Overcoming underdevelopment in South Africa’s second economy

South Africa’s transition from apartheid oppression to democracy and freedom is widely regarded as a success. Macroeconomic stability has been achieved through both monetary and fiscal austerity, gender equality is enshrined in the Constitution and labour market interventions specifically seek to achieve equity targets. Despite these achievements, the country still experiences extreme disparities in income, wealth and opportunity. These inequalities have led to a second economy, characterised by poverty and underdevelopment. This report examines why underdevelopment has persisted in South Africa’s second economy and reflects on the current efforts by the government to reduce inequalities.

The paper begins with an overview of the historical origins of underdevelopment in South Africa. A dual economy developed from the system of cheap, forced, migrant labour that was introduced in the colonial period and reinforced during apartheid. Next, the current dimensions and trends of poverty are considered. The authors analyse development policy since 1994 and the government’s attempts to redress inequalities.

The authors suggest some reasons why government interventions have been relatively ineffective:

• there is a failure to recognise that most sectors are diverse and thus interventions appropriate more to one section of the target group than others
• interventions ignore people’s existing skills and experience - instead there is a tendency for projects to introduce people to types of productive activities with which they are not familiar, rather than supporting them in further developing activities with which they are
• there is a failure to determine what marginalised people actually need in order to better their circumstances, and become more economically active

The key conclusion of this report is that actual transformation of the second economy can only reasonably be understood as a long-term goal. The more immediate task of the government is to intervene broadly in the second economy in order to help as many people as possible to further realise their economic potential.