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APPENDIX: Data Sources and Methodology
Data for the growth accounting exercise were obtained from the South African Reserve Bank’s Quarterly Bulletin. Selected data on nonfinancial public enterprises (nominal value added, nominal capital stock at replacement value, and nominal remuneration of employees) were provided by the Reserve Bank.
All aggregates relating to the private sector exclude “General Government.” The agricultural sector includes agriculture, forestry and fishing. The mining sector includes mining and quarrying. Thus, GDP of the private nonagriculture sector is the difference between series 6003 (GDP at factor cost) and the sum of the series 6031 (GDP of agriculture, forestry and fishing) and of series 6043 (GDP of general government).47
Fixed capital stock for the economy (series 6149) and individual sectors (series 6140–6148) are calculated on a replacement value basis. Employment data refer to the formal sector (series 7000–7009). National income-based capital share estimates were derived from series 6285 which is the ratio of remuneration of employees to GDP.
For the NFPEs, real value added was obtained by deflating nominal value added using a price series for the nonagricultural sector. An employment series for the NFPEs was obtained by deflating the nominal wage bill by remuneration per worker in the public authorities (series 7011). Estimates of the real capital stock were derived by deflating the nominal capital stock by the price series for gross domestic fixed investment. Two estimates of the share of capital in output of the NFPEs were used: the first was the capital share for the private, nonagricultural, nonmining sector, and the second, based on the ratio of the nominal remuneration of employees to nominal value added in the NFPE sector. The data on NFPEs exhibit discontinuities owing to the reclassification of some enterprises: TRANSNET was classified as an NFPE in 1990, and TELKOM and the South African Post Office were added to the list of NFPEs in 1992.
This is because there are limits (usually demographic) to the increase in the growth of labor; also, higher growth in capital (than in labor) will lead to diminishing returns to capital thereby reducing output growth over time even if capital growth is maintained.
The national income approach implicitly assumes that capital and labor markets are perfectly competitive and that the income accruing to each factor of production is equal to the value of its marginal product. In the case of South Africa, with large imperfections in the labor market this assumption does not hold. Second, this approach ignores the impact of government policies that affect the returns to the different factors. For example, subsidies to capital could result in the return to capital exceeding its marginal product. The regression approach suffers from two drawbacks: it assumes that factor shares are constant over time and that the growth rate of each input is exogenous.
The nine activities with their respective capital shares are: agriculture (0.275), mining and quarrying (0.601), manufacturing (0.308), utilities (0.538), construction (0.189), commerce (0.232), transportation and communication (0,320), financial and business services (0.604), and government and other services (0.0812). It can be seen that the more capital-intensive sectors such as mining and utilities have higher capital shares.
To check whether the typical capital share is affected by the level of development of a country, Sarel regresses these sectoral capital shares on the average capital stock per person, and finds that the coefficients are insignificant for all sectors at the 1 percent confidence level, and marginally significant for three sectors at the 5 percent confidence level. This statistical insignificance validates the use of the average sample value for all countries.
For South Africa, Chadha (1994) estimates an elasticity of unskilled labor demand with respect to wages of -1.5.
The private nonagricultural sector excludes the category of “general government” but includes the nonfinancial public enterprises.
A higher capital share reduces the contribution of TFP (the residual) because the growth in capital exceeds the growth in labor.
It is possible that there were also complementarities between public and private investment that affected TFP growth with a lag in the 1990s.
It should be noted, however, that the failure to incorporate human capital will affect the measurement of TFP growth only to the extent that rate of growth in the proxy for human capital has been different from the rate of growth in the changes in employment.
The comparison’s are based on Sarel’s estimates for these countries for the period 1978–96.
As noted below, in the steady state, each 1 percentage point difference in TFP growth translates into a difference of output growth of over 3 percent a year, assuming a capital share of about two-thirds.
This is partly by assumption but also reflects the fact that South Africa’s sectoral composition of output may not be very different from that of the comparator countries.
However, real interest rates which were negative during the 1970s turned around in the 1980s and 1990s without any apparent impact on the capital-labor ratio.
South Africa’s share of world gold production is shown below.
Such an estimation is very sensitive to the underlying assumptions and should be viewed as indicative of possibilities rather than as a serious forecasting tool.
In the standard neoclassical growth model, the capital-labor and capital-output ratios are constant given the level of technology. However, equation (2) expresses the change in the steady state value of output per capita (or per worker) when there is technological progress (i.e., TFP growth). Under these conditions although the steady state value of the capital-output ratio does not change, the capital-labor and output-labor ratios do; thus, output grows faster than the growth in the labor force with the difference being related to TFP growth.
For example, ESKOM’s positive financial performance may to some extent be related to the fact that it has not had to pay income tax and stamp duties. Further, several parastatals received substantial financial support from the Reserve Bank in the form of subsidized cover for their international borrowing during the 1980s and early 1990s.
In 1996, under the auspices of the National Economic Development and Labor Council (NEDLAC), a National Framework Agreement was concluded among the social partners, establishing the guidelines for the process of restructuring state assets. For the purposes of privatization, the NFPEs have been placed in three categories (Table 3): (i) NFPEs with an explicit role in the provision of basic needs; (ii) NFPEs which do not provide essential infrastructure services but nevertheless have a public policy dimension; and (iii) NFPEs which fit neither of the above descriptions. The restructuring process has a number of objectives, including the need to make NFPEs more competitive, to assist in the repayment of government debt, to deliver affordable services to the population, and to address historical imbalances. At this stage, whereas restructuring could take the form of majority divestiture for the last category, the government intends to devise specific divestiture strategies for enterprises in the first two categories on a case-by-case basis, taking into account the needs of individual sectors.
All series references relate to those in the Reserve Bank’s Quarterly Bulletin.