S. Africa Outlines New Economic Model

A GOVERNMENT proposal for restructuring South Africa's ailing economy for the first time addresses the socioeconomic legacy of apartheid. It has been welcomed by business and has won a conditional nod from trade unions.

The plan, which came a week before the presentation of the annual budget in Parliament, was published as the government's input into the National Economic Forum. The NEF is an interracial negotiating body that seeks to secure agreement between government, the private sector, and predominantly black trade unions over the restructuring of the economy. The plan seeks an economic turnaround within five years after more than a decade of stagnation.

Finance Minister Derek Keys presented the model to the NEF Tuesday. Earlier in the day Mr. Keys met with a delegation of the Congress of South African Trade Unions, the main black union federation, to discuss its demands relating to the budget.

Keys, a former mining executive who has won the respect of trade unionists and anti-apartheid leaders for his pragmatic and conciliatory approach.

When presenting the new model, Keys emphasized that economic restructuring would not be unilateral and consensus would be the guiding principle. Under a multiracial interim government, the economy is likely to be run by the same group of white civil servants as it is at present.

Last year the South African economy declined by 2 percent and unemployment levels reached new highs.

The new government model seeks a 4.5 percent growth rate and 1.3 million new jobs in five years by reducing government's role in the economy and freeing resources for the private sector. It recommends cutting government spending, raising fixed investment, and lowering taxes, and assumes increasing productivity.

THE Keys model also calls for far-reaching socioeconomic and urban reconstruction to deal with the legacy of apartheid in neglected areas such as housing, education, and health care.

"The plan is, in essence, a 300-page denunciation of all apartheid's social engineering," according to an article in Business Day, the financial daily.

But government economists warned that the model established a clear link between productivity and increased capacity.

"Productivity will have to make a significant contribution to future economic growth," says Japie Jacobs, an advisor to Keys. "Our problem is that we cannot address all areas of socioeconomic needs at the same time."

The plan also proposes a "social net" which would reduce the impact of the restructuring program on the poor.

"I think this is the only way to go," says Rudolf Gouws of the Rand Merchant Bank, who serves on the NEF. "If we are to reverse the economic deterioration of the past decade we do not have an option."

The plan is critical of the system of collective wage bargaining and the lack of "effective competition" in labor markets. It says "adversarial" labor relations had led to capital-intensive production and job losses. It proposes a limit of 0.5 percent on annual wage increases and more decentralized wage-bargaining structures.

In the past year, trade unionists have begun adopting a less confrontational approach in industrial bargaining and several unions have entered into profit and productivity-linked wage increases.

Keys said that while the labor representatives in the Economic Forum had responded positively to the overall plan they had some reservations about the proposals that directly affected labor. "The labor movement has offered to correct that part of the model and I gladly accepted," Keys said.

The plan is in line with proposals made by the International Monetary Fund based on its assessment of the economy last September. The IMF approach was to extend the tax base and reduce tax expenditures rather than raising tax rates.