Address By South African Deputy Minister of Foreign Affairs,
Ms Sue Van der Merwe on the occasion of the International Seminar on "Informal
Institutions And Development: What Do We Know And What Can We Do?" OECD Development
Center, Paris, 11 December 2006
Director Louka Katseli, of the OECD
Secretary General of the OECD Ángel Gurría,
Excellency, Gonzalo Arenas Valverde, Vice Minister of Planning, Chile
Excellency Mme Ginette-Ursule Yoman Secretary of State for Good Governance of
Ladies and Gentlemen
for the invitation to this Seminar to share thoughts and experiences on informal
institutions and development from South Africa. I am sure that each of our own
country's experiences in this regard will contribute to a better understanding
of the challenges we face.
Each of us will have a different perspective
and each of these perspectives will be based on our particular history and on
the decisions and policy choices that our governments have taken in the past and
Therefore each experience will be unique and so for the purposes
of our discussion today I would like to briefly outline where South Africa finds
herself today, our own experience in terms of our history and our policy choices.
many developing countries South Africa has a colonial history, and in our case,
colonial rule followed by the apartheid regime which was characterised by policies
of racial discrimination and exclusion.
The apartheid government deliberately
marginalized the majority of the people from the mainstream through a comprehensive
web of discriminatory legislation and practices. Segregation, marginalisation
and discrimination permeated every aspect of life.
Hilda Bernstein, stalwart
anti-apartheid activist eloquently captures the physical separation and marginalisation
of particularly women in South Africa under apartheid in her book entitled For
their Triumphs and their Tears: Women in Apartheid South Africa:
person, black or white has to live in an area designated as their 'own area'.
For the white minority this means most of the country including the areas where
almost all economic activity is based. For the black majority it means living
either in a Bantustan, or a white-owned farm, or in a black 'township' near a
'white' town. For many black women in domestic work it means living on the white
employer's property in separate accommodation. The townships are segregated dormitory
areas with virtually no commercial or industrial activity and few opportunities
for employment outside what is sometimes called the informal sector. Most of those
who live in the townships must, if they are employed, travel each day to work
in the 'white' areas."
This polarisation of the society
along racial lines was as we can see mirrored in the structure of the economy.
So when we achieved our democracy 12 years ago our government was faced
with the task of not only dismantling the apartheid legislative framework and
creating democratic institutions, but in reversing apartheid social architecture,
while simultaneously reviving an economy in crisis. We have come some distance
towards transforming our society in these past 12 years. Amongst other things:
have adopted a progressive constitution,
- scrapped all discriminatory
laws and replaced them with democratic ones;
- we have a comprehensive social
security system in place, targeted at the most vulnerable people in our society,
the elderly, children and the disabled;
- We have a vibrant civil society
and a free media,
- and we have achieved macro-economic stability.
Our economy has grown consecutively for the pas12years, the longest period of
consistent growth ever in our country's history. We experienced 5% growth last
year with projections of slightly lower rate for this year at around 4.8%. We
have a budget deficit of less than 1% and the prospects for the economy for the
next few years are positive.
However, we continue to face serious challenges
in our society. The levels of unemployment and poverty are unacceptably high and
our country is divided still in some respects, along racial lines.
Mbeki has described the situation in which we now find ourselves as a dual economy,
two economies in one country.
The first economy is characterised as
- integrated in the global economy and
- producing the bulk of the
The second economy on the other hand is characterised
- isolation from the first and global economies,
- it contains a large percentage of people including the urban and rural
- contributes little to the countries wealth.
in this second economy that informal institutions exist.
I am describing
this so as to position South African informal institutions in the context of our
history and how this history impacts on our current development challenges.
is clear that our apartheid history still affects us. It is still very evident
for example in the geographic distance between where the majority of the people
live, and where businesses and work opportunities exist. This makes searching
for employment difficult and expensive.
Also after decades of institutionalised
racial discrimination, remnants of discrimination still persist and many factors
affecting employment opportunities continue to be related to race. An example
is the effect of historically low investment in education for African people which
still impacts on our society today.
The combined effects of decades of institutionalised
discrimination, in the mismatch between where people live and where work opportunities
exist; in historically poor education offered for black people under apartheid,
not matched with the skills needed in the modern South African society; in fewer
social networks amongst black people that could lead to employment - all contribute
to the present challenges we face with high unemployment and related poverty.
informal institutions exist in South Africa, despite the fact that under apartheid,
entrepreneurship was actively discouraged and, as a result compared with our neighbours
on the African continent, we have a relatively small informal sector.
is in this context of our history that our current challenges must be assessed
Over the years South African people have responded to their
predicament and "devised institutions to control their environment"
as described in the input paper on this seminar. To illustrate this I will describe
just two such institutions in our society.
The first is the mini-bus taxi
industry. This is a multi million-dollar industry today. It has developed out
of need, as a result, to a large extent of apartheid spacial planning, a unique
development in the transport sector. The industry has emerged over the past twenty
years, and refers to the privately owned mini-busses, which carry about sixteen
passengers at full capacity. It has developed into a strong economic contender
with traditional modes of transport, namely busses and passenger rail. At peak
times, this industry holds 65% of the commuter market share. It has developed
spontaneously as a result of non-provision of rail and bus services to certain
sectors of the community and over the years, has had a significant impact on the
market share of traditional modes of transport.
Until recently the industry
was completely unregulated in the formal sense, without safety standards and without
regulated route allocation, and of course it was outside the income tax net. The
industry has shown huge growth and because of this fact, combined with no formal
regulation, high accident rates occur, because of overloading and poorly maintained
vehicles, and sometimes violent conflicts have erupted over contested routes.
Also as it is a cash industry, the opportunity cost of uncollected tax revenues
for the fiscus is significant.
After a lengthy and inclusive consultation
process government has taken the first steps in regulating the industry through
a taxi recapitalisation programme. Start-up capital is provided through a scrapping
allowance on all existing taxis. These will be replaced with new vehicles, which
will have to comply with safety standards. Also their operations will be included
into integrated transport planning, taking into account all modes of transport.
The potential benefits for the fiscus in terms of direct tax revenue as
well as the human safety spin off in the reduction in accidents associated with
the condition of the vehicles, are anticipated to be far above the cost of the
scrapping incentive. Therefore the formalisation of the Taxi Industry will, we
believe have significant development gains, advantages both in terms of safety
for commuters and for the fiscus, enabling more to be spent on road infrastructure
A second and very significant informal institution that was
originally started in the 19th century is what is known as "stokvels".
These are community savings clubs and exist throughout our country. Members club
together in their own neighbourhoods and contribute a specific amount each month
to the club. The system operates on a rotation basis and each member receives
all the contributions when their turn in the rotation arrives. Some work simply
as savings clubs and the payout helps with Christmas or holiday expenses, but
many are funeral clubs, and only pay on the death of the registered member. Funerals
are expensive in South Africa and this acts as an informal insurance scheme to
allow for a decent burial and relieve the family from financial burden.
clubs emerged as alternatives to traditional banking, which was previously unavailable
to the poor, but also provide very important community networks as social clubs.
The "stokvel" system in South Africa has grown also into a multi-million
dollar industry, worth an estimated $800m per year with membership of around 3.5
million people. In recent years stokvel societies, in some instances have become
big investors in the bond market . There is now a National Stokvel Association
of South Africa, forming its own regulation mechanism.
This savings system
again, emerged as a response to exclusion from the mainstream banking system and
remains one of the most vibrant savings systems in the country.
show the response of marginalized communities to the conditions under which they
found themselves in apartheid South Africa. They emerged in response to exclusion
and need and as a means of survival.
The question then is, to the extent
that these and other informal institutions exist in the second economy what has
been government's response to these institutions?
The democratic government
was faced with the challenge of having to bring a large percentage for the population
into the mainstream economy without upsetting the traditional community based
informal institutions that are still critical in providing services from which
they were excluded under apartheid.
In order to address what we call our
second economy challenges, our government has amongst others examined the "Structural
Funds" instituted by the European Union in respect of its regional policy,
which is based on financial solidarity of transferring a portion of the EU's budget
to the less prosperous regions and social groups within the EU. The EU programme
is premised on the reality that "the market cannot be relied on upon to meet
the development needs of the 'less favoured regions' within the EU, guarantee
the achievement of the centrally important objective of social cohesion, and provide
the means for the implementation of 'strategies for catching up'.
we have considered that this organisation, the OECD was set up in 1948 to co-ordinate
the Marshall Plan for the reconstruction of Europe after the second world war,
supported by significant funds from the United States and Canada.
same spirit, the South African government therefore resolved that the development
of the marginalized economy requires the infusions of capital and other resources
by the democratic state to ensure the integration of this economy within the developed
This involves, in South Africa's case an active partnership between
all levels of government and other social partners in our society, including trade
unions, political parties and religious organisations. We have developed key strategies
to meet our development challenges including:
- an integrated and sustainable
rural development programme
- an Urban renewal programme
- an extended
public works programme with an emphasis on infrastructure development
development of small, medium, and micro enterprises with special emphasis on black
- special programmes for the empowerment of women
the education system to be responsive to necessary skills in our society
other words, we decided that in order to bring our people into the first economy
world with all its benefits, many players needed to be mobilised, including but
not restricted to the State.
Appreciation of the dynamic interplay between
the informal and formal institutions has been revealed in the recently published
government document entitled: A Nation in the Making: A Discussion Document on
Macro-Social Trends in South Africa. According to this study:
fact that some macro-social developments play themselves out irrespective of public
policy does emphasise the need to understand (both the capacities and limitations
of the State. In part, this underlines the importance of partnerships across all
sectors of society. But it can also reflect omissions on the part of public policy,
or unintended consequences of a particular programme or a combination of programmes.
report goes on to say that, twelve years into our democracy, the State can count
amongst its achievements the attainment of "macro-economic stability and
using the fiscus and other instruments at its disposal to distribute wealth. The
economy has grown at rate higher than that of the population growth, though far
below the country's requirements and potential"
However, the exclusion
of the majority from the first economy continues to expresses itself starkly in
the high unemployment rates.
In 2005, government took a further
step to speed up the implementation of the strategies to meet our development
challenges by initiating the Accelerated and Shared Growth Initiative for South
Africa (AsgiSA), whose objectives includes eliminating the second economy. The
emphasis in this initiative is on the shared nature of the approach. The government
recognises that "without interventions directly addressed at reducing South
Africa's historical inequalities, growth is unsustainable. Conversely, successful
measures to reduce inequalities will add impetus to growth." This also recognises
that growth of the economy is not in itself sufficient to address our unemployment
I should emphasise that the AsgiSA initiative is not a new set
of policies but rather a coordinated and targeted approach to implementation of
programmes that seek to provide greater focus in key areas of growth and potential
growth, and it intends to leverage the mainstream economy resources to address
the second economy issues.
There are numerous examples of how informal
institutions have been regularised and brought into the mainstream economy with
positive results. For example, in the financial sector, informal institutions,
ranging from community funeral schemes, money pooling and informal saving schemes,
as well as informal loan schemes are being evolved and developed towards inclusion
in the regulative regime.
This is one area where interventions to formalise
financial activity in the form of providing appropriate access to financial services
for the poorest members of society has recently been undertaken. Through the Financial
Services Empowerment Charter, which is an agreement between Business, Civil Society,
Labour and Government, business has agreed to provide products which are within
reach of the previously "unbankable" sectors of the population. This
undertaking is already providing positive results as it offers opportunities for
basic savings for individuals.
Opportunities for earning returns on investment
for micro-investors now exist as well as access to credit at realistic rates.
This as opposed to being at the mercy of unscrupulous money lenders. There is
scope for more development in this sector, and we realise that access to financial
services is one necessary step to alleviating poverty. A comprehensive set of
undertaking and ensuring the marginalized economic population is brought into
the mainstream is the overall objective.
While access to finance is important,
even vital, along side this we also need to consider the efficacy of fair and
equitable tax regime in developing economies, and the development of effective
institutions that contribute to the broader development agenda of the country.
This is of course a reciprocal process. Government alone cannot achieve effective
institutions if the citizenry do not co-operate with government by contributing
to revenue-generation by paying their taxes.
According to the 2006 World
It follows that the same institutions that
influence the quality and breadth of service delivery also affect the overall
tax effort. Revenues, like spending, increase with a country's level of income,
but the quality of institutions - notably voice and accountability can strengthen
the tax effort, as the services provided become a reflection of the desires of
the broader electorate rather than a privileged few.
recognise that the better the revenue collection and thus the increase of resources
available for public spending, the less countries will be reliant on foreign aid.
However, for this to happen there needs to be confidence in the governance structures
and in democratic political processes.
In summary and in recognition of
the huge potential that the collective energies of our people can contribute towards
the economic agenda of the post-apartheid era, the South African government has
sought to regularise this informal sector and bring those people who are still
in the second economy into the mainstream economy. This project has sought to
run parallel to the dismantling of the apartheid state machinery and legislation
to create a conducive environment wherein this informal sector, as it is known,
can be brought from the margins to improve economic efficiency and support inclusion.
I have attempted here to give a South African perspective on the challenges
that face us a country, many challenges that we share with other developing countries.
Various informal institutions have played a key role in creating the new South
Africa. I have described two here, the Stokvels or savings clubs and the taxi
industry which have become a significant economic players.
Ladies and gentlemen,
would like to conclude with a reference to an argument by Karl Polanyi, an exponent
of economic sociology. He argues that economic transactions cannot be understood
outside their social relations. Thus key components of social relations which
influence the dynamics of informal institutions range from relations of kinship,
religion, and gender; which constitute social customs and norms of actors.
economies evolve and develop, these informal institutions underpinning social
arrangements and constituting informal institutions reach a point where they become
part of the mainstream, regulated, part of the tax base, part of the democratic
I thank you.