CHAPTER ONE

Policy making
in a complex
environment
KEY POINTS The current financial crisis has highlighted the
increase in economic inequality globally and
given rise to a call for efficient market policies
that also embrace principles of social justice.

Over the next two decades, emerging

markets and developing countries will power
global growth as they shed their role as
suppliers of low-cost goods and services, and
become providers of capital, talent and
innovation.

Africa’s changing demographic structure,

increasing urbanisation, untapped
agricultural potential and need for better
infrastructure present significant
opportunities for growth.

While climate change is a major threat,

developments in science and technology will
enable countries to mitigate the effects,
without undermining growth.
 INTRODUCTION INCREASED INTEGRATION, INCREASED
In the next few decades, the world is expected to COMPLEXITY, INCREASED RISK
experience unprecedented changes. A confluence Economic integration has accelerated over the past
of diverse and numerous developments – an three decades. Between 1980 and 2005, world
explosion of urbanisation, revolutionary merchandise imports and exports increased more
innovations in science and technology and a than seven times, while global foreign investment
rebalancing of economic power from developed to flows grew 18-fold.1 This was on the back of a
developing countries – offer new opportunities. 32 percent rise in real world gross domestic
However, the cumulative effect of these product (GDP).
developments is highly uncertain. Managed
correctly, the interconnectedness that has enabled Technology has both deepened and accelerated the
globalisation can bring enormous benefits, not least world's interconnectedness, enabling higher
a reduction in poverty and greater social growth, a leap in trade and a great surge in cross-
integration. However, failure to curb the financial, border investment. The pace is likely to quicken
technological and social threats associated with further over the next two decades as information
globalisation pose substantial risks. The global flows and capital movements, trade and migration
effects of the financial crisis that began in 2008 are a speed up.
case in point.
Air transport, container traffic and logistical chains
To take advantage of the opportunities while have negated the effects of distance. Better
preparing prudently for the risks will require policies infrastructure has hastened the flow of people into
and actions that regulate and incentivise innovation, towns and cities. The world's population has nearly
capitalise on recent trends, such as increasing doubled since 1950; the urban share of the total has
urbanisation, and enhance the capacity to resolve increased from 29 percent in 1950 to over
conflicts and address challenges at a global level, 50 percent in 2009. The internet, mobile telephony
necessitating a better understanding of the main and growth in computing power have made virtual
drivers shaping trends. proximity almost universal.

76 NATIONAL DEVELOPMENT PLAN - 2030

Global integration has brought benefits, spurring distribution (0 being total equality and 1 being the
growth for a generation. Until the 2008/09 crisis, widest disparity), worsened globally from 0.44 in
many developing countries were making good 1950 to 0.54 in 2000.3 A quarter of the population
progress in reducing poverty. Between 1981 and in developing countries still lives on less than
2005, the share of the population in the developing US$1.25 a day, 1 billion people lack clean drinking
world living below US$1.25 a day more than water, 1.6 billion have no access to electricity,
halved, from 52 percent to 25 percent. China cut and 3 billion do not have adequate sanitation.4
the percentage of its citizens living in poverty to HIV/AIDS has been devastating in sub-Saharan
about a quarter of its 1990 level in just two decades. Africa.
Between 1997 and 2007, the percentage of
Africans living on US$1.25 a day fell from Deeper levels of integration have been
59 percent to 50 percent. Economic growth, accompanied by uncertainty and volatility, as shown
spurred in large part by exports, has been key to by the widespread financial – and then broader
reducing poverty in developing countries. Over the economic – contagion after the collapse of Lehman
past three decades, global trade grew almost twice Brothers in September 2008. This was followed in
as fast as GDP, due to revolutions in transport and late 2009 by the start of a sovereign debt crisis in the
communications, and a sharp decline in import eurozone. The crisis began when a new
tariffs. government in Greece revealed that its
predecessors had concealed enormous deficits.
Globalisation has also been marked by negative The crisis spread across the Eurozone, with first
trends. Inequality has risen. The gap between the Greece, then Ireland and Portugal, requiring
rich and the poor has grown in almost three- financial support, leaving Italian and French banks
quarters of Organisation for Economic particularly exposed. Within two years, the volume
Cooperation and Development (OECD) member of world trade fell by a third as the crisis spread from
2
countries over the past two decades. The Gini country to country at staggering speed.
coefficient, which measures inequality of

FIG 1.1 GLOBAL EQUALITY

Source: Branko Milanovic (2007) in Goldin and Reinert 5

CHAPTER 1: POLICY MAKING IN A COMPLEX ENVIRONMENT 77

 The recession has been most sharply felt in The widespread negative effects of the recession
developed countries, but developing economies have increased doubts about the viability of the
have also felt the effects of depressed growth. Un- global economic order built over the past three
resolved global imbalances and austerity measures decades, leading to growing pressure for more
are affecting confidence and consumption inclusive, secure and sustainable globalisation.
worldwide. Central banks have used up their Wealth and income disparities, both national and
arsenals, while money pumped into the system has international, threaten economic development as
caused inflationary effects in emerging markets. well as social and political stability. Despite robust
growth in some emerging economies, many are
The challenge is identifying a path of recovery given trapped in a cycle of poverty. About 1 billion people,
the unknowns. No one knows for certain whether mostly in sub-Saharan Africa and South and Central
the European Union will evolve or finally break up, Asia, survive on less than 2 percent of the world's
what China's growth trajectory will be and what the wealth.
implications for Africa are. Economics helps us
understand how recovery might happen when the Business and government leaders canvassed by the
problem lies in one country, not when all countries Harvard Business Review (2011) cited increasing
are affected. economic inequality and the opaque and fragile
global financial systems as possible sources of a
Clearly though, the crisis seems to have affected serious breakdown in the system itself. Many agree,
those who can least afford it, threatening the such as the demonstrators who occupied Wall
achievement of the United Nations' Millennium Street, those who forced the closure of St Paul's
Development Goals and weakening the middle Cathedral in London, those camping in the main
classes. Global unemployment rose 6.6 percent in squares and thoroughfares of Madrid and
2009, while youth unemployment saw the largest Barcelona, and those clashing violently with police
rise in decades. High youth unemployment and in Athens. Around the world, people are indignant
food-price increases tipped several countries in at the inequity of a system that passes the cost of
North Africa – and Syria in the Levant – into revolt failure on to taxpayers and those dependent on
against corrupt, authoritarian leaders, raising jobs, while the benefits of its success are
questions about stability in the neighbouring oil-rich disproportionately enjoyed by traders and senior
Gulf states. financial executives.

The fallout from the financial crisis was a sobering The widespread effects of the financial crisis are only
reminder of the weakness of governments and one example of a wider problem of global chal-
global institutions. As economic conditions lenges whose workings are not fully understood.
worsened in the United States in 2010, and the Many scientists believe that population pressures,
European Union began to face its own crisis, the urbanisation and rising consumption and waste are
initial success of a synchronised approach faded. pushing planetary boundaries to breaking point with
The inadequate response is partly due to the uncertain, but potentially catastrophic, con-
complex, systemic nature of the challenges. sequences. The most familiar example is climate
Neither governments nor the relevant international change, which poses huge environmental, social
institutions are set up to monitor or assess the risk of and economic risks to communities in different
systemic contagion, or to deal with systemic failure. parts of the world, and potentially to humankind.

78 NATIONAL DEVELOPMENT PLAN - 2030

Other systemic crises are entirely possible. These spread rapidly worldwide over the next 25 years,
include cyber-attacks that could cripple financial asserted that freer markets are always better. Both
markets, electricity supplies, transportation traditional economic theory and experience show
networks, and supply chains; and the outbreak of a this is not correct.
pandemic that could disrupt travel, tourism, trade,
financial markets, and domestic and regional order. Specific conditions make it possible for markets to
work efficiently and market failure is common when
The scales are tipping these conditions are not satisfied. In a 2008 review
Economic policies under review of eight centuries of financial crises, former
Laissez faire free-market doctrines have dominated International Monetary Fund (IMF) chief economist
global economic policy-making for 25 years. The Ken Rogoff and Carmen Reinhart showed that
era of rapid economic globalisation, against the "serial default is a nearly universal phenomenon as
backdrop of the collapse of the Berlin Wall in 1989, countries struggle to transform themselves from
led many to believe in the triumph of a particular emerging markets to advanced economies … [and
perspective or model, particularly in the that] crises frequently emanate from the financial
relationship between the state, the market and the centres with transmission through interest rate
citizen. A "unipolar" view characterised by western shocks and commodity price collapses. Thus, the
(and particularly Anglo-Saxon) economic and recent US financial crisis is hardly unique". The
political norms became dominant. But the global graph below highlights the experience of the past
economic crisis has prompted a rethink. 200 years.

The crisis has increased the focus on the role of The crisis has encouraged the search for sound
government, and in particular on government perspectives on economic policy. The most
failure to regulate and prevent systemic collapse. influential critics are not seeking to replace
The "markets are efficient" mindset, which arose in mainstream economics or eliminate the benefits of
the United States and Britain in the early 1980s and globalisation. They focus on the failure in the past

FIG 1.2 SOVEREIGN EXTERNAL DEBT

Percent of countries in default or restructuring (1800–2006)

Source: IMF, 2008

CHAPTER 1: POLICY MAKING IN A COMPLEX ENVIRONMENT 79

 few decades of economists and governments to countries has contributed significantly to the
apply much of what used to be standard knowledge changing balance of world economic power. China
and practice about market failures. Rather than a has become an especially dominant force in the
policy lurch to another polar position, the call is for global economy. In 2010, it outstripped Japan to
efficient market policies that also embrace principles become the world's second largest economy as
of social justice, empowerment, and a balance measured in nominal GDP (about 40 percent as big
between rights and responsibilities. as the United States economy), and was by far the
biggest contributor to global GDP growth; its
A common theme emerging in the debate is the need economy added US$638 billion to growth in global
for a more nuanced balance among the roles of gov- nominal GDP, versus US$497 billion added by the
ernments, the private sector and the market to United States economy. By some forecasts, China
achieve dynamic economic growth. Successful count- will overtake the United States as the largest
6
ries such as China and South Korea illustrate this. economy by 2025; others put the date at 2035, or
even 2050.
Credible and sustainable national policies should be
based on the specific situation of each country, Vibrant growth is also expected in India and South
taking the global context into account. Economic East Asia, as well as Eastern Europe, Latin America,
policy-makers must recognise that institutional parts of the Middle East, North Africa and sub-
failures are endemic in the working of markets, and Saharan Africa. While the euro area, Japan, Britain
7
that it is not feasible to eliminate them. Policy- and the United States will still play a major role in
makers should anticipate the risk of failure, and both supporting growth in the decades ahead, global
encourage transparent markets that offer an growth, demand and aggregate wealth are shifting
appropriate balance between risk and return, and toward the emerging economies. The World Bank
be alert to distortions that are likely to lead to suggests that by 2025, six major emerging
market failure. economies – Brazil, China, India, Indonesia, South
Korea and Russia – will account for more than half of
Their refusal to abdicate government's all global growth, growing, on average, by
responsibilities to the working of the financial 4.7 percent a year to 2025, by which time their
markets protected countries such as Germany, share of global GDP will have grown from
Canada, Australia, India, Brazil, Turkey and South 36 percent to 45 percent. The advanced
Africa from the worst effects of the financial crisis of economies are predicted to grow by 2.3 percent
2007/08. China's unique blend of market over the same period.
economics and state direction steered it through
the turbulent waters, albeit with high inflation and As economic power shifts, emerging market
rising social discontent. economies are helping to drive growth in lower-
income countries through cross-border investment
Balance of economic activity and trade.8 Trading patterns are starting to reflect
The composition of global growth and wealth has this. From 1990 to 2008, Asia's share of Africa's
changed dramatically since the 1990s. The recent trade doubled to 28 percent, while Western
economic and financial crisis in the United States Europe's portion shrank from 51 percent to
and Europe and the increasing economic 28 percent. Europe accounts for 30 percent of
prominence of emerging market and developing Africa's exports and China 17 percent – although

80 NATIONAL DEVELOPMENT PLAN - 2030

 FIG 1.3 THE WORLD IN 2050

Source: HSBC, 2011

Europe will continue to be South Africa's biggest emerging economies) are expected to cross the
trading partner for some years to come, the gap threshold to middle-class status with annual
9
with China is expected to narrow significantly. earnings of between US$6 000 and US$30 000
each year.
A number of drivers are behind the growth in
emerging markets, including technological The second driver is the largest urban migration in
progress, better education and economic history. Agricultural workers are leaving the land,
management, greater openness to international where they were often engaged only in subsistence
trade, changes in the use of land, and domestic farming, for urban jobs. This is leading to the
migration from low-productivity to high- development of new mega- and mid-sized cities.
productivity sectors. However, demographic shifts This year, for the first time, more than half of China's
and urbanisation (see chapter 2) stand out as key to 1.34 billion people were classified as urban
improved economic performance. residents.

Declining birth rates over the past decade are Planning for these mass migrations will bring
changing the demographic profile of most emerging enormous pressures. Large slums are already a
market economies, leading to lower dependency feature of the world's largest developing world
ratios – on average, a working person will have cities. Traditional ideas of slum clearance have been
fewer very old or very young dependants. Partly as challenged by radical new thinking, driven by the
a result of this, 70 million people (mostly in sheer scale of urbanisation and its economic

CHAPTER 1: POLICY MAKING IN A COMPLEX ENVIRONMENT 81

 consequences. Architecture for Humanity, which wallets of the growing emerging market urban
has upgraded slums in Brazil, Kenya and South populations. Levels of income per capita will still be
Africa, argues that modern city design should relatively low – these consumers will wield, on
tolerate slums by learning from them. average, just 15 percent of the spending power, in
real dollars, of their developed-world counterparts.
The effects of urbanisation include growth in the China's income per capita today is just 6 percent of
wage-earning class (where jobs are available); that in the United States. Even a predicted sevenfold
higher demand for education, consumer goods, increase by 2050 will bring it to only 32 percent of
health care and transport; a new business class of the United States figure. In India, income per capita
entrepreneurs and managers; and gains in output is just 2 percent of that in the United States. To serve
per worker. As China and India become these customers, companies will need to focus on
manufacturing and service powerhouses, labour innovation and develop new business models.
productivity is growing at more than five times the
rate of most western countries. The expected global economic rebalancing
depends on the ability of emerging market
Emerging markets are becoming key areas of countries to maintain their current growth trends.
growth in consumption, production and, in some This is not inevitable. Continued economic
cases, innovation. The policies and strategies of all dynamism will depend largely on policy, steering
countries and companies will need to address the economies away from low-productivity activities,
challenge of a global economy driven by low-cost, such as subsistence agriculture and informal trading,
high-growth companies or innovation in many parts to sectors that lift the country up the sophistication
of the world. Governments will need to create ladder.
enabling environments for their business sectors
and develop strategic policy frameworks that This means wider and deeper investment in
exploit this reality. education and skills training, and enabling
employment in high-value jobs. This is essential if
Companies will have to develop new business developing economies are to reap the benefits of
models and products that match the needs and their favourable demographic make-up.

FIG 1.4 EMERGING MARKETS AND GLOBAL GROWTH

Source: HSBC, 2011

82 NATIONAL DEVELOPMENT PLAN - 2030

 FIG 1.5 RATIO OF WORKING-AGE POPULATION (16–64)
TO THE REST OF THE POPULATION (1950–2050)

Source: World Bank, 2011

Balance of global political power conferences tend to be too ritualistic, long on

Economic globalisation has outpaced political declarations and short on implementation. The
globalisation. The pillars of the international political original model of the Group of Seven (G7) was
order suffer from democratic deficiencies – their exclusive and did not represent the new world
structure, which dates from the decade after World economic order, but extending it has resulted in
War II, primarily serves the interests of the unwieldy gatherings where form trumps substance.
advanced industrial countries. In the IMF, for The new institutions have been set up without an
example, quotas, which are the main determinant overarching structure, resulting in competition and
of the voting power of members, are allocated on an unbalanced distribution of responsibilities and
an economic power basis that no longer reflects power.
economic realities. A failure to shift quotas to
dynamic emerging markets and developing A review of the governance structures of many of
countries undermines the Fund's relevance and these bodies and organizations is long overdue.
legitimacy in promoting global growth and The past four years have underscored the need for
10
economic and financial stability. fundamental redesign. Developing countries,
including South Africa, are in a strong position to
The inequitable distribution of power in global advance a reform agenda that had impetus even
organisations such as the United Nations, the before the financial crisis. These countries need to
World Bank, the IMF and the World Trade push for more balanced representation in global
Organisation has made them hostage to power forums and for institutions that are attuned to the
blocs and particular economic policies, limiting their challenges of social and economic justice.
ability to take central roles in global problem- Commenting on United States President Barack
solving. Bodies such as the Group of Eight (G8), Obama's nomination of Jim Yong Kim as the next
Group of 20 (G20) and Group of 77 (G77), have president of the World Bank, the Financial Times
similar limitations. Big intergovernmental said: “Washington needs to reboot the World

CHAPTER 1: POLICY MAKING IN A COMPLEX ENVIRONMENT 83

 Bank's legitimacy and relevance in the eyes of the a year, topping 7 percent in 2002, 2004 and 2007.13
poorest countries, which are increasingly turning to
China and the private markets for investment and Africa's poor economic performance began to
capital. If it continued to appear to be a preserve of improve in the mid-1990s. Macroeconomic re-
the old rich club, the emerging world will continue forms brought down inflation and opened eco-
11
to look elsewhere.” nomies to international trade. Led by the two
National institutions also need to be overhauled. largest economies, South Africa and Nigeria, many
While leading companies are forced to adopt countries built prudent fiscal positions after 1995.
management policies and styles that reflect their Political and macroeconomic stability and micro-
global reach, in most countries, the public sector is economic reforms consolidated the growth path.
locked into outdated national models that do not
allow governments to deal with global challenges. Foreign debt as a percentage of GDP and debt-
Most domestic regulators have only a national service obligations as a percentage of export
remit. Treaties and conventions take too long to revenues have both declined dramatically to levels
negotiate, are often not ratified, and when they are, comparable to those of other regions, and
12
are rarely enforced. sovereign credit ratings in some countries have a
positive outlook. More countries are now seen as
Over the next two decades, both governments and "frontier emerging economies", with relatively
companies will need to adapt continuously as they developed financial markets, including Botswana,
address the risks and opportunities of the evolving Cape Verde, Ghana, Kenya, Mauritius,
global environment. National governments, Mozambique, Namibia, Nigeria, Seychelles, South
especially those whose societies are characterised Africa, Tanzania, Uganda and Zambia.
by high levels of inequality, such as South Africa, will
need to introduce more equitable economic Foreign direct investment has increased
policies to hold on to domestic legitimacy and adjust dramatically, from US$9 billion in 2000 to
to a changing and increasingly complex world. US$62 billion in 2008. Total foreign capital flows
into Africa rose from US$15 billion in 2000 to a
Rise of Africa peak of US$87 billion in 2007. Relative to GDP, that
Africa is the second most populous continent after is almost as large as the flows into China. The rate of
Asia. Its current population of nearly 1 billion is ex- return on foreign investment in Africa is higher than
pected to rise to 2.2 billion over the next 40 years. in any other developing region.
Between 2000 and 2010, GDP grew at 5.6 percent

84 NATIONAL DEVELOPMENT PLAN - 2030

In part, this is due to an improved business Opportunities
regulatory environment. A study of publicly traded Minerals underpin the economic strength of many
companies operating in Africa between 2002 and countries. Africa holds 95 percent of the world's
2007, mostly in manufacturing and services, found reserves of platinum group metals, 90 percent of
that average return on capital was about two-thirds chromite ore reserves, 85 percent of phosphate
higher than that of comparable companies in China, rock reserves and more than half of the world's
India, Indonesia and Vietnam. Similar trends were cobalt.
found in foreign direct investment, with American
companies achieving a higher return on African In addition, there may be a gap between the actual
investments than on those in other regions. endowments and what has been identified and
exploited. Substantial reserves could yet be found.16
Interest in Africa's rich mineral resources accounts So the future might bring a considerable increase in
for much inward investment, but higher investment Africa's commodity exports, changing the economic
in infrastructure and better education have laid the map as new resource-rich countries emerge, and
foundation for other sectors as well. McKinsey's prolonging and deepening growth.
analysis indicates that all sectors contributed to the
growth surge, including resources, finance, retail, Most African countries have not used their
agriculture, transportation and tele- commodity wealth to reduce poverty. The
communications. Natural resources contributed proceeds of oil or minerals extraction have largely
only 24 percent of GDP growth between 2000 and been consumed, rather than invested in people and
14
2008. infrastructure. Ugly and costly political contest for
control of revenues is still a serious problem in parts
Average years of schooling are catching up with of the continent.
those of the rest of the world, after having increased
more than fivefold since 1960. Nevertheless, Over the next 20 years, other endowments will
education and preparation for employment are come to the fore, including a demographic profile
both poor in quality. Although primary school that will potentially boost both productivity and
enrolment rates across sub-Saharan Africa have consumption; infrastructure deficits that present
doubled in the last generation, completion rates are investment opportunities; and suitable conditions
still under 70 percent, compared to over for large-scale agricultural and agri-processing
90 percent for North Africa and East Asia. development, both for domestic consumption and
for export.
Advances have not been uniform across the
continent. Africa is highly diverse. The GDP of the Africa has the world's youngest population, and in
10 largest countries makes up more than less than 15 years it will be home to one quarter of
70 percent of the continent's total, and 34 of the the world's population under 25 years of age. Africa
world's 48 poorest countries are African. The will benefit from a large, mostly youthful, working-
average annual income south of the Sahara, age population that will have progressively fewer
excluding South Africa, is only US$342, and more dependants to support as fertility rates fall further.
than 40 percent of the people in sub-Saharan Africa The current generation of young people can greatly
15
live on less than US$1 a day. expand the continent's productive workforce, but
without education, skills and programmes to

CHAPTER 1: POLICY MAKING IN A COMPLEX ENVIRONMENT 85

 promote job creation and entrepreneurship, it also is now less than 3 percent of all goods produced.
poses a major risk. About 54 percent of Africa's Urbanisation not only reduces the number of
youth are unemployed today, and nearly three people engaged in small-scale agriculture; it also
quarters live on less than US$2 a day. Unless this facilitates economic diversification. The combined
changes, the potential for political instability is great. effects of lower dependency ratios and greater
Recent developments in North Africa have shown urbanisation ought to have a further significant
the consequences when young people do not find impact on the productivity of the labour force.
17
work and feel deprived of dignity. Productivity levels have been growing since 2000 at
an average of 2.7 percent a year.
The rapid growth in the working-age population
will be matched by a dramatic rise in the number of Africa will soon be the last remaining major low-
people living in cities. Analysts project that by 2030, wage region in the world. Per capita GDP in China is
over 50 percent of Africa's population will live in already above the global average. China is moving
cities, many of which will be megacities. up the industrial ladder, shedding enough
manufacturing jobs to double manufacturing
Massive urbanisation will lead to a fundamental shift employment in other low-income countries,
in the economic profiles of many African countries. particularly in Africa.
Although 40 percent of Africa is urbanised today,
agriculture accounts for 70 percent of employment In addition, Africa's extensive coastline and
and 15 percent of GDP. This balance will change, proximity to European and North American
bringing the continent more in line with other markets puts Africa-based firms in a strong position
developing economies. Agricultural output makes to displace Asian competitors in labour-intensive
up 7 percent of GDP in Brazil and 12 percent in manufacturing.
China. In the G7 countries, agricultural production

FIG 1.6 AFRICAN URBAN POPULATION

Source: United Nations Habitat, 2008

86 NATIONAL DEVELOPMENT PLAN - 2030

Employment and urbanisation will drive a huge 120 million users. The World Bank estimates that
increase in consumer spending. Over 80 million the industry attracted US$56 billion in investment in
households in Africa now earn at least the the decade to 2008, despite challenging market
equivalent of US$5 000 annually – an increase of conditions, including high connectivity costs, high
80 percent in eight years. Between 2005 and 2008, usage charges and poor electricity supply.
consumer spending in Africa increased at a com- According to the International Telecommunications
pound annual rate of 16 percent, well over twice Union, the top five most expensive places in the
the GDP growth rate. In all but two countries, GDP world for fixed-line broadband in 2010 were all in
per capita increased. Many consumers have moved sub-Saharan Africa.
from the destitute level of income (less than
US$1 000 a year) to the basic-needs (US$1 000 to New fibre-optic cables can reduce costs and extend
US$5 000) or middle-income (up to US$25 000) connectivity. A range of mostly privately funded
levels. cables on Africa's east and west coasts will allow
dramatically better connectivity and will lower costs
Mirroring the pattern of urbanisation elsewhere in for users if intra-regional networks are built.
the developing world, the number of households Already, Africa's international bandwidth capacity
with discretionary income is likely to rise by has increased 120 times to over 10 terabytes per
50 percent over the next decade, to 128 million. second since 2008.
18
McKinsey suggests that sub-Saharan Africa's top
cities could have a combined spending power of The continent's massive infrastructure deficit,
19
US$1.3 trillion by 2030. though debilitating, also presents great
opportunities. Africa has the weakest infrastructure
This has particular implications for banks, tele- in the world – average electricity costs of US$0.18
communications companies and manufacturers of per kilowatt-hour are about double those of other
fast-moving goods. McKinsey projects that four developing countries. The largest infrastructure
groups of industries – consumer-facing industries, gaps are in energy, with citizens in 30 of the 47
agriculture, resources, and infrastructure – could countries in sub-Saharan Africa facing regular power
collectively generate US$2.6 trillion in revenue shortages and power interruptions. Power outages
each year by 2020, US$1 trillion more than in are responsible for a loss of between 1 percent and
20
2010. 6 percent of potential GDP every year. Road
density is lower in Africa than in any other
The explosion in consumer demand is particularly developing region, with 152 kilometres of road per
evident in mobile telephony. In the past 10 years, 1 000 square kilometres of land area. Bridging the
the number of mobile subscriptions rose from infrastructure gap will cost about US$93 billion a
15 million to 500 million, and it is expected to year, with about 40 percent in the power sector.21
increase to close to 800 million by 2015. Over the Poor infrastructure and tough market conditions
next five years, east and central Africa will have the force companies to develop business models and
highest mobile subscription growth rates in the products for price-sensitive consumers. Innovation
world. Nigeria is already the world's tenth largest driven by necessity delivers solutions that may
mobile market. provide useful springboards into other markets.
The pioneering work in mobile money transfers is
Internet use has also risen in Africa, to about one of the notable innovations in response to poor

CHAPTER 1: POLICY MAKING IN A COMPLEX ENVIRONMENT 87

 infrastructure. Safaricom's M-Pesa system has led technological opportunity and enable
this sector with a model that combines using small environmental sustainability. Renewable energy
traders and mobile technology. By 2010, 14 million sources will become increasingly important. Sub-
Kenyans had transferred US$7 billion through Saharan Africa is particularly well positioned to
M-Pesa. develop solar and hydro-energy, and to produce
bio-fuels. The Grand Inga project could provide
The breakthroughs in cell phone banking have not sufficient electricity for Africa and allow it to export
yet extended to easing money flows in and out of energy through interconnecting links to southern
Africa, or between countries. The cost of sending Europe. This would require three major African
remittances to sub-Saharan Africa averages almost interconnection projects: the northern highway
12 percent of a US$200 transaction, compared (between Inga and Egypt), the southern highway
with less than 8 percent for most other developing (between Inga and South Africa) and the western
regions. The cost of cross-border remittances highway (between Inga and Nigeria).
within Africa, if permitted at all, tends to be even
higher.22 Angola, Mozambique and Tanzania, among other
countries, have the potential to produce ethanol
Remittance flows into Africa, the largest source of profitably from sugar cane on land that is not used
net foreign inflows after foreign direct investment, for food crops. Africa also has the potential to
have quadrupled in the past 20 years, reaching reduce emissions by protecting its forests. The
23
US$21.5 billion in 2010 in sub-Saharan Africa. United Nations' programme to reduce emissions
These flows underscore the size and importance of from deforestation and forest degradation is an
migration both from and within Africa. About attempt to create financial value for the carbon
30 million Africans, or 3 percent of the population, stored in forests by offering incentives for the
have migrated internationally, including within sustainable management of woodlands.
24
Africa.
Agriculture is another area of potential growth.
Today, 500 million people in sub-Saharan Africa do Current output does not match Africa's agricultural
not have access to electricity, which is a prerequisite potential. From being a net food exporter in the
for social development, and the ability to harness early 1960s, the continent is now a net importer.

The Greater Inga hydroelectric project has been under discussion for over four decades,
with the first studies undertaken in the 1960s. The first phase involved the construction of
three power stations in the Nkokolo valley in the Democratic Republic of Congo. The pro-
ject includes Inga I (351 megawatts [MW]), which was commissioned in 1972, Inga II
(1 424MW), which was commissioned in 1982, and Inga III (about 3 500MW). High-voltage
lines transmit the power from Inga I and II to Zambia, Zimbabwe, South Africa and the
Democratic Republic of Congo (Brazzaville). The Inga III project was to be developed by
the western power corridor, a joint venture of the national power firms of the Democratic
Republic of Congo, Angola, Namibia, Botswana and South Africa, but progress has stalled.
The second phase addressed the development of the Grand Inga power station, with a total
capacity of 39 000MW, to be equipped progressively with 52 power generators of 750MW.

88 NATIONAL DEVELOPMENT PLAN - 2030

While more than one-quarter of the world's arable more water will be available for agriculture in Asia
land is in Africa, it generates only 10 percent of and North America, but progressively less in sub-
global agricultural output and is highly concentrated Saharan Africa, Latin America and the Caribbean,
– Egypt and Nigeria alone account for one-third of compounding present challenges and demanding
total agricultural output on the continent. Over innovative responses.
60 percent of the world's unexploited cropland is in
sub-Saharan Africa, compared with 31 percent in The Alliance for a Green Revolution in Africa, for
Latin America. example, is working to achieve food security for
Africa by promoting sustainable agricultural growth
The barriers to raising production in Africa are well through smallholder farmers. Recognising that
documented: inadequate infrastructure to bring smallholders – mostly women – produce most of
crops to market – an annual additional investment Africa's food today with minimal resources and little
of US$50 billion is required in sub-Saharan Africa government support, the alliance supports
alone for transport and other kinds of infrastructure; smallholders with good seeds and better soils, as
perverse trade barriers and tax incentives; poorly well as access to markets, storage, transport and
regulated access to agricultural land by foreign finance, while seeking to improve agricultural
private and state entities; highly fragmented policies.
production – 85 percent of Africa's farms occupy
less than two hectares (in Brazil, Germany and the This focus is necessary. Hunger remains
United States, only 11 percent or less work on this widespread. More than 900 million people lack
scale); and lack of technical assistance and finance access to sufficient carbohydrates, fats and protein,
for farmers, including access to high-quality seeds, while 1 billion are thought to suffer from "hidden
fertiliser and other inputs suited to the continent's hunger", because vitamins and minerals are missing
ecological conditions. If the continent is able to from their diet. In contrast, 1 billion people are
overcome these barriers, agricultural output could eating substantially too much, spawning a new
25
increase to US$880 billion per year by 2030. public health epidemic of chronic conditions such as
type 2 diabetes and cardiovascular disease. The
Given its vast untapped agricultural potential, Africa World Economic Forum's Global Risk Network
is well positioned to address some of the world's estimates that non-communicable – or chronic –
food challenges, especially in the well-watered area disease (heart disease, stroke, diabetes, some
between the Tropics of Cancer and Capricorn. chronic lung conditions and preventable cancers)
Demand for food is expected to grow by between will increase by 27 percent in Africa, 25 percent in
30 percent and 50 percent over the next two the Middle East, and 21 percent in Asia and the
decades as the world population grows from Pacific in the next decade, if not addressed
26
7 billion to 8 billion by 2030. Apart from growth in effectively.27
numbers, hundreds of millions will be wealthier,
and demanding a more varied, high-quality diet. Other risks include the loss of the continent's best
Competition for land, water and energy will and brightest minds. Skilled migration rates are
intensify as the effects of climate change become particularly high. In a survey of the top five students
apparent, potentially increasing the scarcity and graduating from the top 13 high schools in Ghana
pollution of water, and accelerating soil erosion and between 1976 and 2004, three quarters had
degradation. Current climate models indicate that emigrated at some point between secondary

CHAPTER 1: POLICY MAKING IN A COMPLEX ENVIRONMENT 89

 school and age 35.28 The United Nations Economic investment in infrastructure enabled the stronger
Commission for Africa and the International economic growth of African economies in the first
Organisation for Migration estimate that 27 000 decade of this century. Future success depends on
Africans left the continent for industrialised these trends being strengthened and accelerated.
countries between 1960 and 1975. During the All successful countries are raising their game
following decade, the number rose to 40 000. continuously and the recession is forcing companies
Since 1990, they estimate at least 20 000 have left to operate more efficiently, cost effectively and
the continent each year. In 2000, one out of every creatively.
eight Africans with a university education lived in a
country in the OECD, a rate exceeded among The environment
developing regions only by the Caribbean, Central Market and policy failures have resulted in the global
29
America and Mexico. economy entering a period of "ecological deficit", as
natural capital (ground water, marine life, terrestrial
The continuing recession in the United States and biodiversity, crop land and grazing) is being
Europe has reversed the trend. According to a degraded, destroyed, or depleted faster than it can
recent survey, Working in Africa, a third of be replenished. Waste and carbon-equivalent
professionals of African origin currently living abroad emissions per capita are climbing faster every year in
see better opportunities today in Africa to progress an ecosystem with finite limits.
their careers than within developed economies.
Africa's fortunes will depend largely on how the Human activity is warming the planet. For the past
educated and skilled diaspora view personal millennium, the earth's average temperature varied
opportunities, and domestic and foreign investors within a range of less than 0.7 degrees Celsius (˚C).
regard returns on investments. Both decisions – For the past 150 years, there has been an increase
whether or not to stay and whether or not to invest of nearly 1˚C. By the end of this century, the earth
– are strongly influenced by government policies. could be 5˚C warmer than in the 19th century. To
Reduced conflict, more transparent regulatory and put this into perspective: the planet has not been
legal systems, greater openness in trade, and higher 3˚C warmer than 19th century levels for 3 million

FIG 1.7 CARBON EMISSIONS PER YEAR: 1990–2030

Source: McKinsey 31

90 NATIONAL DEVELOPMENT PLAN - 2030

years, or 5˚C warmer in the last 30 million years. Climate change is inequitable. High-income
The business-as-usual scenario in Fig 1.7, suggests a countries, with one sixth of the world's population,
probability of about 50 percent of warming of 5˚C, are responsible for nearly two thirds of the
or more, in the first part of the 22nd century. Even greenhouse gases in the atmosphere, but it is
4˚C would transform the relationships between developing countries that will suffer most from the
humans and the planet. Hundreds of millions would effects of extreme weather.33
have to move, increasing the possibility of severe

global conflict sustained over a long period. To have Since the threat to the world's environment and the
a 50 percent chance of containing the increase to challenge of poverty alleviation are closely
2˚C, the world needs to reduce greenhouse gas intertwined, the debate should focus on ensuring
emissions to no more than 44 billion tons per year that environmental policies are not framed as a
of carbon equivalents by 2020 and 35 billion tons by choice between growth and mitigating climate
30
2030. change. A low-carbon future is the only realistic
option, as the world needs to cut emissions per unit
The effects of the planet's warming are felt mostly of output by a factor of about eight in the next 40
through water – storms, floods and inundations, years. In fact, the energy-industrial revolution now
droughts and desertification, and rising sea levels. under way offers exciting opportunities. As shown
Experts on the Intergovernmental Panel on Climate by the agricultural and industrial revolutions, as well
Change warn of radical disruption and instability in a as the current information and communication
very short space of time. Unless emissions are revolution, innovation, creativity and growth can
checked soon, development will be reversed in shape quite different futures, with huge rewards for
many parts of the world, bringing major economic pioneers of new models. The new energy
decline. The risks of delay are also not well under- architecture and its relationship to the built
stood. Because carbon and other greenhouse gas environment will spur innovation, and potentially
emissions accumulate in the atmosphere and attain energy security and a cleaner and safer
persist for very long periods, it is quite likely that environment, while retaining greater biodiversity.
within five or 10 years, any realistic chance of
containing warming to 2˚C will have been missed.32 The political challenge in the next two decades will

CHAPTER 1: POLICY MAKING IN A COMPLEX ENVIRONMENT 91

 be to develop policies and regulatory initiatives that times the earth's diameter. In addition, 90 percent
prompt improved resource management and of edible fish stocks have already been fished out,
deliver substantial clean-technology industries. This while bigger fishing fleets are being built.35
will include policies that help people cope with new
risks during the transition, adapting land and water Industrialised food production contributes to

management to protect livelihoods and threatened climate change and the destruction of biodiversity.
natural environments, while transforming energy Damage to the environment includes soil loss due
systems. to erosion, loss of soil fertility, salination and other
forms of degradation. In many places, water
Although climate change is the chief ecological extraction for irrigation is exceeding rates of
challenge, others closely linked also pose serious replenishment.
risks, such as water scarcity, pollution, food
production and safety, and depleted fishing stocks. The threat of climate change has led scientists,
The earth and its atmosphere are an integrated academics and policy-makers to explore
ecosystem. Interaction among its different geoengineering, deliberate, large-scale intervention
components is not well understood. As Johan in natural systems to counteract global warming.
Rockström of the Stockholm Resilience Centre has Some vehemently oppose geoengineering
warned, humankind risks triggering dangerous research, fearing it will be an excuse to delay
inflection points if it transgresses planetary reducing emissions. Even supporters agree that
boundaries. Such points involve interactions among new technology breakthroughs that can counter
climate; fresh water; biogeochemical loading, the effects, particularly of global warming, are no
affecting the nitrogen and phosphorus cycles; the panacea. Instead, they carry potentially great risks,
34
destruction of biodiversity, and ocean acidification. and should not be seen as an alternative to emission
reductions.
The amount of water being taken from the earth's
underground reservoirs, or aquifers, which are Debates continue about managing ecological
essential for agriculture, is over 400 million tons a challenges. For most, the pace of change is
day more than is being replaced by rain. To quantify dangerously slow and deeply worrying. A common
that another way: it would take 25 million water understanding among countries is emerging that
trucks to carry that amount of water – a convoy 30 low-carbon growth is the desired end state. But this

92 NATIONAL DEVELOPMENT PLAN - 2030

involves investment, change and collaboration. those that are not. The extent to which developing
There is still little evidence that the international will economies emerge as economic powerhouses32
is there to overcome differences and conclude an depends on their ability to grasp and apply insights
effective global agreement. Change is more likely to from science and technology and use them
be bottom-up, triggered by perceptions at a creatively. Innovation is the primary driver of tech-
national or local level, and aggregated progressively nological growth and drives higher living standards.
in regional and global agreements.
As an engine of growth, the potential of technology
Science and technology is huge, and still largely untapped in most developing
Developments in science and technology are economies. Less-developed countries not only lack
fundamentally altering the way people live, skilled labour and capital, but also use these less
connect, communicate and transact, with profound efficiently. Inputs account for less than half of the
effects on economic growth and development. differences in per capita income across nations. The
Science and technology are key to equitable rest is due to the inability to adopt and adapt
economic growth, because technological and technologies to raise productivity.38
scientific revolutions underpin economic advances,
improvements in health systems, education and Computing, for example, through unlocking
infrastructure. infrastructure backlogs and managing integrated
supply chains, can transform economic
The technology revolutions of the 21st century are performance by enabling affordable and accessible
emerging from entirely new sectors, based on services in education and health. The combination
microprocessors, telecommunications, biotech- of computers and the internet, and mobile devices
nology and nanotechnology. Products are trans- and "cloud" technology, has transformed human
forming business practices across the economy, and experience, empowering individuals through
36
the lives of all who have access to their effects. The access to knowledge and markets, changing the
most remarkable breakthroughs may be expected relationship between citizens and those in authority,
to come from the interaction of insights and and allowing new communities to emerge in virtual
applications arising when these technologies meet. worlds that span the globe.

Through breakthroughs in health services and According to the International Telecommunications

education, these technologies have the power to Union, by the end of 2010 there were an estimated
better the lives of poor people in developing 5.3 billion mobile cellular subscriptions worldwide,
countries. Eradicating malaria, a scourge of Africa for including 940 million subscriptions to 3G services.
centuries, is possible. Cures for other diseases About 90 percent of the world's population can
endemic in developing countries are also possible, access mobile networks; three quarters of mobile
allowing people with debilitating conditions to live subscribers live in developing economies. Cellular
healthy and productive lives. technology has allowed Africa to leapfrog the age of
fixed-line telephony, bringing affordable access to
Access and application are critical. Science and millions of people.
technology are the differentiators between
countries that are able to tackle poverty effectively However, the continued and equitable expansion
by growing and developing their economies, and of information and communication technology

CHAPTER 1: POLICY MAKING IN A COMPLEX ENVIRONMENT 93

 depends on electricity. The real divide over the next education for youth, and continuous skills training
20 years will be between those who have access to for workers and managers, and should ensure that
reliable electricity to power these devices and those knowledge is shared as widely as possible across
who do not. society.

Other technologies under development are In a world in which the internet makes information
interventions for cognitive enhancement, proton ubiquitous, what counts is the ability to use
cancer therapy and genetic engineering. knowledge intelligently. Knowledge is the
Revolutionary inventions include small systemically integrated information that allows a
underground nuclear power units called nuclear citizen, a worker, a manager, or a finance minister to
batteries that will be ultra-safe and maintenance- act purposefully and intelligently in a complex and
free; new types of photovoltaics that will make demanding world. The only form of investment that
electricity from sunlight cheaper than that from coal; allows for increasing returns is in building the stocks
and myriad nanotechnologies, some of which and flows of knowledge that a country (or
lower the cost and increase the reliability of many company) needs, and in encouraging new insights
products – even in the poorest areas of the and techniques.
developing world.
Adopting appropriate technologies leads directly to
Managing technological revolutions poses higher productivity, which is the key to growth. In
challenges. Certain innovations and discoveries are societies that have large stocks and flows of
likely to raise fraught bio-ethical issues, as genetic knowledge, virtuous circles that encourage
modification of food crops and cloning of human widespread creativity and technological innovation
embryos have already done. There is a risk that emerge naturally, and allow sustained growth over
their cost, particularly in the early stages of long periods. In societies with limited stocks of
development, will worsen the present inequality by knowledge, bright and creative people feel stifled
limiting access to wealthy individuals. This already and emigrate as soon as they can, creating a vicious
happens in health care in certain G7 countries, circle that traps those who remain in a more
where the demand for high-cost diagnostic impoverished space. Such societies stay mired in
equipment and surgical interventions enabling poverty and dependency.
longevity and better quality of life for older wealthy
people overstretches public health-care budgets, The investment climate is crucial, as are the right
and lowers service quality in poor neighbourhoods. incentive structures, to guide the allocation of
Finally, resource-intensive technologies focused on resources, and to encourage research and
satisfying high-consumption demand – such as the development.
demand for holidays abroad in coastal resorts,
wilderness areas or iconic cities – increase carbon Successful countries have grown their ability to
emissions and environmental damage. innovate and learn by doing, by investing public
funding to help finance research and development
Whatever the challenges, however, refusing to in critical areas. There are many examples – the
participate in the technological revolution is not an space programme, defence and aerospace in the
option. To promote technological advances, United States; integrated value chains, just-in-time
developing countries should invest in quality manufacturing and total quality management in
Japan; high-tech manufacturing in Singapore; and

94 NATIONAL DEVELOPMENT PLAN - 2030

almost everything in China today. Everyone is they adopt to fit their countries and economies to
involved – big and small, public and private, rich and purpose.
poor. And these countries, and their leading
companies, constantly benchmark, monitor, The unintended consequences of globalisation
evaluate and adjust. increase the pressure on government leaders to
adjust global institutions to new realities, and to
CONCLUSION promote a more equitable global order. It is far from
The 21st century presents humankind with clear, however, that the structural tension between
exceptional opportunities and unprecedented risks. the accountability of all governments to their
The systemic linkages between risks can either electorates will easily be reconciled with the need
amplify the impact of harmful events or modulate to address the challenges of the global commons in
and disperse their effects. Interconnected risks are a responsible way. Times of austerity tend to
shown by the links among food, fuel and water in narrow the vision of most people, and make them
the context of climate change; among illicit trade, less inclined to accommodate the needs of others.
organised crime, corruption and terrorism in the There are signs of this across the developed world.
context of fragile states and cybercrime; and among
global macroeconomic imbalances, wide disparities The next few decades will see a rebalancing of the
in the growth paths of developed and emerging world order, with the power of developed
economies, and weak systems of global economies shrinking and that of developing
governance. It would be a mistake to believe that economies rising. Africa will be able to play an
South Africa is a captive of irrational and irresistible important role in this transformation if its
extraneous forces. The decisions and actions it government, business communities and civil-
takes to create or modify linkages, regulate and society groupings cooperate to ensure that the
incentivise behaviour and adopt policies on global successes of the last decade, in particular in reducing
issues are greatly important. poverty, are maintained and widened.

The ability of governments to navigate these Threats to the environment are real and growing,
challenges will be determined by their insight into driving the world closer to a tipping point. Failure by
current circumstances, the foresight they develop world leaders to take urgent action to remedy
about trends and possible futures, and the policies current trends in carbon emissions will lead to dire
consequences for future generations.

CHAPTER 1: POLICY MAKING IN A COMPLEX ENVIRONMENT 95

 The benefits that are certain to flow from looking policy will increasingly prove self-defeating.
technological revolution in an increasingly South Africa needs to adjust its focus in light of the
connected and knowledge-intensive world will be changing global economic landscape. This is
seized by those countries and companies that are particularly urgent in trade and industrial policy.
alive to the rapidly changing environment, and South Africa should redirect its attention to pursuing
nimble enough to take advantage of the niche export opportunities in the economic power-
opportunities. Those that succeed will make houses of the future, many of them emerging
substantial advances in reducing poverty and economies. These opportunities can only be
inequality. In mapping its path for the next 20 years, exploited if industrial policy supports sectors and
China draws the conclusion that countries that industries that can best produce the goods and
maintain an outward orientation – developing and services required of the new markets South Africa
high-income alike – will be among the successful wishes to serve.
ones during the coming decades, while an inward-

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