savings seekinghigh returns, and exports seeking marketsgradually disappeared during the secondhalf of the [nineteenth] century. The adventof steamship and railway transportationaround midcentury inaugurated a massintercontinental and transcontinental migra-tion unequaled before or since. Between1860 and 1920 over 45 million people leftthe grinding poverty of overpopulatedEurope for the sparsely settled spaces acrossthe seas.”

Accompanying this process, he continues, “wasthe infusion of European capital to the under-capitalised economies of these lands of recentEuropean settlement.” Especially Britain,France and Germany invested heavily in theNew World, and later even the United States(US) joined the fray.3

As a matter of fact, the value of world tradein 1913 was about 25 times bigger than in 1800

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– and this actually understates the case becauseinflation is not taken into account in this calcu-lation. By 1914 the Europeans had investedroughly $40 billion abroad. The British wereinvesting about 7% of their annual nationalincome abroad, slightly more than their invest-ment in their entire domestic economy. AsMcKay, Hill and Butler formulate it:

“In a general way, the enormous increase ininternational commerce summed up thegrowth of an interlocking world economy,centered in and directed by Europe.”4

Of course, this phase of economic globalisationwas not sufficient to counter the madnesswhich swept across Europe in 1914, a madnesswhich re-emphasised state sovereignty, butmade the economic costs of the war immeasur-ably heavier. In the aftermath of the war, statesincreasingly sought to protect their owneconomies by import tariffs and subsidies,which undid most of the effects of the erabefore 1914. Not before the 1980s, and espe-cially the 1990s, did a new phase of economicglobalisation start to manifest itself.

The drive for a new globalisation was startedin 1993 with the conclusion of the so-calledUruguay Round of the General Agreement onTariffs and Trade (GATT), which sought tolower import tariffs and state subsidies and toincrease world trade. It was estimated at thetime that this would increase world economicgrowth quite a lot.

But the effect is not simply on trade, howeverimportant this may be. Traditional multination-al companies are being transformed intotransnational companies. Peter F. Druckerwrites:

“In a transnational company there is onlyone economic unit, the world. Selling, ser-vicing, public relations, and legal affairs arelocal. But parts, machines, planning,research, finance, marketing, pricing, andmanagement are conducted in contempla-tion for the world market. One of America’sleading engineering companies, forinstance, makes one critical part for all ofits 43 plants worldwide in one location out-side of Antwerp, Belgium – and nothingelse. It has organised product developmentfor the entire world in three places and qual-ity control in four. For this company,national boundaries have largely becomeirrelevant.”5

And Ulrich Beck echoes him: “The levying of taxes is the principle under-lying the authority of the national state. Yetcompanies can now produce in one country,pay taxes in another and demand state infra-structural spending in yet another.”6

Besides, Drucker states, the world markets,with currency fluctuations and the like havecreated:

“virtual rather than real money. But itspower is real. The volume of world moneyis so gigantic that its movements in and outof a currency have far greater impact thanthe flows of financing, trade, or investment.In one day, as much of this virtual moneymay be traded as the entire world needs tofinance trade and investment for a year.This virtual money has total mobilitybecause it serves no economic function.Billions of it can be switched from one cur-rency to another by a trader pushing a fewbuttons on a keyboard. And because itserves no economic function and financesnothing, this money also does not followeconomic logic or rationality. It is volatileand easily panicked by a rumour or unex-pected event.”7

Since 1995 South Africa has had, of course,two experiences of the havoc this can create.

The effect of this is enhanced by the Internet.It is not yet entirely clear what the effect of theInternet on humanity is going to be, but thismuch is already known: governments will findit ever harder to regulate financial transactionsacross borders and to control the flow of infor-mation and – perhaps even more importantly,opinions – across traditional national barriers.Money is being transferred as we speak fromaccounts in some places to accounts in otherplaces, without governments knowing about itand without tariffs or taxes being paid. Peopleare exchanging information and views andinfluencing others. Dictatorships may try tolimit this, as – for instance – China andSingapore are doing by intimidating Internetproviders, but simply by entering throughproviders in other countries, this may very easi-ly be evaded. The Internet is truly the face ofglobalisation in the 21st century: unregulatedand unregulatable.

3. POLITICAL GLOBALISATIONCollective international intervention to defend

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the security and stability of the world order hasbeen with us since the advent of the UN, whoseCharter makes provision for it. The best knownexample of the UN actually going to war toresist aggression is, perhaps, the Korean War(1950–1953), but the body has also sent peace-keeping troops to several parts of the world,such as Cyprus, the Middle East, the Congo-Leopoldville, etc. To a certain extent, thisamounted to international intervention in states’sovereignty, although the big powers werenever affected and the intervention was strictlyregulated.

The scope and reach of such intervention has,however, greatly intensified since the end of theCold War. This type of new interventionismmay be categorised in two types: military inter-vention and the internationalisation of the pros-ecution of those who commit crimes againsthumanity.

The first differs quite distinctly from interna-tional intervention to stop aggression, such asthe Gulf War of 1990–1991, ostensibly torestore the sovereignty of Kuwait, but in realitymore to safeguard the country’s vital oil flow toespecially the West. We are here solely con-cerned with armed international intervention tochange a sovereign state’s treatment of its owncitizens.

Previously, international action stopped ateconomic and political sanctions, such as thoseagainst South Africa during the apartheid years.Armed intervention is something new. Exam-ples of such intervention may be found inSomalia (1993–1994), Bosnia (1995), EastTimor (1999) and Sierra Leone (2000). The factthat there was no intervention during the geno-cide in Rwanda in 1994, is generally consideredan indictment of the international community.Strictly speaking, this in itself boils down to theright of the international community, throughthe UN, to impinge on state sovereignty whenthe state in question does not comply withinternational human rights conventions.However, in 1999 this type of interventionunderwent a further qualitative change with theintervention in Kosovo by Nato without seek-ing the sanction of the UN Security Council, asis demanded by the UN Charter.

What happened here was, in essence, thatNato took it upon itself to wage war against theFederal Republic of Yugoslavia, a recognisedsovereign nation-state, because of its treatment

of the ethnic Albanian Kosovar minority, tooccupy Kosovo and transform it in practice intoa Nato protectorate. The Yugoslavian actions –which took the form of the mass deportation ofthe people – was, admittedly, horrible, but thefact that action was undertaken without thesanction of the Security Council made this,technically, an illegal war. As Michael J.Glennon, a law professor at the University ofCalifornia, wrote:

“As the twentieth century fades away, sotoo does the international consensus onwhen to get involved in another state’saffairs. The United States and Nato – withlittle discussion and less fanfare – haveeffectively abandoned the old UN Charterrules that strictly limit international inter-vention in local conflicts. They have doneso in favour of a vague new system that ismuch more tolerant of military interventionbut has few hard and fast rules. What rulesdo exist seem more the product of after-the-fact-rationalisation by the West than ofdeliberation and pre-agreement.”8

The other category also seems like a consider-able limitation of state sovereignty. In view ofthe horrific war crimes in conflicts such asRwanda and Bosnia, the UN has set up anInternational War Crimes Tribunal in TheHague, which has already begun proceedingsagainst several individuals and completed themagainst a few others.9

The Pinochet case has gone even further.Because of alleged crimes committed by theChilean military dictatorship against peoplewithin its own borders (admittedly, some ofthem were Spanish nationals), a Spanish courtapplied for the extradition to that country of theaged ex-dictator, general Augusto Pinochet,when he visited Britain for medical treatment.Against the vehement opposition of the newdemocratic government in Chile, where thetransfer of power was done by way of agree-ment and compromise, the British Law Lordsassented. In the end, they did allow him toreturn home because of his medical condition,but the legal precedent they created standsregardless.

4. REGIONAL BODIESHistorically, states entered into political andmilitary alliances with one or more other states.These alliances were temporary in nature, and

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states also switched allegiance according tohow they saw their own interest: today’s allywas frequently tomorrow’s adversary.

The first true multilateral regional alliance,albeit a very loose one, was the so-calledConcert of Europe, an informal gathering ofstates created at the Vienna Conference of1814–1815, with the purpose of strengtheningmonarchical autocracies and to fight the rise ofliberalism and democracy. It held together for afew decades, and saw governments harmonis-ing certain aspects of their internal policies. Itwas, however, simply the harbinger of things tocome, and withered away during the 1850s and1860s.

Its true successor was the League of Nations,established in 1919 in the wake of the most ter-rible war mankind had hitherto experienced,with the main purpose of preventing anotherwar. It, too, failed and gave way under thedetermined aggression of Nazi Germany andImperial Japan. It was superseded in 1945 bythe UN.

Neither the League of Nations nor the UNwere, of course, regional bodies, although thevery fact of membership meant that states didvoluntarily limit their sovereignty to a certainextent. The postwar era, however, saw a prolif-eration of regional international organisations,the scope of which were much wider than sim-ply preventing war.

The mother of these bodies was the EuropeanCoal and Steel Community, which was foundedin 1949. Although the formal purpose was lim-ited to economic cooperation, several visionaryEuropean leaders – people like sir WinstonChurchill of Britain and Robert Schumann ofFrance – saw in this organisation the firstseedling of an eventual federal United States ofEurope. The Coal and Steel Community was in1957 superseded by the European EconomicCommunity (EEC) with six founder memberstates, which has now grown to the EU with 16member states and with far wider powers thanthe EEC of 43 years ago.

There are, of course, several other regionalbodies as well. Further afield there is theAssociation of South East Asian Nations(Asean), the Association of Pacific EconomicCooperation (Apec), the North American FreeTrade Area (Nafta) and Mercosur, the regionaleconomic cooperation body of South America.In our own part of the world there is the

Organisation of African Unity (OAU), theSouthern African Development Community(SADC) and the Customs Union. Elsewheresimilar bodies exist in East and West Africa.

It seems that two models apply to these bod-ies. The one is represented by the EU, while theothers form a second model. Let us look atboth.

The EU model clearly goes much further thanthe others. It consists of several bodies whichgives it the appearance of a supranationalnation-state. There is, firstly, the EuropeanCommission, which acts as the executive coun-cil, with commissioners having a separate port-folio; and then the European Parliament, withrepresentatives directly elected by the voters ofeach member country. These even have deci-sion-making and legislative powers, althoughlimited in nature.

The real powers are at present still largely inthe hands of the member governments, meetingregularly in various ministers’ councils, andgovernment leaders’ summits twice a year. Inmost cases, each government has a veto power,although it must be said that this has been limit-ed to a certain extent, decisions in some casesnow being taken by a majority vote.

Allied to this, the European Court of Lawunder the auspices of the Council of Europe –formally a separate body, but cooperating veryclosely with the EU structures – has to someextent taken on the role of a supranational con-stitutional court. It has the power to test legisla-tion of any member state to its Charter ofHuman Rights and to “advise” the relevantgovernment to change it. In theory that govern-ment may, of course, refuse, and there is verylittle the court can do about it. But it has neverhappened.

In theory, therefore, the sovereign nation-state still very much holds sway in the EU.Nevertheless, in various ways the EU is seri-ously eroding state sovereignty in practice:• In view of the planned enlargement of the

Union with several Central and EastEuropean states, plans are being drawn up tolimit the member states’ veto power evenmore and extend majority vote decision mak-ing.

• This would even apply to foreign and securi-ty policy, a field where governments havehitherto been fiercely protective of their sov-ereignty.

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• Slowly but surely, a common EU defenceforce is developing. Several states – e.g.Germany and France, Germany and theNetherlands, Germany and Denmark – havecreated common army corps, divisions andeven brigades, while the navies of theNetherlands and Belgium have practicallyamalgamated with a common operationalheadquarters. The EU has even drawn upplans for a rapid deployment force of 50 000soldiers, which for the first time ever givesthis body the military clout to intervene andstabilise crisis situations on the Europeancontinent.

• In view of the common internal market andthe practical abolishment of internal borders,the EU structures have acquired the power toprescribe to member states a whole host ofmundane matters in order to commonolisethe economies.

• From the beginning of 2002 most nationalcurrencies will be abolished in favour of acommon currency, the euro.

The course is not yet without controversy.Britain especially is holding out on variousmatters, but at the cost of being shoved to theperiphery of Europe. Another matter is theincorporation of new member states who seemlukewarm to the rapid pace of integration. Inanswer to this, the idea of a “Europe of differ-ing speeds” is being mooted and winning sup-port. Also, the idea of European integrationdoes not elicit great enthusiasm at grassrootslevel, where there is considerable unease andeven resistance. Nevertheless, in the broaderscheme of things, the conclusion seemsinescapable: the EU is inexorably moving inthe direction of a confederation, which, in time,may even develop into a fully-fledged UnitedStates of Europe, with state sovereignty beingthe main casualty. Even now, while each mem-ber state retains the theoretical power to leavethe Union, it would be a practical impossibility.No member state of the EU can, therefore, inreality be called sovereign in the classical senseany more.

The other model is a much more loose coop-eration, mainly in two fields – economic andsecurity. It seems that economic cooperationfrequently is in the driving seat. Nafta,Mercosur, Asean and Apec are all primarilyeconomic groupings, with security issues play-ing second fiddle, albeit at times an important

second fiddle. All of these bodies are purelyvoluntary in nature, and none of them haveeroded state sovereignty nearly to the sameextent as the EU. Inasmuch as sovereignty hasbeen limited, this is much the case as it alwayshas been – by the limits of the possible, and notbecause of a formal integration and unificationprocess such as in Europe.

5. AND YET …Does this formidable array of facts mean thatthe end of the nation-state is nigh? Not at all.Limitation of state sovereignty does not equalthe end of the legal fiction of state sovereignty.After all, as we have noted in the historicalanalysis above, state sovereignty has alwaysbeen limited by various practical considera-tions. These have simply become quantitativelymore in number and qualitatively more intense.

This does, of course, mean that the nation-state is relatively on the decline. Its freedom ofmovement has become ever more restricted,and the notion itself will become, to someextent, even more of a legal fiction than it hasbeen in the past. Governments will find it moredifficult to deviate from international consensuson matters such as the economy and humanrights. But this does not mean that the nation-state will vanish – at any rate, not in the fore-seeable future. The basic building block ofinternational law and politics will still remainthe nation-state. This will for a considerabletime be the case even in the EU, where the ero-sion of state sovereignty has gone the furthest.

Nevertheless, as The Economist pointed outlast year, globalisation notwithstanding, gov-ernment tax revenue and spending as a percent-age of gross domestic product (GDP) has inmost Western states continued to rise. This sug-gests that the role of the state as an economicplayer is far from over. In other words, globali-sation does not mean:

“that the state has lost, or is likely to lose,the means of functioning as a separate enti-ty in the world. Nor does it mean thatmanoeuvrings among these states will ceaseto be the chief component of geopolitics …they show no sign of creating any alterna-tive to the state as the basic unit of interna-tional affairs. The boundaries betweenstates may be blurrier than they used to be,but they are still there.”10

As Peter Drucker observes:

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“Despite all its shortcomings, the nation-state has shown amazing resilience … Sofar, at least, there is no other institutioncapable of political integration and effectivemembership in the world’s political com-munity.”

He concludes:“Since the early Industrial Revolution, ithas been argued that economic interdepen-dence would prove stronger than nationalistpassions … But whenever in the last 200years political passions and nation-state pol-itics have collided with economic rationali-ty, political passions and the nation-statehave won.”11

6. SOUTH AFRICAWhere does all this leave South Africa? In thepresent world, no country can remain isolatedindefinitely any more. Even China, long isolat-ed, is inexorably being drawn into the globali-sation process, and even political hermit statessuch as North Korea and Myanmar will not beable to escape the beast in the long run. SouthAfrica therefore has to account for itself howthe new world order in the form of globalisa-tion will affect it.

In the post-apartheid era our economy, whichwas never completely isolated, has been re-integrated fully into the world economy. Wehave signed the GATT, which obliges us tolower tariffs and domestic subsidies. We havebecome a member of the World Trade Organi-sation. We have concluded a free trade treatywith the EU, while negotiations for similartreaties with SADC and India are under way.

We are, whether all of us like it or not, part ofthe so-called Washington Consensus of thepost-Cold War era: capitalism is in and social-ism is out, that free trade is in and protection-ism is out, that labour liberalisation is in andrigid labour laws are out. Our freedom ofmanoeuvre is limited. As the InternationalMonetary Fund (IMF) states in a short studyabout the effects of economic globalisation:

“In the short-term, as we have seen in thepast few years, volatile short-term capitalflows can threaten macroeconomic stability.Thus in a world of integrated financial mar-kets, countries will find it increasingly riskyto follow policies that do not promote finan-cial stability. This discipline also applies tothe private sector, which will find it more

difficult to implement wage increases andprice markups that would make the countryconcerned become uncompetitive.”

The IMF concludes, however, that this does notreduce state sovereignty.

“It does create a strong incentive for gov-ernments to pursue sound economic poli-cies. It should create incentives for the pri-vate sector to undertake careful analysis ofrisk. However, short-term investment flowsmay be excessively volatile.”12

In theory, this is correct. In law, none of theattributes of the sovereign nation-state has beenabolished by globalisation. However, in prac-tice, the constraints on sovereign state behav-iour, which have always existed, have increasedto the extent that state sovereignty has indeedbeen eroded. In the long run – the wishes ofpolitical parties or lobbies notwithstanding –South Africa’s internal policies will have to beadjusted to international consensus.

This, incidentally, will not be the case simplyin economic matters, but also as far as humanrights is concerned. While the present Constitu-tion is, indeed, an admirable document whichprotects individual human rights like few otherconstitutions, the international consensus ismoving in the direction of incorporating ethnicminority rights as part of the main corpus ofhuman rights jurisprudence. Several documentspublished by the UN and the Council of Europeattest to this.13

Obviously, if any government refuses to toethe line, so to speak, it may and can still do so.Zimbabwe has done so since the beginning of2000. And just look where that has landed it!

South Africa is also a member of severalinternational bodies, such as the UN, the Non-Aligned Movement and the Commonwealth,none of which qualify as regional bodies. Weare a member of three regional institutions: theOAU, SADC and the Customs Union.

In spite of colonel Muammar Gaddhafi’svisions of a United States of Africa, this is,however, undoubtedly a long way off, if ever.Africa is – and will remain for a long time – toodisparate and undeveloped for such a vision tobe realised in any meaningful way. What aboutSADC and the Customs Union? At the SADCsummit in Windhoek in August 2000, a freetrading area was decided upon, which couldhelp to integrate the Southern Africaneconomies, which in turn could, in time, pro-

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vide a building block for an EU-like process inthis part of the world. But this could only hap-pen provided two prerequisites are met:

Firstly, the economies of the region will haveto be developed much further than they arenow. South Africa, the most developed, has aGDP three times that of all the other SADCmember states put together. Even a free tradearea – let alone any further integration – willrequire a much more even spread of develop-ment, or otherwise the relatively strong SouthAfrican economy could damage the rest of theregion severely.

Secondly, political stability will have to beestablished. At the present, civil wars are desta-bilising both the Democratic Republic ofCongo and Angola, while the fighting at timesthreatens the stability of Namibia and Zambiaas well.

Zimbabwe is in the throes of tearing itselfapart because of a megalomaniac leader who isso blinded with his own hunger for power thathe is pulling his entire country to the edge ofthe abyss, and thereby threatening the entireregion. Alas, the questionable morality andpolitical wisdom the SADC leaders in

Windhoek showed by endorsing Mugabe’s cat-astrophic policies proved that African solidaritymeans more to them than creating a lastingpolitical stability, thereby sending a sign to theworld not to invest in the region.

The irony is that SADC’s declaration onZimbabwe meant a severe blow to SouthAfrica’s sovereignty. We are continually toldthat the South African government speaks quiteforthrightly to its counterpart in Harare –behind closed doors, that is. There is no reasonto doubt this. However, when the time comes tospeak in public, the South African govern-ment’s docile meekness in giving in to Mugabeshows that it is not capable or willing to exer-cise its sovereignty.

The SADC summit aside, the time for a for-mal limitation of state sovereignty in SouthernAfrica, and most other parts of the world, apartfrom the constraints of practicality, is clearlystill far off. The globalisation of the world willbe a major constraint, but the nation-state has,in general, little to fear from regional interna-tional bodies. The nation-state is alive, albeitnot always so well, but will survive for a longtime to come.

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1) Quoted in 20th Century Survey, TheEconomist, 11.9.1999.

2) International Monetary Fund, Globalisa-tion: Threat or Opportunity (www.imf.org/external).

3) William R. Keylor, The Twentieth-CenturyWorld (New York/Oxford, OxfordUniversity Press, 1996), pp. 34-35.

4) John P. McKay, Bennett D. Hill and JohnBuckler, A History of World Societies, II(Boston, Houghton Mifflin, 1992), pp. 961-963. The quotation appears on page 961.

5) Peter F. Drucker, The Global Economy andthe Nation-State, Foreign Affairs,September/October 1997, p. 168.

6) Ulrich Beck, Beyond the nation state, NewStatesman, 6/12/1999 (www.consider.net/forum).

7) Drucker, The Global Economy and theNation-State, Foreign Affairs, September/October 1997, p. 162.

8) Michael J. Glennon, The New Interven-tionism: The Search for a Just International

Law, Foreign Affairs, May/June 1999, p. 2.9) See the Tribunal’s Statute at www.un.org./

icc/part2.htm.10)The New Geopolitics, The Economist,

31.7.1999.11)Peter F. Drucker, The Global Economy and

the Nation-State, Foreign Affairs, Septem-ber/October 1997, pp. 159-160 and 171.

12) International Monetary Fund,Globalisation: Threat or Opportunity(www.imf.org/external).

13)See, Declaration on the Rights of PersonsBelonging to National or Ethnic, Religiousand Linguistic Minorities, 18.12.1992 athyperlink gopher://gopher.un.org/00/ga/recs/47/135; gopher.un.org/00/ga/recs/47/135; Framework Convention for theProtection of National Minorities, 1.2.1995at conventions.coe.int/treaty/en/Treaties/Html/157.htm; and “European Charter forRegional or Minority Languages”,5.11.1992 at conventions.coe.int/treaty/EN/cadreprincipal.htm.

ENDNOTES