Occasional Paper 10/2022 Copyright © 2022 Inclusive Society Institute PO Box 12609 Mill Street Cape Town, 8010 South Africa 235-515 NPO All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without the permission in writing from the Inclusive Society Institute. DISCLAIMER Views expressed in this report do not necessarily represent the views of the Inclusive Society Institute or those of their respective Board or Council members. NOVEMBER 2022 by Robert Mopp & Daryl Swanepoel Contractionary fiscal consolidation vs Expansionary fiscal stimulus in the context of SA's budget Implications for growth, employment and debt Picture source: superforex.com Abstract This essay will first look at austerity as the policy that gained currency in the post-2008 Global Financial Crisis (GFC), particularly in the United Kingdom (UK), Greece, etc. The counter policy of fiscal stimulation has a much longer genesis that can be traced to the Great Depression era. In the stimulus versus austerity debate, there are also shades and overlap between the two approaches. Both have pros and cons and should be viewed against the background of South Africa’s current fiscal and economic situation. South Africa’s fiscal space has shrunk due to low growth, but there has been an improved revenue intake from higher commodity prices, resulting in a much improved main budget deficit for the 2022/2023 fiscal year, compared with the national budget presented in February. The main budget deficit narrowed to R42.7 billion in August, from R129.5 billion in July. This has provided additional space in the upcoming Medium-Term Budget Policy Statement (MTBPS) in October – giving Treasury additional wiggle room. This essay advocates for a more gradual decrease of the budget deficit, as opposed to the current plan of higher levels of cuts. This should be in conjunction with structural changes to the economy to spur higher and faster growth, with infrastructure spending kick-starting the process. Introduction Joseph Schumpeter reminded us in 1934 that "public finances are one of the best starting points for an investigation of society; the budget is the skeleton of the state stripped of all misleading ideologies, the truest reflection of the distribution of power and influence”. It is where the governing party shows its prowess and resolve to grow the economy sustainably and improve the quality of people’s lives. Former President Mbeki further elaborated on this profound observation in his 2006 SONA address, when he said that “the spirit of a people, its cultural level, its social structure, the deeds its policy may prepare, is written in its fiscal history”. Professor Ben Clift (2018) asserts that austerity remains the central economic policy debate of our age; it goes to the nub of the issue under consideration. Over the last few years, this has become the case for South Africa too. He continues by asking how far governments should contain public spending, given increasing fiscal deficits and debt levels. Clift further asks, what should be accorded the highest priority: “reducing national debt to secure economic credibility or using fiscal and other policy levers to bolster economic growth”? This summarises the tension at the heart of the budget, namely contractionary “fiscal consolidation” versus an “expansionary fiscal policy”. These posers are pertinent to South Africa, in light of the upcoming budget statement by the minister of finance and “austerity by stealth”, which many say has been integral to the budget over the last period. This stance should be viewed against the current worsening global economic climate – after the two years of Covid-19 restrictions and initial recovery experienced in 2022 – of high inflation (high prices); high food and energy prices (accelerated by the conflict in Ukraine); glitches in the global supply chain mechanisms; de-globalisation and rising economic nationalism and the retreat into regional economic and political blocs; rising protectionism and trade barriers; deflation; stagflation and hysteresis (which increases long-term unemployment). It should also be seen against the increasing decoupling of the USA from Russia and China, ushering in a new “cold war” – seemingly at an end with the dissolution of the USSR, finding expression in Francis Fukuyama’s now famous axiom, “the end of history”. This maxim noted that the liberal-democratic system has triumphed, with no rival paradigm to challenge it. Predictions are that these challenging economic issues are not transitory, but will be medium to long term in nature. Currently, the world faces an unprecedented “cost of living crisis”. Fiscal Consolidation (Austerity) versus Fiscal Expansion Austerity is often couched in the understated and misleading term of “expansionary fiscal contraction”, which will ostensibly lead to increased growth levels, resulting in more jobs being created and the attendant positive outcomes. Austerity opponents state emphatically that this is not the case, based on empirical evidence dating to the 1930s (Germany then) and post-2008 Global Financial Crisis, in the European Union (EU). This debate also references the notion of Keynesian “countercyclical” economic measures, especially in crisis periods. Genesis of the Austerity Idea The austerity doctrine has a long genesis, dating back to philosophers and the classical economists. It can be traced to David Hume and Adam Smith in the 17th century, with John Locke, the antecedent. Blyth notes that the sentence, “the state: can’t live with it, can’t live without it, don’t want to pay for it” defines the liberal dilemma as the basis for austerity politics. Locke wanted to limit the attitude and ability of the state to increase debts at will. At that time, this was mainly directed at kings who arbitrarily taxed subjects for their vanity projects and to wage wars. Hume went further with his assertion that public debt can destroy a nation; again, to be seen within the context of monarchs with their unbridled power. In the modern era, there are checks and balances in place to counter this type of arbitrary exercise of power. He believed that the problem of public debt is unsolvable and potentially limitless; he also believed that debt can be passed on from generation to generation. According to Blyth, Adam Smith deduced that the free-market system would not survive if a country was not prepared to make certain sacrifices. Smith, as a notable abstemious person, had a very high opinion of “saving as an actuator” (Blyth, 2013). For Smith, a cardinal problem is that states are not savers, individuals are. These three theorists approached cost (debt) from a moral perspective – to them, saving is a virtue and spending is a vice. Later theorists associated with the neoclassical economic paradigm associate Smith with assigning a minimalist role to the state, the so-called “night watchman” role referred to in his 1776 classic, Wealth of Nations. According to Reisman (1998), Adam Smith “was not a single-minded advocate of a laissez-faire market in which the minimal state had no more than a protective function. Rather, he was a pragmatic social thinker who in each case selected the tool that was the best suited to his meta-objective of rapid economic growth”. Thomas Malthus, another classical economist, argued in favour of the need to maintain aggregate demand and to support key sectors of the economy. He greatly influenced Keynes. Malthus is referenced by Keynes as the “grandfather of his theory of effective demand” (Skidelsky, 2003). In 1930, Keynes warned the establishment of a rising disaster, if they continued on the path of an unbridled free-market, gold-standard orthodoxy and fiscal and monetary policy austerity. As it turned out, shrinking markets and balanced budgets exacerbated the unemployment problem, which remained obstinately high, leading to the 1929 stock market crash and the “Great Depression”, and, ultimately, war amongst nations in Europe. This scenario came to bear once more in 2008 with the Global Financial Crisis. Austerity Definition Professor Mark Blyth defines austerity as a “form of voluntary deflation in which the economy adjusts through the reduction of wages, prices, and public spending to restore competitiveness, which is (supposedly) best achieved by cutting the state’s budget, debts, and deficits”. Its adherents believe that it will inspire “business confidence”, since the government will either be “crowding out” the market for investment by amassing available capital through the issuance of debt, or adding to the nation’s already considerable debt, which they regard as too large and unsustainable in the long term. For Blyth, the goal of the exercise goes beyond a mere reduction of the fiscal deficit or public expenditure; it also aims to enhance competitiveness. Barry Ritholtz describes austerity as “the desire to slash government spending and cut deficits during a time of economic weakness or recession” (Andor, 2018). Professor Joseph Stiglitz, former World Bank Chief Economist and one of the critics of fiscal consolidation, compares austerity with an obsession with balanced budgets and a fixation on fiscal deficits. Stiglitz makes it clear that the main problem with the approach is that it makes cuts in expenditures (especially social spending) a policy priority when public revenues fall at a time of an economic downturn (what we are experiencing currently). Austerity measures refer to procyclical interventions during an economic downturn or recession, as opposed to fiscal stimulus measures that stress countercyclical measures. Treasury View and Neoclassical Economics The policy of fiscal consolidation, small government and balanced budgets is associated with the neoclassical economic framework. The neoclassical school posits that market economics have an automatic tendency to full employment equilibrium, are efficient and generally function well (Stiglitz, 2014). This school further believes that markets are more efficient than governments in allocating capital; state spending and taxes should be kept as low as possible; and budgets should be balanced (Skidelsky, 2020). Left to its own devices, the market would not provide the above, as we witnessed with the 2008 Global Financial Crisis and with the downturn occasioned by the Covid-19 pandemic. New Consensus Macroeconomics, which replaced the New Keynesian synthesis as a dominant framework in central bank and finance minister circles, has a long history and many labels, according to Blanchard (2009). Perhaps the earliest popular term to describe its essential character, is the “Treasury View” – a term attributed to Keynes when he was employed here. Keynes was critical of Churchill’s defence of austerity in the beginning stages of the Great Depression. Two major features define the Treasury View: reduce the public debt, and the budget deficit as a percentage of GDP at all times. Padayachee describes the Treasury View as predicated on “fiscal restraint/conservatism, low budget deficits, holding down expenditures and public debt, tightly controlling and directing the public purse and sound money”. It became synonymous with the Washington Consensus. The argument is that such austerity will not adversely affect the economy, but rather that the opposite will happen, as government cuts will be met by increased private-sector spending. Increasing the budget deficit will, in this view, “crowd out” more productive private investment and should be strongly discouraged. The neoclassical doctrine of “expansionary austerity”, of cutting public expenditure and reducing budgets, is largely associated with the work of Alberto Alesina, a Harvard economist. Alesina used statistical techniques that supposedly identified all large fiscal policy changes in advanced countries between 1970 and 2007, and claimed to find evidence that spending cuts, in particular, were often “associated with economic expansions rather than recessions”. The reason advanced is that spending cuts create confidence (business), and that the positive effects of this increase in confidence trump the direct negative effects of reduced spending and exclude the possibility of any revived inflationary pressures. Inflation is currently at record highs, globally. However, the evidence does not bear this out under all circumstances and conditions. The 2013 Economic Report of the President, produced by the US President’s Council of Economic Advisers, notes that where states have pursued the economics of austerity, the result has been continually declining growth. In contrast, the US, Australia, etc., experienced positive economic growth. Similarly, the social democratic welfare states with the biggest levels of fiscal stimulus experienced the least loss of jobs and economic contraction during the Covid-19 pandemic, with accompanying massive global economic downturn. Reinhart-Rogoff Controversy In 2010, two well-known Harvard economists, Carmen Reinhart and Kenneth Rogoff, claimed in their now infamous paper, Growth in a Time of Debt, that 90% debt is a critical threshold; that once debt reaches more than about 90% of GDP, the risks of a large negative impact on long-term growth become highly significant. George Osborne, the then British Chancellor of the Exchequer, and many other finance ministers in the developed world, seized upon this conclusion to justify spending cuts and sharply lowering government debt. Three economists, Herndon, Ash and Pollin, from Amherst-Massachusetts, in a critique, replicated the Reinhart and Rogoff analysis and discovered a crucial spreadsheet error. When corrected, they came to the conclusion that growth rates in fact averaged 2.2%, not -0.1%, over the same period for the same group of countries. In their conclusion, they said: “In particular, it has established that policymakers cannot defend austerity measures on the grounds that public debt levels greater than 90% of GDP will consistently produce sharp declines in economic growth.” According to Professor Eric Widmaier (2013), in mistakenly characterising the historical relationship between rising debt and falling growth, Reinhart and Rogoff inadvertently omitted strong performers like Canada, New Zealand and Australia from their calculations. Widmaier continues by saying that more important, however, than their spreadsheet errors, was their “lack of theoretical insight, as they failed to recognise that the relationship is best seen as one of reverse causality: rising debt does not cause falling growth, so much as falling growth causes rising debt”. Subsequently, in 2013, Reinhart and Rogoff stated, “Our consistent advice has been to avoid withdrawing fiscal stimulus too quickly, a position identical to that of most mainstream economists. Given the likelihood of continued weak consumption growth in the US and Europe, rapid withdrawal of stimulus could easily tilt the economy back into recession.” Despite their erroneous calculations and subsequent partial volte-face, the Reinhart and Rogoff paper remains highly influential in the United States and Europe, and even in developing countries in the Global South. New Deal’s State-Led Approach In contradistinction to the fiscal consolidation approach, is an expansionary fiscal approach, undergirded by an effective, capable state. The New Deal, under former President Roosevelt, is regarded as a highly successful state-led economic development to counter the Great Depression travails. Roosevelt took America off the gold standard, devalued the dollar and targeted growth and development (Rauchway, 2015). He further targeted what was seen as the biggest challenge at that time, namely “deflation” (decrease in the general price level of goods and services) and secured a sustainable economic recovery. President Roosevelt was advised by Keynes – some budget items were cut, but overall spending was up. Massive public works programmes were created during this time. When asked if he intended to balance the budget, he responded thus: “It depends entirely on how you define the term, ‘balance the budget’ … We will balance the budget as far as the ordinary running expenses of the government go. But fighting the Depression required borrowing, to put people back to work and keep human beings from starving in this emergency. As desirable as a balanced budget might be, the needs of recovery come first” (Rauchway, 2015). By all accounts, the measures taken with the New Deal were a resounding success; growth was high, about 9% on average (Rauchway, 2015). Most scholarly accounts will concur with Keynes’s observation that “the extent, variety and spread of the recovery is outstanding in economic history” (Rauchway, 2015). Stimulus or Expansionary Fiscal Spending Evidence and results from the Great Depression and the 2008 Global Financial Crisis demonstrate that for fiscal stimulus, the “most effective way of cutting deficits is to resist recession and to combine deficit reduction with rapid economic growth” (Sen, 2015). Furthermore, Roosevelt’s words that, “as desirable as a balanced budget might be, the needs of recovery come first” (Rauchway, 2015) also apply in the context of expansion versus contraction. From the mid-1940s to the mid-1960s the public debt to GDP ratio was considerably larger in Britain than it has been at any time since the 2008 financial crisis, with high growth rates. Britain was also establishing its welfare state at the time, developing a foothold for the welfare state in Europe, and then globally. According to Sen, Britain’s debt to GDP ratio in 1948 was more than 200%, more than double what it has been over the last two decades. Keynes is credited with advocating for countercyclical fiscal measures to counter unemployment and low growth, rather than the procyclical approach followed in South Africa. Keynes famously said that the “boom, not the slump, is the right time for austerity at the Treasury” (Skidelsky, 2003). In his General Theory in 1936, he suggests that cutting public expenditure is a problem, rather than a solution. Keynes introduced the notion that “demand is important as a determinant of economic activity, and that expanding rather than cutting public expenditure may do a much better job of expanding employment and activity in an economy with unused capacity and idle labour”. Many have misinterpreted Keynes’s point, saying he advocated reckless spending. However, Keynes was mindful of the context of spending, but within the broader framework of the macro economy. It was about the collective will of all stakeholders to deal with the challenges. Austerity does not assist the recovery process, as cutting public expenditure “adds to the inadequacy of private incomes and market demands” (Sen, 2015), leading to higher levels of joblessness. Most of the stimulus packages to counter the 2008 Global Financial Crisis were replaced by austerity packages in most of the developed countries. Sen said a “hybrid policy of somewhat weakened fiscal austerity with monetary expansion” then came into play, with mixed responses. South Africa’s Disquieting Political Economy South Africa has its own unique socio-economic challenges, characterised by high levels of unemployment, poverty and inequality. We are regarded as one of the most unequal societies in the world. World Bank data that has measured the Gini coefficients of 146 countries since 2010, indicate that South Africa had the worst score, of 63. Unemployment stood at 34.9% in Q2: 2022, according to Stats SA. The aftermath of the 2008 Global Financial Crisis saw South Africa lose about one million jobs, only replenished on the eve of the outbreak of the devastating Covid-19 pandemic. A bigger number was subsequently lost in 2020, mainly recovered in 2021. In 2012, South Africa adopted the National Development Plan (NDP) 2030, which sets out a long-term vision for the country on how it intends to bring about fundamental socio-economic transformation. The aim of the NDP is to attain an ever-improving standard of living for all South Africans, through higher economic growth and the reduction of poverty and inequality. The NDP set a number of ambitious targets that have by and large not been met by the actual outcomes (NPC, 2020). Given the devastation wrought by the Covid-19 pandemic – due to the lockdown of economies allowing no or reduced production, trading and consumption – South Africa’s economy shrunk by 7% in 2020. This is the worst performance since 1920, according to statistics. Then the world was battered by the “Great Flu” pandemic and the aftermath of the First World War. It would be an understatement that the 2021 budget was awaited keenly by everyone in South Africa. The expectation was that there would be economic improvements, and that this would raise our hopes for the future. But the entrenched fault lines in our political economy have only been aggravated by the economic, social and psychological ravages inflicted by the Covid-19 pandemic. It should be noted that our economy was already performing poorly prior to the onset of Covid-19, with many challenges on the fiscal, monetary, labour, productivity, indebtedness front, plus low growth. Covid-19 has simply highlighted fault lines that can no longer be hidden or wished away. We have suffered low nominal growth –1.2% annually over a five-year period, 2013-2018. By comparison, we averaged growth of 4,7% in the 2005-2008 period. The number of unemployed persons increased by 132 000 to 8,0 million in Q2: 2022. The total number of persons employed is now 15,6 million. The official unemployment rate was 33,9%, and 44,1% for the expanded definition. The economy shrunk by 0.7% in Q2, denoting weaker economic activity, less spending power and weaker confidence overall. The NDP set a target of reducing unemployment from 25.4% in 2010 to 14% by 2020 and 6.0% by 2030. Achieving these goals would have entailed the creation of 2.2 million jobs between 2010 and 2015, at an annual average of 436 000, on the back of an average GDP growth rate of about 4.6% per annum. Between 2015 and 2020, the average rate of job creation should have risen to 505 000 per annum, creating an additional 2.5 million jobs. Instead, the small business sector, so critical for job creation and sustaining livelihoods in most economies, dropped from 64% in 2008 to 55% in 2015 (NPC, 2020). The South African economy’s small business composition is one of the lowest in Africa and globally. And yet, the NPC 2020 review report makes the truly astonishing claim that “the NDP does not prioritise informality”. This is linked to our inability to turn townships into areas of thriving economic activity. This is the case in many countries, especially at local level where the focus is on enhancing growth and creating jobs. On the poverty and inequality front, while poverty rates dropped significantly in the 2000s, this has tapered off since 2011, with some indicators degenerating (NPC, 2020). The percentage of the population designated as poor in terms of the South African Multidimensional Poverty Index headcount was 17.9% in 2001, dropping to 7% in 2016 (Stats SA, 2018). According to World Bank data, 19.5% of South Africans were trying to survive on the equivalent of USD1.90 per day in 2018 (PPP adjusted), representing a reduction from the equivalent figure of 36,6% in 1996. The NPC (2020) states that the “persistence of deep poverty is most likely due to slow job creation, rising food prices, and rapid increases in utility costs that have outpaced income growth”. Fiscal Direction of Budget and Consequences Let us now determine the “spirit” of our fiscal direction, as outlined in the 2021 budget. Most economists have characterised the budget as “austerity by stealth”, due to the cutbacks in funding on health, education and social assistance (in real terms). The then Finance Minister, Mboweni, proposed reducing the deficit from 14% in 2020/2021 to 6.3% in 2023/2024 in order to stabilise debt at 88.9% by 2023/2024. This will primarily be achieved by cutting R265 billion spending over the three-year MTEF, with hopefully higher income proceeds for an upturn in the economy. The Financial and Fiscal Commission (FFC, 2021) says that the tabled budget implies a real reduction in per capita non-interest spending of around 14% over the next three years. The FFC, in its March 2021 supplementary note, states that the consolidated expenditure on emergency medical services will be R7.2 billion in 2021 (R8.2 billion in the 2019 fiscal year). The estimate for 2023 is R8.1 billion – i.e., below its nominal level in 2019. Expenditure on central hospitals will grow at 1.3% per annum between 2019 and 2023 – below the average inflation rate of around 4%. The cutting of funds contradicts the idea of using the health crisis to strengthen the health infrastructure as we transition to the National Health Insurance (NHI). Consolidated expenditure on basic education will increase by less than 2% per annum between 2019 and 2023, below the average rate of consumer price inflation over theperiod. This will result in fewer teachers, meaning larger class numbers, especially in township schools. Funding for students at tertiary level has also been cut, resulting in the absence of many deserving students from disadvantaged backgrounds. The sober tones of the FFC should give us pause for reflection. The FFC notes that the “budget 2021 is the first time since the adoption of the Constitution in which a budget tabled by the executive hasunambiguously proposed a substantial reduction in the real value of allocations to public services that undergird these socio-economic rights” (FFC, 2021). Infrastructure Spent to Spur Economic Growth According to the Presidential Economic Advisory Council (PEAC, 2020), government has been issuing bonds worth about R80 billion a month for current spending needs. Since the additional funding is already committed, there is very little room for bulk investments. Investment flows have lagged the targets set by President Ramaphosa, despite the diligent efforts to attract such. However, government notes that the market has the capacity and the appetite to invest in long-term infrastructure projects via public-private partnerships, provided they are bankable. The private sector is prepared to do this without government having to commit initial kick-start funding. But it would want a “clear regulatory framework, transparency, zero political interference and a clear project pipeline” (PEAC, 2020). These infrastructure projects – in water, electricity and the build environment – would then create spin-offs for ancillary industries. The PEAC also envisages green projects to be prioritised. Yet, FirstRand Chair, Roger Jardine, in the group’s 2021 annual report, has been extremely critical about the “painfully slow” pace of government’s proposed infrastructure programme. Jardine says that over two years ago President Cyril Ramaphosa pledged an infrastructure programme that was “the flywheel for economic growth and large-scale job creation”. He says Ramaphosa “has regularly acknowledged the crucial importance of South Africa’s “infrastructure programme as a key driver of his economic recovery strategy. Yet, it is hard to identify one government-led infrastructure project of any significance that has actually been executed. Progress, in other words, has been to date, glacial. The pace does not correlate to the stated ‘extraordinary’ nature of the measures required. Extraordinary suggests urgency, immediate action and focus.” Despite the general negative sentiment, Jardine denotes “some promising developments, particularly in the energy space”. Jardine notes a disconnect between President Ramaphosa’s plea and the lack of delivery. Jardine says that the primary reason “is the historical unwillingness to crowd in the private sector”. This refers to the lack of close, cooperative ties between government and the private sector since the post-1994 period. This historic mistrust has not sufficiently receded as hoped in that initial euphoric period. PEAC on South Africa’s Fiscal Trajectory The Presidential Economic Advisory Council (PEAC, 2020) states that GDP has declined over the last few years, mainly due to “declining Total Factor Production” and that “fiscal policy had been unsustainable” prior to the onset of Covid-19. They express misgivings about our procyclical fiscal stance, as debt levels have been on the rise. In the same breath, the PEAC notes that austerity is essentially anti-growth. The PEAC aligns itself with Professor Burger’s view, which proposes a “more gradual and realistic fiscal adjustment path”, as Treasury’s ambitious plan is neither economically nor politically feasible in a low growth, high interest rate environment. For Burger (2020), higher growth rates are imperative, coupled by a more gradual rise in the primary surplus by 2016/2017. To achieve this more gradual, realistic, less procyclical scenario, it needs to be “accompanied by visible structural change in order to be time consistent and credible, including wage bill reduction and fundamental restructuring of SOEs” (PEAC, 2020). This more feasible trajectory must not only contain unnecessary perks and expenditure, engender savings by eliminating wasteful and inefficient expenditure, but it must also grow incomes via growth enhancing reforms that will result in more jobs being created. The PEAC notes that whilst the “imperative for fiscal consolidation is therefore compelling, it must also be balanced by the need to support post-Covid recovery and for a buoyant tax base”. SA’s Debt, is it Too Onerous? There is a general prevailing narrative that South Africa’s debt ratio to GDP is too high. It currently stands at 70.1% (IMF, 2022), which, by international standards and the average of South Africa’s debt level, is not onerous. The other plus in the case of South Africa, is that most of our debt is rand-denominated (local currency); about 90%, “shielding government from some volatility in debt costs due to fluctuations in the exchange rate” (Treasury, 2020). The world average is 97% – advanced economies, 120%; emerging markets, 66%; upper income, higher than 66%; Asia, 73%; and Latin America, 72% (IMF, 2022). Japan is a staggering 256% and has suffered from deflation for more than a decade. The interest rate on our debt is high, at 8-9%. By comparison, developing countries’ average debt cost on external borrowing is three times higher than that of developed countries. In the low interest environment of the last decade, developed countries borrowed at an interest cost of an average of 1% (Spiegel & Schwank, 2022). The problem is that there is no belief from financial entities that government will stick to its promises to lower the debt through fiscal consolidation, higher taxes or efficiencies in spending. Treasury has committed itself to a budget surplus by the 2023/2024 budget – which is odd, given the current depressed global economic environment. This move is intended to send a signal to the “market” and financial institutions that Treasury is committed to a “fiscal consolidation path” and to instil confidence. On the expenditure front, we should be mindful that spending should be in areas that will spur economic growth and not go into consumer spending, especially on luxury goods. Consumption is already high as a share of GDP in South Africa. It means that households are consuming more than their income, as statistics clearly show, signifying high levels of debt. Indeed, debt levels are very high in South Africa – too high for too many. Private consumption as a substitute for government spending to invoke higher levels of growth will not add substantially to the economy. In fact, it is likely to make the economy less productive in the future, not more productive (Baker, 2012). Dean Baker notes that “high levels of private consumption are associated with a negative savings rate”. The savings rate (not in a mechanistic manner) is important for the domestic investment rate. The Covid-19 crisis has showed that many more things are possible with commitment. Conclusion South Africa’s economy has not been robust for some time, with debt on an upward trajectory, dampening growth prospects. Our debt is not onerous by international standards, and it is overwhelmingly rand-denominated. At the same time, social ills are in abundance in our society, and some fiscal easing is necessary to tackle the cost-of-living crisis with its accompanying high prices of goods, especially food and energy. Our growth rate is low and that must urgently improve. Economic policies and choices need to be firm and consistent to ensure that there is confidence in them. The appropriate policy mixes, contextual to our situation, should be implemented so that our economic turnaround can occur in the short term and be sustainable. This paper argues for less severe budget cuts within a more gradual, realistic, less procyclical framework and a more longer-term fiscal recalibration path – as endorsed by the President’s own economic advisory council – than the current Treasury one, which is too ambitious in its outlook. Given the current dismal global economic scenario (likely to continue into the medium term), Treasury’s fiscal consolidation plan is not regarded as economically and politically attainable in a low-growth, high interest rate, higher inflation environment. A more realistic fiscal approach should then result in a more gradual rise in the primary surplus in the years ahead, rather than a short, sharp shock approach, which will dump the economy into a recession, with all its negative attributes. There are enough areas to cut in government spending with the amount of waste and inefficiencies prevalent. These views should be articulated in the Medium-Term Budget Policy Statement (MTBPS) on 26 October, as a much-improved main budget deficit for the 2022/2023 fiscal year is forecast, compared with the national budget projections in February. The tax take shot past the February budget outlook by R162 billion, narrowing the main budget deficit to R42.7 billion in August, from R129.5 billion in July Zwane, 2022). Fiscal consolidation has “costs” attached to it, like a reduction in government personnel, less funds for services and infrastructure maintenance. “Rigidly sticking to fiscal orthodoxies in a crisis is not always wise, as much as it needs to be balanced with boldness” (Financial Times, 2022). We have seen how Europe has put price caps on energy prices and introduced windfall taxes for the oil companies, given the astronomical profits generated over the last period due to its high prices. Shell’s profits more than doubled for the third quarter of 2022, to a whopping USD9.5 billion, compared to 2021 alone. Shell’s chief executive Ben van Beurden, for example, urged governments to tax energy companies via a windfall tax to ‘protect the poorest’ in society (Euronews). Stiglitz (2022) states that windfall profit taxes are necessary in “controlling key prices – such as those for electricity and food – and encouraging government interventions where necessary”. The mining industry in South Africa has generated 85% of the windfall profits generated over the last year. However, and crucially important, this expanded fiscal space generated by less severe budget cuts, combined with the windfall profits, should be spent on economic infrastructure development and job-enhancing projects and programmes and not on consumption. Economic infrastructure development will undoubtedly lead to higher economic growth and a bigger market, with an accompanying increase in tax revenues and more social and political stability; a win-win situation in South Africa. Wasteful expenditure and unnecessary perks should be ruthlessly erased from budgets; SOEs should be radically restructured and better governed, underpinned by the necessary structural reforms of our economy. It was noted by the PEAC that the market has both the appetite and capacity to invest in infrastructure programmes. More importantly, the private sector is prepared to do this without government even committing the initial kick-start funding; this is a big plus. There has been positive development in the energy sector with the opening up of the various bid windows of the renewable energy independent power producer’s procurement programme (REIPPPP) and with other components of the national energy programme. The twin reforms of austerity related to consumption spending and debt expansion to accommodate economic infrastructure development will enable both growth and future tax revenue enlargement capable of servicing the newly acquired debt. In the immortal words of Joan Robinson, “when it is forbidden to admit error there can be no progress”. We must disabuse ourselves of the notion that incantations will deliver the magical silver bullet; that is the height of idealism. The economy needs lubrication, as well as dealing with the debt that has grown exponentially. In an ideal world, we should be implementing Keynes famous dictum that the “boom, not the slump, is the right time for austerity at the Treasury”; it remains as true now as then. Unfortunately, the world is imperfect. Forging an agenda of shared objectives between the government, labour, business and civil society will be critical in advancing a growth and development agenda for the country. The structural deficiencies in the South African economy have to be addressed simultaneously. Our low growth rate of the last period, likely to be less than 2% for 2022 (Treasury, 2020; IMF, 2022), should be urgently boosted. The budget and its implications require a thorough discussion of the appropriate policy options for the country’s future. Spend on economic infrastructure development Source: Treasury projection: http://www.treasury.gov.za/documents/national%20budget/2021/review/FullBR.pdf (grey line); illustrative alternative debt model : Inclusive Society Institute (red line) Annotation Austerity or “fiscal consolidation” can be defined as “a form of voluntary deflation in which the economy adjusts through the reduction of wages, prices and public spending to restore competitiveness, which is (supposedly) best achieved by cutting the state’s budget, debts and deficits”, which will “inspire ‘business confidence’”. Blyth considers it very dangerous, because it was the failed “classical” response to the Great Depression, 180 degrees in opposition to the Keynesian prescriptions, and also exactly what Germany has been prescribing today for Greece, with predictably disastrous results (Blyth, 2013). Barry Ritholtz describes austerity as “the desire to slash government spending and cut deficits during a time of economic weakness or recession”. Prof Alberto Alesina, a Harvard economist, was positive about the effects of austerity of fiscal consolidation. His perspectives were based on a study of large fiscal policy changes in advanced countries between 1970 and 2007. Alesina claimed to find evidence that spending cuts, in particular, were often “associated with economic expansions rather than recessions”. The reason advanced is that spending cuts create confidence (business), and that the positive effects of this increase in confidence trump the direct negative effects of reduced spending and exclude the possibility of any revived inflationary pressures. Classical economics refers to the English school of economic thought that originated during the late 18th century with Scottish economist, Adam Smith, and that reached maturity in the works of David Ricardo and John Stuart Mill. The theories of the classical school, which dominated economic thinking in Great Britain until about 1870, focused on economic growth and economic freedom, stressing laissez-faire ideas and free competition. Many of the fundamental concepts and principles of classical economics were set forth in Smith’s An Inquiry into the Nature and Causes of the Wealth of Nations (1776) (Encyclopaedia Britannica, 2022). Most consider Smith the progenitor of classical economic theory. However, Spanish scholastics and French physiocrats made earlier contributions. Other notable contributors to classical economics include David Ricardo, Thomas Malthus, Karl Marx, Anne Robert Jacques Turgot, John Stuart Mill, Jean-Baptiste Say, and Eugen Böhm von Bawerk (Young, 2022). The Classical economists believed in free market efficiency, given a series of assumptions known as the First Welfare Theorem. The conditions of this theorem are that there is perfect information in the market, zero transaction costs, a large number of buyers and sellers, no externalities, and all transactions are voluntary. According to the classical school of thought, free markets functioned better than regulated markets as long as the conditions of the First Welfare Theorem held. (Econ488.blogs) Deflation is when the overall price level decreases so that the inflation rate becomes negative. It is the opposite of the often-encountered inflation. A reduction in money supply or credit availability is the reason for deflation, in most cases. Reduced investment spending by government or individuals may also lead to this situation. Deflation leads to a problem of increased unemployment due to slack in demand. Central banks aim to keep the overall price level stable by avoiding situations of severe deflation/inflation. They may infuse a higher money supply into the economy to counterbalance the deflationary impact. In most cases, a depression occurs when the supply of goods is more than that of money (The Economic Times). Hysteresis is from the Greek term “hysteros”, meaning "a coming short, a deficiency”. The term “hysteresis”, coined by Sir James Alfred Ewing, a Scottish physicist and engineer (1855-1935), refers to systems, organisms and fields that have memory. In other words, the consequences of an input are experienced with a certain lag time, or delay. In economics, hysteresis arises when a single disturbance affects the course of the economy. An example of hysteresis in economics is the delayed effects of unemployment. As unemployment increases, more people adjust to a lower standard of living. As they become accustomed to the lower standard of living, people may not be as determined to achieve the previously desired higher living standard. In addition, as more people become unemployed, it becomes more socially acceptable to be or remain unemployed. After the labour market returns to normal, some unemployed people may be disinterested in returning to the work force (Kenton, 2021). New Consensus Macroeconomics (NCM) draws heavily on the so-called new Keynesian economics in its macro-modelling and replaced it after the collapse of the Grand Neoclassical Synthesis in the 1970s. The New Keynesian paradigm, which arose in the 1980s, provided sound microfoundations along with the concurrent development of the real business cycle approach, which promoted the explicit optimisation behaviour aspect. Those developments, along with macroeconomic features that the previous paradigm lacked (such as the long-run vertical Phillips curve), resulted in the NCM. The Taylor Rule became the most common way to model monetary policy. Monetary policy as interest rate policy became one of the hallmarks of the New Consensus (prof Philip Arestis). Stagflation is an economic cycle characterised by slow growth and a high unemployment rate accompanied by inflation. Economic policymakers find this combination particularly difficult to handle, as attempting to correct one of the factors can exacerbate the other. Once thought by economists to be impossible, stagflation has occurred repeatedly in the developed world since the 1970s oil crisis (Investopedia, 2022). Stimulus refers to action by the government to encourage private sector economic activity by engaging in targeted, expansionary monetary or fiscal policy based on the ideas of Keynesian economics. The term economic stimulus is based on an analogy of the biological process of stimulus and response, with the intention of using government policy as a stimulus to elicit a response from the private sector economy. Economic stimulus is commonly employed during times of recession. Policy tools often used to implement economic stimulus include lowering interest rates, increasing government spending, and quantitative easing, to name a few (Investopedia, 2021). References Andor, L. 2018. Austerity: From Outrage to Progressive Alternatives [Online] Available at: https://socialeurope.eu/austerity-outrage-progressive-alternatives [accessed: 27 October 2022]. Baker, D. 2012. Attacking the Treasury View, Again [Online] Available at: https://cepr.net/report/attacking-the-treasury-view-again/ [accessed: 27 October 2022]. Blanchard, O. 2009. The State of Macro [Online] Available at: https://www.nber.org/papers/w14259 [accessed: 27 October 2022]. Blyth, M. 2013. Austerity: The History of a Dangerous Idea. New York: Oxford University Press. Burger, P. 2020. South Africa’s debt: Has the budget overpromised? [Online] Available at: https://www.cde.org.za/wp-content/uploads/2020/08/CDE-Viewpoints_SAs-Debt_Burger.pdf [accessed: 27 October 2022]. Clift, B. 2018. The IMF’s Reconstruction of Economic Orthodoxy since the Crash [Online] Available at: https://economicsociology.org/2018/06/29/the-imfs-reconstruction-of-economic-orthodoxy-since-the-crash/ [accessed: 27 October 2022]. Encyclopaedia Britannica. 2022. Classical economics [Online] Available at: https://www.britannica.com/topic/classical-economics [accessed: 27 October 2022]. Financial and Fiscal Commission (FFC). 2021. Supplementary Comment on Budget 2021 and the Bill of Rights [Online] Available at: https://cisp.cachefly.net/assets/articles/attachments/84822_ffc_supplementary_comment_on_2021_budget.pdf [accessed: 27 October 2022]. Financial Times. 2022. The big British economic gamble[Online] Available at: https://www.ft.com/content/70d8d42d-d6ad-4fa1-bb59-a8106c7c309b [accessed: 27 October 2022]. GovInfo. 2013. Economic Report of the President (2013) [Online] Available at: https://www.govinfo.gov/app/details/ERP-2013/summary [accessed: 27 October 2022]. Herndon, T., Ash, M. & Pollin, R. 2013. Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff, Cambridge Journal of Economics, 38:257-279. International Monetary Fund (IMF). 2022. IMF Fiscal Monitor. [Online] Available at: https://www.imf.org/external/datamapper/GGXWDN_G01_GDP_PT@FM/ADVEC/FM_EMG/FM_LIDC [accessed: 27 October 2022]. Investopedia. 2021. What Is Economic Stimulus? [Online] Available at: https://www.investopedia.com/terms/e/economic-stimulus.asp [accessed: 27 October 2022]. Investopedia. 2022. What Is Stagflation, What Causes It, and Why Is It Bad? [Online] Available at: https://www.investopedia.com/terms/s/stagflation.asp#:~:text=and%20rising%20prices.-,Once%20thought%20by%20economists%20to%20be%20impossible%2C%20stagflation%20has%20occurred,makes%20stagflation%20hard%20to%20fight. [accessed: 27 October 2022]. Jardine, R. 2021. FirstRand 2022 Annual Integrated Report [Online] Available at: https://www.firstrand.co.za/media/investors/annual-reporting/firstrand-annual-integrated-report-2021.pdf [accessed: 27 October 2022]. Kenton, W. 2021. What Is Hysteresis? [Online] Available at: https://www.investopedia.com/terms/h/hysteresis.asp [accessed: 27 October 2022]. Krugman, P. 2015. The austerity delusion [Online] Available at: https://www.theguardian.com/business/ng-interactive/2015/apr/29/the-austerity-delusion [accessed: 27 October 2022]. National Planning Commission (NPC). 2020. Economic Progress Towards the National Development Plan’s Vision 2030 [Online] Available at: https://www.nationalplanningcommission.org.za/assets/Documents/Review%20of%20Economic%20Progress%20NPC%20Dec%202020.pdf [accessed: 27 October 2022]. National Treasury (Treasury). 2020. Budget Review 2020 [Online] Available at: http://www.treasury.gov.za/documents/national%20budget/2020/review/fullbr.pdf [accessed: 27 October 2022]. Peden, G. 1996. The Treasury View in the interwar Period: An Example of Political Economy? [Online] Available at: https://www.researchgate.net/publication/324113673_The_Treasury_View_in_the_interwar_Period_An_Example_of_Political_Economy [accessed: 27 October 2022]. Presidential Economic Advisory Council (PEAC). 2020. Briefing Notes on Key Policy Questions for SA’s Economic Recovery [Online] Available at: https://www.scribd.com/document/479901686/Briefing-notes-on-key-political-questions-for-SA-s-economic-recovery [accessed: 27 October 2022]. Presidential Economic Advisory Council (PEAC). 2021. Briefing Note for President Ramaphosa on Current Economic Policy Priorities [Online] Available at: https://www.thepresidency.gov.za/sites/default/files/Briefing%20Note%20for%20President%20Ramaphosa%20on%20Current%20Economic%20Policy%20Priorities%20Jan%202021_1.pdf [accessed: 27 October 2022]. Rauchway, E. 2015. The Money Makers: How Roosevelt and Keynes Ended the Depression, Defeated Fascism, and Secured a Prosperous Peace. New York: Basic Books. Reinhart, C. & Rogoff, K. 2010. Growth in a Time of Debt [Online] Available at: https://www.nber.org/system/files/working_papers/w15639/w15639.pdf [accessed: 27 October 2022]. Reisman, D. 1998. Adam Smith on Market and State, Journal of Institutional and Theoretical Economics, 154(2): 357-357. Sachs, M. 2021. Fiscal Dimensions of South Africa’s Crisis [Online] Available at: https://www.wits.ac.za/media/wits-university/faculties-and-schools/commerce-law-and-management/research-entities/scis/documents/Sachs-2021-Fiscal%20dimensions%20Working%20Paper%2015.pdf [accessed: 27 October 2022]. Sen, A. 2015. The Economic Consequences of Austerity[Online] Available at: https://www.newstatesman.com/long-reads/2015/06/amartya-sen-economic-consequences-austerity [accessed: 27 October 2022]. Sibeko, B. 2019. The Cost of Austerity: Lessons for South Africa [Online] Available at: https://iej.org.za/wp-content/uploads/2020/02/The-cost-austerity-lessons-for-South-Africa-IEJ-30-10-2019.pdf [accessed: 27 October 2022]. Skidelsky, R. 2003. John Maynard Keynes: 1883-1946: Economist, Philosopher, Statesman. Great Britain: Penguin. Skidelsky, R. 2010. Keynes and Social Democracy Today [Online] Available at: https://www.project-syndicate.org/commentary/keynes-and-social-democracy-today?barrier=accesspaylog [accessed: 27 October 2022]. Skidelsky, R. 2015. The Failure of Austerity [Online] Available at: http://speri.dept.shef.ac.uk/wp-content/uploads/2018/11/SPERIPaper23-the-failure-of-austerity.pdf [accessed: 27 October 2022]. Skidelsky, R. 2020. Keynes: The Second Coming? PANOECONOMICUS, 68(2):159-165. South African Reserve Bank, 6 October 2022 press statement. South Africa is Doing Well. Spiegel, S. & Schwank, O. 2022. Bridging the ‘great finance divide’ in developing countries [Online] Available at: https://www.brookings.edu/blog/future-development/2022/06/08/bridging-the-great-finance-divide-in-developing-countries/ [accessed: 27 October 2022]. Statistics South Africa (Stats SA). 2018. Overcoming Poverty and Inequality in South Africa [Online] Available at: https://www.statssa.gov.za/wp-content/themes/umkhanyakude/documents/South_Africa_Poverty_and_Inequality_Assessment_Report_2018.pdf [accessed: 27 October 2022]. Stiglitz, J. 2014. Europe’s Austerity Disaster [Online] Available at: https://socialeurope.eu/europes-austerity-disaster [accessed: 27 October 2022]. Stiglitz, J. 2017. The Welfare State in the 21st Century [Online] Available at: https://policydialogue.org/files/publications/The_Welfare_State_in_the_Twenty-First_Century.pdf [Accessed: 27 October 2022]. Widmaier, W. 2013. Deficit hysteria debunked: in the long run, Keynes was right [Online] Available at: https://theconversation.com/deficit-hysteria-debunked-in-the-long-run-keynes-was-right-14465 [accessed: 27 October 2022]. Young, J. 2022. Classical Economics [Online] Available at: https://www.investopedia.com/terms/c/classicaleconomics.asp [accessed: 27 October 2022]. Zwane, T. 2022. [Online] SA doing well, as Reserve Bank hails fiscal position. Available at: https://www.businesslive.co.za/bd/economy/2022-10-04-sa-doing-well-says-reserve-bank-as-it-hails-fiscal-position/ [accessed: 27 October 2022]. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - This report has been published by the Inclusive Society Institute The Inclusive Society Institute (ISI) is an autonomous and independent institution that functions independently from any other entity. It is founded for the purpose of supporting and further deepening multi-party democracy. The ISI’s work is motivated by its desire to achieve non-racialism, non-sexism, social justice and cohesion, economic development and equality in South Africa, through a value system that embodies the social and national democratic principles associated with a developmental state. It recognises that a well-functioning democracy requires well-functioning political formations that are suitably equipped and capacitated. It further acknowledges that South Africa is inextricably linked to the ever transforming and interdependent global world, which necessitates international and multilateral cooperation. As such, the ISI also seeks to achieve its ideals at a global level through cooperation with like-minded parties and organs of civil society who share its basic values. In South Africa, ISI’s ideological positioning is aligned with that of the current ruling party and others in broader society with similar ideals. Email: info@inclusivesociety.org.za Phone: +27 (0) 21 201 1589 Web: www.inclusivesociety.org.za

30 November 2022 - 2 December 2022, Wellington The Inclusive Society Institute (ISI) attended the 2022 Conference and Workshop: Centre for Good Governance in Africa, the School of Social Innovation at Hugenote - Co-created Community-based Partnership Local Governance and Service Delivery in South Africa Analysis, Action and Activism. It was held at the Andrew Murray Centre for Spirituality, Wellington South Africa. The workshop took place from 30 November to the 2 December 2023. The workshop was hosted by CiviNovus NPC. The ISI was represented by Dr Motsomai Molefe, Dr Klaus Kotze, Mr Edwin McQueen and Mrs Berenice Marks. Drs Molefe and Kotze presented their papers, Ubuntu and the role of local government, and Realising the constitutional goals: a transformed and people driven state respectively at the conference. The workshop was well attended by political parties, civil society, academia, and well know South African dignitaries. The theme was Community based local governance, analysis, action and activism.

Copyright © 2022 Inclusive Society Institute PO Box 12609 Mill Street Cape Town, 8000 South Africa 235-515 NPO All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without the permission in writing from the Inclusive Society Institute D I S C L A I M E R Views expressed in this report do not necessarily represent the views of the Inclusive Society Institute or its Board or Council members. Author: Melanie Lue Editor: Daryl Swanepoel SEPTEMBER 2022 Content Background Introduction Panel Discussion What drives xenophobia in South Africa? What research tells us? A statistical overview of migration in South Africa – Implications for migration management and addressing xenophobia Reframing interventions: Towards a plan beyond the National Action Plan on Racism and Xenophobia Does immigration policy and laws fuel xenophobia? Aligning policy and legislation to ensure consistency in action Discussion Way Forward Annexure A: Dr Steven Gordon’s full presentation Annexure B: Mr Diego Iturralde’s full presentation Annexure C: Prof Loren Landau’s full presentation References Cover page picture source: istockphoto.com | FourOaks Background On the 17 August 2022 the Inclusive Society Institute (Institute) hosted a roundtable discussion titled ‘Developing an Effective Response to Addressing Xenophobia in South Africa’. The roundtable is the first engagement in a two-part series of discussions. The second engagement is planned at a strategic level with senior government stakeholders and policy makers. The motivation for the roundtable stems from concerns of growing levels of intolerance to migrants and the increasing number of xenophobic attacks. This coupled with anomalies in government’s response to issues of migration have called into question South Africa’s commitment to domestic, regional, and international trade and human rights commitments. Recognising xenophobia threatens the foundation of South Africa’s constitutional values of equality and human dignity; and poses a real threat to the country’s developmental agenda; the Institute decided to host the roundtable to bring together experts and civil society stakeholders to investigate challenges and opportunities to effectively respond to xenophobia in South Africa. The following issues were discussed: What drives xenophobia in South Africa? - What the research tells us? A Statistical overview of migration in South Africa - Implications for migration management and addressing xenophobia. Reframing interventions: Towards a plan beyond the National Action Plan on Racism and Xenophobia. Does immigration policy and laws fuel xenophobia? Addressing the lack of consistency in government responses to dealing with xenophobia? How to align policy and legislation to ensure consistency in action. The roundtable took place in person in Cape Town at the Inclusive Society Institute’s offices and via online streaming. Introduction The discussion is timely given increasing xenophobic outbreaks, and growing lack of trust by South Africans according to recent polls. Invitations were extended to relevant government departments. Panel Discussion What drives xenophobia in South Africa? What research tells us? Dr Steven Gordon of the Human Sciences Research Council presented key findings from the last decade of public opinion research focusing on the drivers/factors informing xenophobia and discussed the implications of this research. Xenophobia is defined in the National Action Plan to Combat Racism, Racial Discrimination, xenophobia and Related Intolerance (NAP) as an attitudinal orientation/ hostility towards international migrants. Xenophobia manifests in different ways - the most visible being violence; and further that it disproportionately affects the poor and the working class impacting those who specifically work in the informal economy and live in the townships. The growing level of populism and exploitation of the immigration issue by politicians and community leaders, and the impact of the coronavirus epidemic which has negatively affected millions and resulted in the largest economic recession in over a century, have fuelled tensions. Key findings from research conducted examining public opinion since 2003 included: It is wrong to classify South Africa as a purely xenophobic society. Only a third of the adult population harbour extremely negative views of international migrants. Posing the question - Would you welcome to South Africa all immigrants, some immigrants or no immigrants? – Results from surveys fluctuated. Researchers examining these spikes found these could be contributed to specific events e.g., a spike in pro-immigrant sentiment in 2008 could be attributed to post rioting media and community pushing back against xenophobic attitudes. Spikes in 2015 coincided with anti-xenophobia media campaigns following widespread violence in eThekwini and Johannesburg in the beginning of that year. Addressing why people have negative views of international migrants, researchers found that 60 percent in a given survey round believed that international migrants were responsible for socio-economic problems. A small minority, saw international migrant’s economic and social contribution positively There is a deep misunderstanding about the actual number of people who are foreign born living in South Africa. Half the adult population think there are between 17- 40 million international migrants in the country. There are in fact only around 4 million of which it is estimated that only half are illegal migrants and the remained legal. This misconception is driven by scapegoating rumours. A key question therefore is where do people get their information about international migrants? Primary sources included the broadcast media, television and most importantly radio. Over the last few years social media has become more important as a source of information. It is therefore important to understand how the broadcast media is reporting on international migration and the extent to which it is challenging myths and stereotypes. The general population is divided on the issue of refugees. A substantial proportion of the population do reject refugees living and working in South African at all. Participation in anti-immigrant violence is increasing. The survey asked people if they have partaken in violence against immigrants. In 2015, only about five to six percent of the adult population were willing to indicate that they had taken part in this type of violence; 13 percent indicated that they had not taken part but might do so; 80 percent said that they had not done it and would never do it. However, over the years a greater share of the adult population has shown a willingness to admit to engaging in xenophobic violence. The reasons advanced for participation in this form of violence included blaming migrants for violence. These were driven by ignorance, misinformation and emotional factors with jealousy being the most important emotional factor listed. Myths about the impact of international migrants on society further perpetuates explanations for anti-immigrant violence. A substantial share of the population called for the expulsion of immigrants when asked what can be done to stop violence against foreigners living in the country. Other solutions put forward focussed on social factors, education, community dialogue, changing the way people viewed the world. Recommendations noted included: The need to address this attitudinal problem through effective communication and education campaigns. A large segment of the population, about a third, have extremely strong and negative views of international migrants fuelled by false stereotypes. There is a need for special communication strategies to shift opinions and attitudes. The importance of encouraging greater integration of international migrants into communities which will help dispel some of the negative and false stereotypes about foreign nationals. That government should consider comprehensive immigrant integration strategies which would help immigrants integrate into local communities. Clearing the backlog and reducing some of the obstacles that refugees and asylum seekers have in accessing documentation – which is a main blockage to successful integration. Challenges noted included: The restrictionism and oppositional view to international migrants by the Department of Home Affairs. The growing politics of anti-migrant sentiment. Dr Steven Gordon’s full presentation is attached as Annexure A A Statistical overview of migration in South Africa - Implications for migration management and addressing xenophobia Mr Diego Iturralde from the Demography and Population Statistics at Statistics South Africa presented empirical research data debunking myths which have fuelled xenophobic sentiment. The size of the foreign-born population: In the three preceding population censuses there has been a gradual progression from 1996 to 2001 from about 830,000 to just over 1 million immigrants; the 2001 to 2011 censuses showed a significant increase to 2.18, indicating 2.2 million foreign born persons in South Africa. This represents 4.2 percent of the population. The data therefore debunks the common perception that there is a large number of foreign nationals in the country as claimed recently by the Minister of Home Affairs, Minister Motsoaledi, who stated there are 13 million irregular migrants in South Africa. Mid-year populations estimate for 2022 indicated that 3.98 million persons are foreign born. This is supported by other indicators such as spikes in deaths or births, consumption of services or size of vat. This dispels the myth that there are millions and millions of undocumented migrants in South Africa. The term ‘foreign’ includes not only migrants but people who have moved to South Africa and have become South Africans over time; people with work permits and study permits; documented migrants; unaccompanied minors; and asylum seekers or refugees. In terms of where foreign nationals come from the top countries on the continent were Zimbabwe, Mozambique, Lesotho and Malawi. One of the biggest contributors to anti-immigrant sentiment comes from misinformation and the irresponsible diffusion of information by people in positions of leadership. This is accompanied by the failure to make use of official statistics for decision making, planning and policy development. Challenges with undercounting of the migrant population would be similar to that of the non-migrant population. Furthermore, it would not be on the scale as proposed by certain groups. The 2022 survey seeks to address the issue of undercounting through the Post Enumeration Survey. Furthermore, other data is considered i.e., population estimates which use a demographic model considering birth, deaths and net international migration. Allegations that that migrants are ‘stealing jobs’ are inaccurate: Migrants have a long-standing employment record in South Africa and have been found to contribute to the economy as indicated in the World Bank study which found that for every employed migrant he/ she creates jobs for two South Africans. On the question that migrants are stealing jobs in specific sectors of the economy. Research indicates that migrants work primarily in the informal sector. Using the ILO decent work framework - immigrants scored worst in eight of the 11 categories. The work migrants do is in fact primarily in the informal sector and is mostly considered as not decent work. The informal sector is dominated by males, people aged 15 to 44 and it occurs, mostly, in non-metros. This debunks another perception that informality is most prevalent in metros but in fact is highest in the Eastern Cape at 66.3 percent; Free State at 71.8, KZN at 65.5 and even Mpumalanga and Limpopo at 62.7 and 64 percent respectively. The proportion of persons involved in the informal sector increased from 11.6 to 12.3 percent from 2012 to 2017; the census indicated there that it’s at 13.05 percent; in restaurants, bars and canteens and shebeens this increased from 8.5 to 10.6 percent – which is less than claims of 40, 50, 60 percent. Given the very small increment over time it is unlikely to change dramatically in 2022. Therefore, claims that certain sectors are overwhelmed by foreign nationals cannot be supported. It would be improper, and there’s no evidence to suggest that all social ills are due to the existence of migrants. South Africa is a signatory to the Global Compact for migration and the Global Compact on refugees. Both are best practice guides on migration and refugee management for state parties. These two documents provide South Africa with a guideline on how it should approach migration and refugee management in South Africa. The establishment of the National Migration and Urbanisation Forum in August of 2021 is an important initiative to assist policy makers. This forum meets every three months with the intention of elevating discussions around migration and urbanisation with the view to inform policy. One of the outputs is to produce a migration profile report which is a government owned resource with migration data, which countries around the world are producing. A national migration data hub be housed at Statistics South Africa. Post-Covid, South Africa is on the road to recovery which should be inclusive of migrants and using all the resources and the contributions that migrants bring to the table. Responding to questions it was noted that: Administrative data is unfortunately unreliable. The Department of Home Affairs was only able to account for about 2 million of the 3.6 million foreign born persons. The Department of Home Affairs is only able to account for people who enter the country and who approach the department. What some countries do in order to plan for services, is to encourage migrants to register on a database which is firewalled from the security cluster, so that their identity and their whereabouts can be protected. The biggest challenge therefore is to get government departments to produce administrative statistics and to disaggregate these by migrant status and, secondly, to share it with Statistics SA. An example of misinformation is the claim a few years ago that there were about 1 million undocumented learners in public schools - however about 900,000 of these learners were actually South Africans who, for a variety of reasons, did not have an ID book. The citizen survey conducted by HSRC found that about four percent of the adult public claimed not to have a 13 digit ID document. This could indicate as a rough estimate the proportion of the adult population, who did not have ID documentation. Xenophobic attitudes not only hurt the foreigners in South Africa. Many investors are choosing to go and invest elsewhere in the region affecting South Africa’s GDP, inflation and other economic indicators. South Africa has signed the Pan-African Free Trade Agreement and plays a big role in the African Union. Xenophobia and this increasing animosity towards international migrants are hurting South Africa’s standing on the continent and preventing plans for regional integration which has economic and social benefits for South Africa. Mr Diego Iturralde’s full presentation is attached as Annexure B Reframing interventions: Towards a plan beyond the National Action Plan on Racism and Xenophobia Prof Loren Landau of the African Centre for Migration & Society, University of Witwatersrand presentation drew from work done on the Xenowatch project which has been tracking data on xenophobia, and other work with migrant rights groups. Addressing attitudes and tackling the issue of scapegoating / xenophobic mobilisation is necessary but there we need to reframe interventions about how we think about security and accountable governance. Anti-immigrant attitudes are ‘pretty strong’ among the population at large and particularly among the poorer population. To this point, a 2021 IPSOS survey commissioned by the Inclusive Society Institute (ISI, 2022) found that only 31,23 percent of South Africans said that they trusted or somewhat trusted immigrants from Africa. Similarly, only 32,29 percent said that they trusted or somewhat trusted immigrants from outside of Africa. But that xenophobic violence doesn’t take place everywhere but in specific areas. So, while it’s useful to do public education and try to change and reframe attitudes - this not the proximate cause of the violence. If we want to change South African attitudes across the board, this is a multi-generational long-term project. But if we look at the people getting involved in xenophobic violence or mobilisation it is not about information or people not knowing about the rights of immigrants. The most important factor in the outbreak of xenophobic violence is that it occurs where there is contested authority. Examples cited included: In 2008, it occurred during the breakdown of the ANC and its structures at the local level as they became fragmented over debates over Mbeki’s response to HIV and, then Zuma’s rise in power. People tried to take advantage of a weaker fragmented system and establish themselves as political authorities in specific areas - ‘township governance’. Another example is in Robertson and the conflicts between labour brokers which are not being regulated by the police, party structures, the church, religious institutions or NGOs. Where there are stable institutions that can do conflict resolution and where the police respond quickly – xenophobic attacks don’t happen. The attitudes might remain, the ignorance, the dislike of immigrants but what we are not seeing is that overt violence. The need to reframe interventions by: Placing this issue on the agenda - to go beyond this outrage of xenophobia and think about how do we address people like the Dudula’s? Addressing the question - how do we address the community-based organisations that are leading the xenophobic violence? These groups do use a human rights language – promising to deliver to poor South Africans human rights, welfare, security – ironically they are fighting for social justice. We need to recognise that their claims, not the accusations against immigrants. Their concerns are about justice being denied, increasing inequality, inflation, violence and economic insecurity. Understanding that immigration is not really the issue that we should be debating here because that’s not what is underlying the continued inequalities and injustices that South Africans are facing. We need to address the issue of xenophobia and xenophobic violence and re-centre this discussion. We need to move the discussion away from migrant rights and what should be done for migrants because South Africans are not interested in having that discussion. The more we focus on this the more we fuel the Dudula’s and the other organisations whose interests is that South Africans should come first. In conclusion, it was noted that it is necessary to reframe this discussion about what is good for South Africa and South Africans (regional trade is important), but we need to be talking about what is going to make South Africans safer and townships (the places where the violence is happening) more governable, more sustainable and more secure. The question is not about immigration at all but, gangster government - the way vigilantes have taken over the law. Myth busting must continue by not allowing certain types of accusations to go unchallenged, but we need to reframe these discussions about what is important to the South Africans who are getting involved in these organisations. To try to hear their pain and to try to address those issues and reframe them in ways that people can redirect their attention to the source of their challenges - which is the failure of government to provide security, jobs, development and to give people hope for a better life. Prof Landau’s full presentation is attached at Annexure C Does immigration policy and laws fuel xenophobia? Unless we work assiduously so that all of God's children, our brothers and sisters, members of our one human family, all will enjoy basic human rights, the right to a fulfilled life, the right of movement, of work, the freedom to be fully human, with a humanity measured by nothing less than the humanity of Jesus Christ Himself, then we are on the road inexorably to self-destruction, we are not far from global suicide; and yet it could be so different. (Archbishop Desmond Tutu) Ms Sharon Ekambaram of Lawyers for Human Rights, Refugee & Migrant Rights Programme addressed the issue of government’s response to xenophobia. There is a need to refocus the discussion on xenophobia in the context of inequality, the slow pace of transformation, and the crisis in democracy and governance. Issues identified included: The endemic nature of corruption and its impact on governance (including the Department of Home Affairs). The need to acknowledge the impact of the geopolitics of Apartheid. The current way in which South Africa is managing the movement of people of African descent is reminiscent of apartheid pass laws. The need to rethink how we are managing migration - the criminalisation of migration has actually fuelled and given legitimacy to Operation Dudula and its vigilantism. The impact of populism on policy developments. Citing examples of the Refugee Bill, Gauteng Development Bill, Johannesburg Informal Traders Bill, and the ANC’s new policy document on migration which speaks about withdrawing from the 1951 Convention and presents migration as a threat to national security. The growing use of national security language when discussing migration. The language of national security speaks to the difficulty of determining appropriate balances between security and privacy (citing Prof Duncan). The police have strayed from their post-1994 mandate and become alienated from the community - this is evident in the role of the security system in society and indicates a movement to a climate of heightened repression. The non-existence of Chapter 9 institutions in ensuring accountability. The failure to acknowledge the impact of the climate crisis citing examples of floods in KZN and in Mozambique – and the impact of climate change on displacement of populations. The need for disaggregated data is crucial for a better understanding of the internal and international movement of people and central to evidenced based policy making. The growth of narrow national chauvinism which is resulting in the othering and hatred for anyone who is not South African, is of grave concern. Aligning policy and legislation to ensure consistency in action. Ms Franzman from the Department of Justice and Constitutional Development (DOJ)- the focal agency for the NAP, addressed the work being done on the National Action Plan The DOJ has been implementing a number of actions over the past few years since the Cabinet’s approval of NAP’s five year programme of action. The implementation of the NAP is closely aligned with the government’s medium strategic framework particularly under the Priority Six which is the Social Cohesion Programme led by the Department of Sport, Arts and Culture. The DOJ has commissioned a baseline study (conducted by the HSRC) to determine levels of racism, anti-foreigner sentiment, homophobia, racial incidents, interracial relations and perceptions of national identity. The service directory for victims of discrimination has been developed and is currently a soft copy. An integrated government strategy on public education in respect of anti-discrimination to support NAP has also been developed. The DOJ continues to roll out social mobilisation dialogues to address xenophobia working in partnership with government and other stakeholders. Funding remains an issue, especially for non-government role-players to implement. A funding model has been developed to address this. The DOJ is also part of the United Nations Protection Working Group which is a structure comprising of a number of stakeholders from government, civil society, United Nations agencies, and Chapter Nine institutions led by United Nations High Commission for Refugees. The DOJ is co-chairing a specific group dealing with incidents of xenophobic threats and violent attacks. Threats are referred to DevComm (part of the JCPS Cluster) but there is not as yet a fully operational rapid response mechanism. The setting up of the rapid response mechanism is underway with the United Nations Office on the High Commission for Human Rights. South Africa has reiterated its support for the Global Compact on migration at the International Migration and Refugee Forum (May 2022). The development of a framework for a virtual repository on data collection of disaggregated statistical data in support of the NAP is in progress. The coordinating structure for the National Action Plan was set up in March. The top level of the structure is headed by the Minister of Justice, and it comprises of eight departments including South African Police Service, Home Affairs, Cooperative Governance and Traditional Affairs and others. The next level structure, which is like an implementation structure is to be set up in this quarter. The implementation structure for National Action Plan is envisaged to be a multi-sectorial structure with a number of specific task teams with representation from civil society- some have been identified already to look at issues of research, data collection, public education et cetera. This structure will strengthen alignment across government. The inclusion of more stakeholders, such researchers and academics that come on board to support it, will assist in strengthening and guiding evidence-based interventions. The National Action Plan is close to the end of its first five year plan and needs to be revised. This is an opportunity to gather key government departments together in terms of their specific mandates and engage with research and data. The DOJ will be going back to Cabinet to brief Cabinet on the findings of the baseline study. This provides an opportunity to brief the ministerial structure of the National Action Plan the next time it is convened on findings and research. This could assist in intensifying and strengthening support for the National Action Plan. The DOJ continues work with civil society partners to support implementation for the NAP. Discussion The following additional inputs were made: Governance Challenges: The importance of recognising how fragile and vulnerable South Africa is from a governance perspective. Research conducted by HSRC has found a substantial decline in public trust in key institutions, the police, national government, parliament, and local government. The lowest level of national trust was reached in 2017 during the exit of Jacob Zuma with a brief improvement under Ramaphosa, but in the last two years there has been a further decline across many key institutions. Issues of immigration cannot be sealed off from the wider climate of a very fragile status quo. Limitations of the NAP The National Action Plan has always been constrained in what it can do and assigning the lead to Arts and Culture, for example, has shifted many of the interventions into this realm of attitudes, culture and understanding and away from issues of governance, criminal accountability, urban planning et cetera. that are really at the root of inequality. So, there’s a limit in what the National Action Plan can do in terms of addressing what is at the root of the anger, but also what is the proximate causes of the violence. Securing commitment to actions required buy-in from different departments is a challenge. The artificial compartmentalisation between departments, and the limited view of social cohesion which tend to be relegated to symbols and attitudes, is a challenge. A multi-faceted approach is required given the multiple factors contribute to xenophobia. Clear leadership is needed in the different sectors. Crisis in Policing APCOF explained the research they have been involved in which tried to understand the way in which South African Police Service (SAPS) is structurally enabled and functionally performing in terms of detection, prevention and responses to xenophobic violence and related hate crimes. Key findings of the research included: There are structural limitations both in terms of the legal framework but particularly the policy framework under which SAPS is operating as well as in terms of attitudinal issues. There’s no drilling down of the equality framework to the operational level where there are some discriminatory practices in terms of the policing of foreign nationals. APCOF found that this is manifesting as a dual phenomenon of over policing and under policing. Foreign nationals are being specifically targeted for policing and law enforcement and seen as soft targets. This is driven by attitudinal issues and corruption. There is a lack of training and preparedness at an operational station level. The police are not well trained and do not understand immigration, refugee laws and issues related thereto. The failure of early warning systems and the failure of crime intelligence were also noted. Lack of knowledge about immigration policies and the kind of struggles that migrants face in obtaining documents and asylum permits and implications of police action for example removing immigrants away documents. The absence of a policy by SAPS on issues around non-nationals, migration and xenophobia; systemic and endemic levels of corruption when it comes to migration and non-nationals; and the failure of SAPS to implement original recommendations of more than a decade ago to address xenophobia. There is a significant breakdown in trust in the police. Recent research by the Global Initiative Against Transnational Organised Crime which found extortion rackets prevalent in Khayelitsha and the extent to which the police were completely unaware. There is a serious crisis of the policing system including the roles that, for example, the Civilian Secretariat and IPID should be playing. Poor performance is evident for example in despite a 66 percent increase in the budget of the police since 2012 to 2020, their ability to solve murders dropped by 38 percent, assault and armed robberies dropped by 24 percent. Both those crime categories have gone up massively and there has been a huge growth of organised crime. So, the system is actually deteriorating and continues to deteriorate because the internal accountability mechanisms are dysfunctional - people don’t get held accountable for not doing what they’re doing. Whatever is on paper doesn’t exist in terms of the daily practices of policing on the streets of South Africa. We do not need more police officers - if we want to improve public safety, we have to re-orientate the entire organisation and what it does starting with its leadership cohort. This recommendation he noted goes as far back as the 2012 from the National Development Plan. There are 174 generals at the moment who are fighting with each other, some of them are involved with organised crime, some in corruption, some with deep roots and loyalties to the former president, and some are just waiting to retire. These factors are contributing to the decline and deterioration in all these systems - resourcing, planning strategies, accountability and incentives. South Africa has not had a permanent head of crime intelligence since the end of 2019. The top six people were removed, and more localised intelligence officials are not getting much direction from the top. SAPS, the single biggest law enforcement capability in the country needs urgent attention. There is work going on to fix the National Prosecuting Authority, the Hawks and Special Investigations Unit, but the single organisation that can play a role of providing some kind of security at a local level is deteriorating and continues to deteriorate and is now part of the threat to national security. The police are not underpaid in accordance with the public sector. In fact, they get paid more than other public servants on the same grades and they also get better benefits and so forth. So, the issue is not salaries. Bad cops don’t improve their behaviour because they get paid more. Policing approaches are not evidence based, are not evaluated but driven by political considerations to be seen to be doing something, to be visible to the community, to be seen to be responding to community concerns. What is needed is a complete re-orientation of the organisation itself and what it uses its resources for. The serious crisis within the police and law enforcement is crosscutting, it’s not just the xenophobia against foreign nationals, but gender-based violence, how protests are managed, and police heavy handedness, corruption and crime and extortion. Reasons for poor trust in the police are very inefficient and unable to provide a secure and safe environment and secondly, that the police are not fair and impartial in their provision of justice, often treating people in a brutal and exploitative manner. The issue of vigilantism and alarming findings that 43 percent of the adult population agrees it’s sometimes okay to take the law into your own hands and about 63 percent believe that communities should organise themselves to defend themselves against criminals, is disconcerting. Such support for vigilantism is not concentrated primarily amongst the poorer working class but is found across the socio-economic divide in South Africa. Holding government accountable? Concern was expressed at the failure of Chapter Nine Institutions to hold government accountable. The South African Human Rights Commission (SAHRC) indicated it continues to do advocacy work on countering xenophobia for example in in schools and communities, and has provided training to various institution and departments including the SAPS and Home Affairs. Furthermore, in line with its mandate it has conducted investigations into xenophobia and made recommendations. Way Forward Given the above contributions and discussion, the Inclusive Society Institute recommends government take the following steps: The DOJ ensure the National Action Plan Ministerial Structure and Cabinet is briefed on: Research findings and data The disjuncture in government responses, policy and compliance with international commitments (at national, provincial and municipal levels). The need to comply with best practice guides in terms of migration and refugee management (as signatory to the Global Compact for migration and the Global Compact on refugees). That Government commit to an evidence based policy development approach across all spheres of government and: Put in place measures to monitor compliance. Ensure research and data collected by structures such as the National Migration and Urbanisation Forum is effectively disseminated across government departments and spheres of government to inform policy making. That DOJ motivate for the urgent establishment of the implementation structure for the National Action Plan and: Strengthen participation of research institutions, academia and civils society in the implementation structure and subcommittee working groups. Urgently activate the Early Warning and Response Capacity and ensure this capacity adopt holistic approach (not being purely security centric) as noted above. That the DOJ urgently commence the review of the National Action Plan and ensure the review address the limitations including: The efficacy of Arts and Culture as lead department. Extension of the current focus of National Action Plan as cited above (including contested authority, issues of governance, town planning etc.). Adopting an evidenced based approach relying on accurate research and empirical data. Address both prevention and response in strategies. The review and strengthening of SAPS and law enforcement training and policies in line with international best practice. The SAHRC investigate Government’s failure to implement previous findings and recommendations on xenophobia, and non-compliance with key international conventions. Annexure A Dr Steven Gordon’s full presentation Annexure B Mr Diego Iturralde’s full presentation Annexure C Prof Loren Landau’s full presentation References Edwards L, Netshikulwe A, &Freeman L (2021) Policing and non-nationals - Community Police Forums and xenophobic violence in South Africa. APCOF Report. [Online] Available: https://apcof.org/wp-content/uploads/policing-and-non-nationals-community-police-forums-and-xenophobic-violence-in-south-africa.pdf [accessed: 6 September 2022] Edwards L & Freeman L. Policing and non-nationals - Analysis of police prevention, detection and investigation of xenophobic violence in South Africa. APCOF Report. [Online] Available: https://apcof.org/wp-content/uploads/policing-and-non-nationals-report.pdf [accessed: 6 September 2022] Freeman L, October L & Edwards L. 2022. Policing and non-nationals - External police oversight, accountability and xenophobic violence in South Africa. APCOF Report. [Online] Available: https://apcof.org/wp-content/uploads/policing-and-non-nationals-external-police-oversight-accountability-and-xenophobic-violence-in-south-africa-.pdf [accessed: 6 September 2022] Gordon SL. 2020. Understanding xenophobic hate crime in South Africa. J Public Affairs. Vol 20 (3). [Online] Available: https://doi.org/10.1002/pa.2076 [accessed: 6 September 2022] Gordon SL. 2020. Understanding the attitude –behaviour relationship: a quantitative analysis of public participation in anti-immigrant violence in South Africa. South African Journal of Psychology Vol.50 (1): 103-114 . [Online] Available: https://journals.sagepub.com/doi/full/10.1177/0081246319831626 [accessed: 6 September 2022] Inclusive Society Institute (ISI). 2022. Measuring Social Cohesion in South Africa. [Online] Available: https://drive.google.com/file/d/1XpvT5k1Bg0hQMa9v5Ayr-bPMqLPnT2sG/view [accessed: 6 September 2022] Institute for Security Studies (ISS) 2021. SAPS Resourcing and Performance, 2012-2020. [Online] Available: https://issafrica.org/crimehub/analysis/fact-sheets/saps-resourcing-and-performance-2012-2020 [accessed: 6 September 2022] Misago JP & Landau LB. 2022. Running Them Out of Time: Xenophobia, Violence, and Co-Authoring Spatiotemporal Exclusion in South Africa. Geopolitics. [Online] Available: DOI: 10.1080/14650045.2022.2078707 [accessed: 6 September 2022] Misago JP, Bule K & Mlilo S (December 2021) Xenophobic Violence in South Africa - An Analysis of Trends, Causal Factors and Responses. A Xenowatch Quinquennial Report. [Online] Available: http://www.xenowatch.ac.za/wp-content/uploads/2022/04/Xenowatch-Report_Final_Dec_2021_.pdf [accessed: 6 September 2022] Roberts B & Gordon S. 2022. South Africans Have Low Trust In Their Police. Here’s Why. Human Sciences Research Council. [Online] Available: https://hsrc.ac.za/news/capable-and-ethical-state/south-africans-have-low-trust-in-their-police-heres-why/ [accessed: 6 September 2022] Republic of South Africa. 2019. National Action Plan to Combat Racism, Racial Discrimination, Xenophobia and Related Intolerance (NAP)2019. [Online] Available: https://www.justice.gov.za/nap/docs/NAP-20190313.pdf [accessed: 6 September 2022] - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - This report has been published by the Inclusive Society Institute The Inclusive Society Institute (ISI) is an autonomous and independent institution that functions independently from any other entity. It is founded for the purpose of supporting and further deepening multi-party democracy. The ISI’s work is motivated by its desire to achieve non-racialism, non-sexism, social justice and cohesion, economic development and equality in South Africa, through a value system that embodies the social and national democratic principles associated with a developmental state. It recognises that a well-functioning democracy requires well-functioning political formations that are suitably equipped and capacitated. It further acknowledges that South Africa is inextricably linked to the ever transforming and interdependent global world, which necessitates international and multilateral cooperation. As such, the ISI also seeks to achieve its ideals at a global level through cooperation with like-minded parties and organs of civil society who share its basic values. In South Africa, ISI’s ideological positioning is aligned with that of the current ruling party and others in broader society with similar ideals. Email: info@inclusivesociety.org.za Phone: +27 (0) 21 201 1589 Web: www.inclusivesociety.org.za

The Inclusive Society Institute (ISI) did a presentation to a high-level Danish Delegation, on Thursday, 09 March at 6 Spin Street. The delegation included the Speaker of the Danish Parliament, Mr Søren Gade, the Ambassador to Denmark in South Africa, HE Mr Tobias Elling Rehfeld amongst others. Ms Buyelwa Sonjica, Chairperson, of the Institute’s Advisory Council, opened the meeting with an introduction of the Institute. Mr Daryl Swanepoel, the Institute’s CEO, did a presentation on, The People’s State of the Nation. The presentation was based on, a) the gloomy predictions for 2023 from the Ipsos Global Advisor, b) what worries the world in February 2023 with the focus on SA issues, c) Social cohesion in South Africa from the GoveDemPol, May 2022 highlighting governments performance on nation building d) political leaders and parties and trust in parties from the latest political poll results and e) providing context. Mr Dave Strugnell, CEO at Percept, representing our research team did a presentation on the Understanding Youth Inequality report. His presentation focused on South Africa being widely regarded as the most unequal country on earth, where the top 20% of the population earned over 68% of income while the bottom 40% earned just 7% of income by January 2020. He discussed, the country’s inequality being multidimensional, transcending income and wealth to include matters of land, capital and access to quality public services, which illustrated that multidimensional inequality also intersects with gender, race and geography in ways that entrench historical fault lines. There was a robust discussion during the Q & A session.

Copyright © 2023 Inclusive Society Institute PO Box 12609 Mill Street Cape Town, 8010 South Africa 235-515 NPO All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without the permission in writing from the Inclusive Society Institute. DISCLAIMER Views expressed in this report do not necessarily represent the views of the Inclusive Society Institute or those of their respective Board or Council members. 21 FEBRUARY 2023 Prof Geo Quinot Department of Public Law, Stellenbosch University In 2008, government, via the South African National Roads Agency SOC Ltd (“SANRAL”), embarked on the Gauteng Freeway Improvement Project (“GFIP”). In essence, the project involved declaring several roads in Gauteng as toll roads in terms of The South African National Roads Agency Limited and National Roads Act 7 of 1998 (“the SANRAL Act”). Tolling is done via an e-tolling system that involves gantries logging the passage of vehicles and issuing a bill to the registered vehicle owner (or another registered party) for payment of fees. Tolling started in December 2013. Following years of controversy, litigation and large-scale non-payment of toll fees by road users, the Minister of Finance announced in his medium-term budget policy statement in 2022 that SANRAL’s GFIP debt will be transferred to national and provincial government (in a 70:30 split) and that the province will take over maintenance of the roads. The Gauteng provincial government subsequently announced that e-tolling under the GFIP will be terminated. Gauteng Premier Panyaza Lesufi furthermore suggested that motorists that paid e-toll bills will be refunded. Consultant seeks an analysis of the legal implications of a decision to write off outstanding e-tolling bills. LEGISLATIVE SCHEME The power to levy a toll on the use of any national road is vested in SANRAL by section 27 of the SANRAL Act. In terms of that section, SANRAL may, with the approval of the Minister of Transport (“the Minister”), declare any section of a national road to be a toll road. Once so declared, the Act empowers SANRAL to levy and collect toll for the use of the road. The amount of the toll is determined by the Minister by means of a notice in the Government Gazette. The declaration of a toll road and the determination of a toll levy create an obligation in terms of section 27(5) of the SANRAL Act on all users to pay such toll. A failure to do so is an offence under the Act, punishable by imprisonment and/or a fine as well as a civil fine payable to SANRAL. The operative decisions are thus the declaration of a toll road and the determination of the amount of toll payable. Once these decisions have been taken, liability will be imposed by operation of law based on a person’s use of the toll road. SANRAL may, in terms of the Act, grant exemption from the payment of tolls or suspend the payment of tolls, either to specific users or generally. The SANRAL Act determines that a declaration of a toll road, the determination of the amount of toll payable, an exemption or suspension will only become effective 14 days after the relevant notice was published in the Gazette. The Act explicitly states that the toll, as determined by the Minister, will be payable from a date and time determined by the Minister, which may not be earlier than 14 days after the publication of the relevant notice in the Gazette. In respect of the GFIP, the original notices declaring the relevant road network as toll roads were published in Government Gazette 30912 on 28 March 2008 and in Government Gazette 31273 of 28 July 2008. Various sets of regulations have been issued under the SANRAL Act to govern aspects of the implementation of the GFIP. These include the e-Road Regulations, 2016 that create the conditions for levying toll fees electronically. Notably, regulation 6(2) of the e-Road Regulations determines that “[u]nless payment is made … such registered user shall remain liable for the payment of all tolls in relation to the use of an e-road”. Successive notices have been issued under the SANRAL Act determining the amount of toll to be paid and the conditions of payment. The most recent of these notices, published in Government Gazette 45902 of 11 February 2022, set the applicable toll amounts with effect from 1 March 2022. From the above legislative scheme, it follows that a legislative liability is placed on users of roads forming part of the GFIP, which liability arises at the time of use of the relevant road. This liability does not only constitute a civil debt towards SANRAL, but a failure to discharge the liability automatically gives rise to criminal liability under the SANRAL Act.   EXCUSE OF NON-PAYMENT The legislative scheme does not provide for e-toll liability to be waived once incurred. In terms of the scheme, an individual can only discharge their liability by either paying the toll or by nominating another person as the actual road user and thereby transferring the liability to such nominated person. In Fedsure Life Assurance Ltd v Greater Johannesburg Transitional Metropolitan Council 1999 (1) SA 374 (CC), the Constitutional Court held that the legality principle in South African constitutional law dictates that “the legislature and executive in every sphere are constrained by the principle that they may exercise no power and perform no function beyond that conferred upon them by law.” When this principle is applied in the current context, it follows that SANRAL does not have the power to excuse non-payment of e-toll fees once incurred. Nor does any other organ of state have such power. A further problem with the contemplated excuse of non-payment of e-toll fees is that once the amount of toll to be paid under the GFIP had been determined, the Minister would be functus officio regarding that decision. This means that once the Minister took the decision to impose a particular amount of toll for use of the relevant roads for a specific period and published that decision as required under the SANRAL Act, the Minister’s decision was final, and the Minister retained no power to alter that decision in the absence of specific authorisation to do so. As noted above, the legislative scheme does not contain any authorisation for the Minister (or any other actor) to change the amount of toll retrospectively once it had been set and imposed. Any attempt to subsequently amend the amount payable (including to zero) retrospectively would fall foul of the functus officio doctrine. This does not suggest that the Minister cannot change the amount of toll payable prospectively. The Minister is explicitly authorised to do so, but subject to strict timelines that limit any retrospective effect. The fact that the Minister’s determination of the amount of toll payable is final, is underscored by the explicit rules regarding the date of effectiveness of such determination in the legislative scheme. As noted above, both the declaration of a road as a toll road and the determination of the amount of toll payable for use of that road, which in combination would create the liability to pay toll, are subject to specific timelines regarding operation. The legislative scheme determines that such decisions may not take effect earlier than 14 days after the prescribed notice of such decision is published. It follows that any attempt to determine the liability for use of the road retrospectively would be unlawful as it would amount to an attempt to determine the amount of toll payable with effect earlier than 14 days after publication of the decision. On the same reasoning, a decision to withdraw the declaration of a road as a toll road (under section 27(1) of the SANRAL Act), as is currently anticipated in respect of the GFIP, would not retrospectively affect the liability for the prior use of the relevant road while it was a toll road. The analysis above shows that a decision to excuse outstanding toll fees would be unlawful. It should be noted that the same reasoning applies to a decision to excuse paid fees and reimburse same. In terms of the current legislative scheme, the dismantling of the GFIP can only operate prospectively. Such dismantling cannot alter the existing legal position in respect of tolls that are due. The transfer of the SANRAL debt relating to the GFIP to national and provincial government would also not impact on the outstanding tolls. SANRAL’s GFIP debt and outstanding tolls are distinct liabilities. Even though they were linked (SANRAL partly levied tolls in order to pay its GFIP debt), the payment of one does not automatically lead to the payment of the other. The two liabilities also arose from distinct bases – SANRAL’s debt arose from its contractual arrangements to finance the GFIP while the outstanding tolls arose statutorily from road use. It follows that government’s take-over of SANRAL’s debt does not extinguish road users’ toll liability. While an active decision to excuse toll fees would be unlawful, the same may not be true for a passive excuse of fees. That is, it may be possible for SANRAL (or another public entity) to “excuse” toll fees by simply not enforcing the liability. It is notable that the SANRAL Act authorises SANRAL to enforce payment of toll fees, but does not oblige SANRAL to do so. Section 30(1) states that SANRAL “may institute legal proceedings to recover toll moneys owing to it” (emphasis added). This clearly indicates that SANRAL is empowered, but not obliged, to enforce payment by means of legal proceedings. SANRAL would thus not be breaching a legal duty under the SANRAL Act by simply not enforcing e-toll liabilities that have already vested. An approach by SANRAL that amounts to simply adopting a supine attitude towards outstanding toll fees would arguably not be reviewable. While an omission, such as a failure on SANRAL’s part to enforce payment of tolls, may amount to an administrative action under the Promotion of Administrative Justice Act 3 of 2000 (“PAJA”), it would only be reviewable if such omission breached a duty to act. Section 6 of PAJA determines that a failure to take action would be reviewable if the administrator had a duty to act and failed to do so, either within the stipulated timeframe or, in the absence of such prescribed timeframe, a reasonable time. As the Supreme Court of Appeal noted in Commissioner for the South African Revenue Service v Trend Finance (Pty) Ltd 2007 (6) SA 117 (SCA), the section does not apply when an administrator “has a right, but no duty, to do [something]”. In the present matter, SANRAL arguably falls exactly in this position. It has a right to enforce payment, but not a duty to do so. Accordingly, a mere omission on SANRAL’s part to enforce payment would not merit a review. The position may be different if SANRAL took an explicit decision not to enforce payment. Such a scenario would not amount to an omission on the part of SANRAL, but rather a deliberate positive action. Such an action would be subject to review under PAJA, including on the basis of reasonableness. In such a review, serious questions can be asked about how reasonable it would be for SANRAL to decide to forgo outstanding tolls while it actively enforced payment of identical tolls before. That is, the reasonableness of effectively waiving tolls for some users while it enforced payment against others could be questioned. A final point to note relates to the criminal liability attached to non-payment of tolls, as set out above. No action by SANRAL (or any other actor) can retrospectively change such criminal liability. Section 27(5) of the SANRAL Act states that “any person liable for toll who … refuses or fails to pay the amount of toll that is due … is guilty of an offence” (emphasis added). It is evident that the criminal liability arises when a person refuses or fails to pay a toll that is due. This liability cannot be retrospectively extinguished by SANRAL. The liability could be formally pardoned by way of the presidential pardon powers or by way of a specific statutory scheme, but not by simple administrative action such as a decision by SANRAL (or another executive or administrative functionary) to “excuse” payment of tolls. The criminal liability would continue to exist even after SANRAL has formally abandoned the GFIP. END - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - This report has been published by the Inclusive Society Institute The Inclusive Society Institute (ISI) is an autonomous and independent institution that functions independently from any other entity. It is founded for the purpose of supporting and further deepening multi-party democracy. The ISI’s work is motivated by its desire to achieve non-racialism, non-sexism, social justice and cohesion, economic development and equality in South Africa, through a value system that embodies the social and national democratic principles associated with a developmental state. It recognises that a well-functioning democracy requires well-functioning political formations that are suitably equipped and capacitated. It further acknowledges that South Africa is inextricably linked to the ever transforming and interdependent global world, which necessitates international and multilateral cooperation. As such, the ISI also seeks to achieve its ideals at a global level through cooperation with like-minded parties and organs of civil society who share its basic values. In South Africa, ISI’s ideological positioning is aligned with that of the current ruling party and others in broader society with similar ideals. Email: info@inclusivesociety.org.za Phone: +27 (0) 21 201 1589 Web: www.inclusivesociety.org.za

On Wednesday, 15 February, the Inclusive Society Institute attended the Pioneer the Possible symposium at the invitation of the Swedish Embassy. Borne out of the need for creative solutions to address local and international poly-crises, the host of the day, Ambassador Håkan Juholt, stressed that it could no longer be business as usual. Instead of attempting to tackle isolated events in silos, it is the task of all stakeholders to collaborate in building a more sustainable world. Complex issues would require innovative approaches that not only see obstacles but through working together find creative solutions. As such, it is not about seeing the impossible, but collaborating to pioneer the possible. The first session showed how several companies were successful in building sustainable industries fit for the future. The country manager of mega Swedish textiles company H&M, Caroline Nelson, mentioned several initiatives whereby the company is finding creative solutions to the hitherto unsustainable business model of quick fashion. South Africa, she said, faces an excellent opportunity to rebuild its collapsed textiles industry, catapulting re-generative approaches for a collapsed industry. Instead of merely going back to previous approaches, industry leaders must upskill and invest in South African businesses to build a more sustainable model. According to Nelson, the “possibility to pioneer in South Africa is much easier”. We have the spirit and resilience required to create thriving, sustainable industries. We just have to work together and get things done. In the second session, moderated by the Inclusive Society Institute’s CEO, Daryl Swanepoel, the discussion focused on how a sustainable, circular economy can be pioneered. Dr Roelof Botha spoke about how the introduction of a Basic Income Grant would advance the socio-economic condition of millions of South Africans. His comments follow the extensive work undertaken for the Institute on the feasibility of a Basic Income Grant. Pointing to the success of the Brazilian Bolso Familia programme that not only uplifted millions of people, but also stimulated economic growth, Dr Botha suggested that such a conditional grant programme would offer enormous benefit to South Africa’s indigent and well as to the national economy at large. His analysis is captured in an Institute report that will be released soon. Further sessions focussed on several key national issues. Delegates representing youth and civil society groups agreed that the nation lacks trust in the political status quo. They echoed the call for broader inclusion in formal political structures and the need for civil society to organise and mobilise. Trust was again central when representatives from media and academic institutions agreed that open, critical and creative conversations are required by a broad cross-section of society. After a busy and productive day, stakeholders agreed that a new politics was required in South Africa. One based on trust, cooperation, and mutual benefit. It was agreed that civil society organisations, the media and academia should do more to work with and bring together the private and public sectors in developing South African solutions for South African problems.

The Chief Executive Officer of the Inclusive Society Institute, Daryl Swanepoel, represented the Institute at the seminar on creating stable coalitions that was hosted by the Danish Embassy on 13 February 2023. The event was held at the historic 6 Spin Street in Cape Town. The event served as a public feedback session on the recent political party study tour to Denmark on coalition governance and relevance for South Africa. This was followed by a spirited panel discussion and dialogue on how to strengthen coalition governance in South Africa and how to make coalitions more stable. The seminar was opened by HE Danish Ambassador Mr. Tobias Rehfeld moderated by Professor Richard Calland. The panel was comprised of the party representatives that undertook the tour, which included the UDM, Good, FF+, ANC, Action SA, IFP and One South Africa Movement. Mr Swanepoel, in his contribution, highlighted the Irish approach to coalition formation, which was based on trust and generosity. He said that trust amongst parties was non-existent, and in creating workable coalitions, parties would have to move away from transactional agreements based on relative strength to one that acknowledges coalition partners to be equal. The failure of South African parties to grasp these two concepts will result in unstable coalitions. This ought therefore to be at the forefront of their thinking in the run-up to the next election, which will undoubtedly see a number of coalition governments having to be formed.

ISI CEO, Daryl Swanepoel, met with the High Commissioner of Singapore, Zainal Arif Mantaha on 10 February 2023 at the offices of the ISI in Cape Town. They discussed a range of public policy issues, notably social inclusion from which SA can draw valuable lessons.

ISI CEO, Daryl Swanepoel, met with former Deputy President Baleka Mbete, Chairperson of NaLHISA on 10 February 2023 at the ISI offices in Cape Town. The ISI is excited to partner with NaLHISA to tell the authentic and proud story of SA's liberation.

Copyright © 2023 Inclusive Society Institute PO Box 12609 Mill Street Cape Town, 8000 South Africa 235-515 NPO All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without the permission in writing from the Inclusive Society Institute D I S C L A I M E R Views expressed in this report do not necessarily represent the views of the Inclusive Society Institute or its Board or Council members. Author: Olivia Main Editor: Daryl Swanepoel FEBRUARY 2023 Content 1. Setting the scene 2. Annual Lecture presented by Jørgen Elklit, professor emeritus, Department of Political Science, Aarhus University 3. Q&A session with Jørgen Elklit, professor emeritus, Department of Political Science, Aarhus University 1. Setting the scene The Inclusive Society Institute (ISI) hosted its Annual Lecture in Cape Town on 8 December 2022. Jørgen Elklit, professor emeritus at the Department of Political Science, Aarhus University, in Denmark, was invited to lecture on the topic “Democracy and Electoral Systems as Tools to Promote Social Cohesion”. In early 2022, the ISI published a report in which it made proposals concerning electoral reform, in light of the Constitutional Court judgement declaring the current Electoral Act unconstitutional. The Institute appointed an expert panel, including Professor Elklit, to undertake the work and mandated the panel to design an electoral model that will meaningfully give effect to the judgement, respect the boundaries set out in the Constitution, retain proportionality as a basis for representation in that it best promotes inclusivity, and which enhances representativity, accountability and transparency. Professor Elklit is an expert on global electoral systems. Since 1990, he has been active as an advisor on democratisation and elections, electoral systems and electoral administration in a number of countries across the globe. Elklit was also an international member of the South African Independent Electoral Commission in 1994 and of the country’s Electoral Task Team 2002-2003 (aka the van Zyl Slabbert Commission), and was Secretary to the Independent Review Commission in Kenya in 2008. Professor Elklit’s lecture focussed on how we can strengthen democracy and social cohesion through an improved electoral system. Elklit opined that this must be done within the framework of South Africa as a diverse population with various backgrounds. The understanding that the mere holding of elections entitles a country to be called a democracy is an electoral fallacy. Elections must also be fair, inclusive and integrous in order to gain voters’ trust in the election process and the outcome of such. In a single seat constituency model – in other words, a winner-takes-all majority election system – you could conceivably have many provinces represented wall to wall by one political party, which, in South Africa, would most likely be the ANC. Even though the system would result in general proportionality, those members would only come from the compensatory proportional list, which may or may not draw from members of a particular province. This does not promote inclusivity of the diversity in the country or do much for geographic representation. It's a problematic approach to adopt in a country such as South Africa. Therefore, in order to achieve a true democracy and social cohesion, we need to adopt a system that not only results in general proportionality, as is the constitutional requirement, but also where representatives are drawn from the many different communities across the country – in other words, a multi-member constituency model. We also need to ensure that all eligible voters are included in the elections, by adopting a system such as automatic voter registration. 2. Annual Lecture presented by Jørgen Elklit, professor emeritus, Department of Political Science, Aarhus University This lecture on “Democracy and Electoral Systems as Tools to Promote Social Cohesion” is an opportunity to engage in a much-needed conversation about matters of the utmost concern for all who want to see South Africa prosper, develop, and eventually become the country we want it to be – the country so many dreamt of during the Struggle, but also after 1994. Democracy is a fluid concept, defined and interpreted differently by different people at different times and in different situations. But there are at least three elements that are necessary for a democracy to develop and consolidate: free and regular elections of good quality, the full complement of political rights for the citizens and, above all, the rule of law, which is often the weak link in emerging democracies. Elections must come at regular intervals, and between elections citizens must be able to try to influence public policy through other instruments such as interest associations, social movements and civil society organisations, local groupings, and so forth. Only then can we see the development of a complex system of institutions, rules and patterns of incentives and disincentives which makes it evident that democracy has become “the only game in town”. Not too many decades ago, some politicians – and even some political scientists – claimed that if a country conducted elections for its leadership, then it was a democracy, as its leadership was elected by the people, the demos – even if the elections were only of poor quality. It was, however, not difficult to challenge that view – especially based on the way elections were conducted in Latin America during that period, but also elsewhere, such as the Soviet Union, Eastern Europe, and in many countries in Africa. The understanding that the mere holding of elections entitled a country to be called a democracy was pejoratively termed the electoral – or electoralist – fallacy. People then started to look for other, more comprehensive definitions of democracy. The inclusion of the entire adult population in elections was obviously not to be left out, on the contrary, but what else should go into the definition? Robert Dahl, a leading US political scientist, gave us an important list of seven minimal conditions that must be present before we can talk of a country being a modern political democracy. Dahl required that elections should not only be fairly conducted, but they must also be seen so by the electorate, as that makes it natural for all – losers as well as winners – to trust the outcome of the elections and to perceive the elections as being of integrity. The first prerequisite for having elections of integrity is to have a trustworthy electoral commission. South Africa can take pride in having had one of the best electoral commissions on the continent – partly because of a competent staff component; partly because commissioners have only rarely brought their private party political inclinations with them to the office. This is not always so in other countries – in Africa or elsewhere – and one can only express the hope that politicians will honour the need for competent and trustworthy electoral commissioners considered to be men and women of integrity. And the electoral staff, at all levels, must have the same qualities, so that voters can rest assured that electoral results are honest and reliable – and not big lies as some US voters and politicians still claim, against all evidence, that the 2020 elections were. The second prerequisite for high quality elections to pay attention to, is that all eligible voters must be on the electoral register. Going beyond Dahl speaking about the importance of having the right to vote, experience shows that some voters also need help to get into a position where they can actually use their voting right. Elections can be considered a kind of conversation among the citizens of the country, where it is discussed and decided who shall form the political leadership during the next term – a conversation that is important for the emergence of social cohesion. If some citizens cannot participate in that conversation, the political leadership will have less legitimacy. In South Africa, at least 30% of the eligible voters are not on the electoral register, despite the various efforts by the Electoral Commission of South Africa (IEC). Think of it: 30% of the eligible voters cannot participate in the elections. That is more than just a pity, it’s a disgrace! The IEC will probably say that they have done all they can to get all voters on board, and that they cannot force people to register. That is obviously true, but a registration rate of about only 70% is still not good enough for a country that claims to be a democracy. The situation has not improved over recent years – despite many registration campaigns – so it is high time to realise that the only solution is to shift to automatic voter registration. Automatic voter registration means that the state takes steps to ensure automatic registration of all eligible voters. It is done in different ways in different countries, but it is normally done by linking voter registration to the national ID or to the social security system. Automatic voter registration is not compulsory voting, which one should avoid at all costs. Voters are still free to vote or not to vote – as they should be – but automatic registration means that the entire adult citizenry can go and vote, even if they only decide to do so on election day. They don’t need to have registered beforehand, and they can react to what is happening during the election campaign and go and express their opinion if they wish. The third prerequisite for qualitatively good elections might challenge some. But my experiences with many countries have been convincing enough to show that it is much better for a country – any country – to use a proportional representation electoral system than to rely on some kind of majority system. The basic difference between proportional representation (or PR) elections and majority elections is that losers in PR elections don’t lose everything. A losing party will still have at least some seats in the Assembly, and those who voted for that party will still feel included in the political process, as some of the elected representatives sit in Parliament because the voters wanted that to be the case and therefore voted for them. It’s easy to understand that this is particularly the case when a country is characterised by a number of social and political cleavages, due to racial and ethnic differences, religious antagonisms, national identities or class, to mention only the most obvious ones. This was also the conclusion of a high-powered international commission under the chairmanship of former UN Secretary General Kofi Annan a few years ago. With majority elections, politicians have too much at stake, as the winner takes it all, and the loser loses everything. That’s why we see candidates in majority elections fighting so hard to avoid losing – and behaving so unpleasantly, as did Donald Trump in the US, or some voters in Kenya in 2008 or in Lesotho in 1998, even if they nevertheless don’t win. This consideration is also highly relevant in this country, and that is exactly why the ANC National Executive Commission during the negotiations in the early 1990s eventually decided to go for proportional representation. The formula used for calculating each party’s share of the National Assembly seats is fine and the same can be said about South Africa having no formal electoral threshold. These two features – in combination with the size of the National Assembly – combine to make the National Assembly the most proportional parliament in the world, as measured by the very reliable and useful index developed by the Irishman Michael Gallagher. This implies that any discussion about what is meant by the expression “in general proportional representation” in the Constitution is strange, as it is obvious that the National Assembly is more proportional than what we see in other PR systems. This also implies that the current PR electoral system can be changed, at least somewhat, without any risk of violating the Constitution. Some change of the current electoral system is, however, seriously needed – not because the system is poor, but because South Africa has changed since 1994. The system, in other words the closed-list system, with 200 seats allocated in the nine provinces and 200 seats used as compensatory seats to reach full proportionality, was probably what was best in 1994, at the system’s inception. But the political development since then has made many call for a system that makes it easier – some would even say possible – to hold parliamentarians more to account than is now the case. I agree with those who feel that way. I had the honour of serving, as the only non-South African, on the van Zyl Slabbert Commission in 2002-2003. Our task was to develop an electoral system that was still compatible with the Constitution, of course, but that also introduced some element of accountability. Our majority proposal suggested a number of multi-member constituencies – all in all 60-some such constituencies, with from three to seven parliamentarians elected in each of them, also by a PR system, so that local voters would be represented in proportion to the local strength of their parties. That would allow the current 200+200 system to be changed to a 300+100 system, with 300 seats allocated to the new and smaller MMCs, while 100 compensatory seats should definitely be enough to ensure that “in general proportional representation” could still be easily achieved. Such small constituencies would allow a much closer relationship between represented and representatives than is now the case – or to put it differently: increase the level of accountability, especially when preferential voting would eventually be introduced. We did not propose preferential voting from day one, but we suggested a change from closed to open lists at some later point in time, above all, to allow a strong element of accountability to enter into the relationship between voters and representatives. Our majority proposal had many qualities, but it was probably never considered seriously by the Cabinet, and therefore South Africa still uses the electoral system implemented in 1994. We all know that the system does not allow independent candidates and that the Constitutional Court (CC) eventually had to consider the constitutionality of this fact – when the Constitution entitles all adult South Africans to stand for election to public office if they so wish, which is also one of Dahl’s seven conditions for a political democracy. There has always been this incompatibility between the Constitution and the Electoral Act, so the CC judgement in June 2020 did not surprise me. It actually pleased me. What has surprised me, however, is that the National Assembly has been so slow to act. And it has now even been necessary to apply for a further extension of the time frame for finalising the Electoral Amendment Bill, as more public consultations are suddenly needed. Will Parliament have completed the job in February 2023, or will it take even longer? Various groups, civil society organisations, and even individuals have both studied the options and also presented a number of ways in which independent candidates could stand for election and thus comply with the views of the Constitutional Court. The proposal presented in early 2022 by the Inclusive Society Institute is well worth considering, as it creates space for independent candidates, but not really at the expense of the established political parties. The only real change from the current system is that the number of lower-tier constituencies – which are now the nine provinces – will change to 66 smaller multi-member constituencies (MMCs), following already existing administrative borders. These smaller MMCs will each elect a modest number of Members of the National Assembly, and that will bring with it a much closer rapport between voters and representatives elected in the local areas. This will eventually increase the level of accountability and can also be expected to increase the level of social cohesion, as voters in an MMC have something in common: the opportunity to elect their MPs, who might engage with the local voters and their various associations in defending the area’s interest in the National Assembly and within their respective parties. And this will happen even if an independent candidate is not among those elected in the MMC. The ISI proposal would certainly be a good starting point for the work of the Electoral Reform Consultative Panel, which has now been suggested by the National Council of Provinces (NCOP). And by the way: Experience from other countries tells us that very few independent candidates will eventually be elected. It’s good, and constitutionally required, that independent candidates can have a try, but there is no reason to fear that many of them will be elected. It is in my opinion more important – but not because of constitutionality issues – to also use this opportunity to discuss the large number of political parties in South Africa. At the national level we saw 48 parties participating in the 2019 elections – and as many as 34, almost 75%, did not make it into the Assembly, despite there being no formal threshold. I, therefore, was very pleased when I saw that one of the changes proposed by the National Council of Provinces to the electoral Amendment Bill was to require that parties not already presented in Parliament or the Provincial Legislatures, must also submit a substantial number of seconding signatures in order to be allowed ballot paper access. The requirement is suggested to be 20% of the relevant quota at the previous election, which is exactly the same requirement as suggested for independent candidates. This is a constructive solution to the problem with the first versions of the drafted Bill, namely that it would be much more difficult for independent candidates to get on the ballot paper than it would for new and formerly unrepresented political parties – who could even hope for access to the pool of compensatory seats. So, suddenly both problems – (1) the differential treatment of independent candidates and new parties, and (2) the mushrooming of new parties with virtually no chance of getting elected – have found a common solution! This constructive and welcome addition to the current electoral system does not violate the right to associate freely, which is so important in a democracy. But it makes it clear that access to the ballot paper does not come almost automatically to any small association or publicly known personality who can collect as little as the 1,000 signatures required for registration of a party. Parties allowed on the ballot paper must of course be able to prove that they deserve this honour, and it is completely legitimate in a democracy to require parties to do so. Parties that were elected in the previous election – and are still represented in Parliament – can be allowed to participate in the elections without further ado and have their performance as parliamentarians evaluated by their constituents, as that is how parties are being held to account. The newly suggested requirement will definitely reduce the number of parties on the ballot paper considerably – and consequently, make it easier for serious parties to make it into the National Assembly. It makes sense to see both the requirements for ballot paper access and for winning a seat in the National Assembly as important gatekeeping tools. Some kind of gatekeeping is necessary at Parliament’s gate to restrict entrance to those trusted by a reasonable number of voters. All to avoid votes being scattered over so many parties that none of them make it into Parliament. One can even argue that the NCOP proposal is too kind to the previously unrepresented parties, but I will not go into that debate here. I shall only in passing mention that in my own country, in Denmark, the similar requirement for new and currently unrepresented parties is to provide as many seconding signatures as is the equivalent of a full electoral quota at the latest election, not only a modest 20%! It has, however, surprised me that I have not seen or heard any public debate about this constructive suggestion that will definitively decrease the number of parties on the next ballot paper considerably – something that many South Africans will certainly see as a fine step forward, as I also do. Social cohesion is about social integration and inclusion, in local communities and in society at large. I’m strongly convinced that the issues I have addressed in relation to the electoral system and the Electoral Amendment Bill will all have a positive bearing on social cohesion both locally and in the South African society as a whole. My seven take-aways cannot be very surprising: Democracy is much more than elections, but as good quality elections is a necessary part of it. It is okay to pay special attention to elections. Democracy becomes stronger and more consolidated, the higher the quality and the more integrity the electoral process has. In South Africa, the competence and the integrity of the IEC has proven important since the first IEC. It is of the utmost importance that the perception of the IEC as competent and politically unbiased is not allowed to change. Automatic voter registration must be introduced as a matter of urgency. The ISI proposal for a new South African electoral system can be a good starting point for the work of the Electoral Reform Consultative Panel, which has been proposed. The number of signatures required for a national party to get on the ballot paper has been suggested to be the same as the requirement for independent candidates. That is a very welcome improvement to South Africa’s electoral system – it might even be a good idea to set the requirement for political parties somewhat higher than for independent candidates. My suggestions will all increase social cohesion, both in local settings – the MMCs – and in society at large, by reducing exclusion and by reducing the costs of taking responsibility for the attainment of goals agreed upon. 3. Q&A session with Jørgen Elklit, professor emeritus, Department of Political Science, Aarhus University Q. The automatic voter registration will obviously bring down the costs for the IEC, because it's just a data merging between Home Affairs and the IEC. But at the same time, it would also most probably lead to a lower voter turnout, in the sense that, at the moment voter turnout is registered on 70%. Whereas, with the new system it would be registered on 100%. The problem in South Africa is with the young voters that are not coming on board. How do we motivate the young people to start talking and to exercise their democratic right? A. Although the automatic voter registration would lead to a decrease in the official voting turnout number, I don’t think this matters, because the present voter turnout figure is artificial. The IEC says that the participation rate is about 70%, but on which participants are they basing this on? If it’s 70% of the elligible voters, then the current turnout in South Africa is actually only about 50%. But the IEC is always very proud of claiming that it is about 70%. What really matters is that the entire eligible population can easily exercise the right to vote without having to register or being registered some time ago, so I don't buy that argument at all. In reference to the question about the young voters – bearing in mind that some female voters are also underrepresented in the current situation – the issue with young voters voting less than others and registering less than others is not only a South African problem, it is seen all over the world and it is, in particular, seen among underprivileged young voters of different kinds. They have to be motivated and one can do different things in order to get them to register, but it is a complicated issue and I think the main reason is that the parliamentarians are not delivering on their promises. If parliamentarians made society function better, so that not only young voters but all of us could see that it made sense to go to the polls and vote – because that would influence what happened in our local society, in our village, in our country – then it would be easier to motivate young voters to go and vote. It's something which cannot be remedied very easily, as one would have to change the entire political culture and deliver in a different way. Q. I want to follow on from the previous question. The issue about automatic voter registration is that it’s great in a country where the systems work well, but when you have a Home Affairs that is struggling to ensure the integrity of its data, then what you’ll have going forward is a well functioning electoral system that is in doubt. And so, we are actually going to go backwards. In my opinion, there's a prerequisite to automatic voter registration, given our context. What is your comment on that? A. Yes, the more serious problem is, of course, how can one introduce automatic voter registration when Home Affairs is functioning, or rather, not functioning the way it is? Therefore, I understand completely that it is not something that could be immediately implemented or even set up long before the next election. Rather, it requires that structures be put in place that can handle it. It would not necessarily have to be Home Affairs, it could be some other body, but it would have to be capacitated and funded to do so. It could even be something the IEC could take on. It would require legislation and decisions of a very complicated nature. I understand that. But the current situation, where more than a quarter of the population is not able to vote is, from a democratic point of view, a serious problem, and one that has to be dealt with, in my opinion. It will be complicated to salvage, but as I was just saying, it is what should be done because it cannot continue as it is. Q. How do we deal with the issue of fraud and having ”dead” people coming into the electronic voting with automatic voter registration? A. The way the automatic voter registration would function to avoid fraud within the system, is that when a person dies, they are deleted automatically from the register. And therefore, also from the voter register. So, a person cannot come with a claim, for example, for their deceased grandmother, because she would have already been deleted from the voter register automatically. And on the other end of the spectrum, when a person turns 18, they will automatically be registered as a voter. I think if one could get an organisation to prepare the framework for this system, and it works, it would probably solve the problem of fraudulent voters. That's one of the advantages. I understand that it's difficult to get to that point, because it’s expensive. But in my experience in Denmark, I have never heard of a person succeeding in using a deceased person’s voter ID, and that’s simply because they are no longer on the register. I'm not saying that fraud cannot happen. I’ll be honest with you, the only way it can happen is that sometimes a person’s voter card gets stolen. The system automatically sends out a voter ID card by mail with all your information on it, which you take with you when you go to the voting station. In theory, a person may be able to go and vote for another person using their stolen voter ID, but as I understand, it's very rare. Q. I agree that it’s ridiculous to have such a long ballot paper. How do we effectively reduce the number of parties on the ballot paper, and guard against the counterattack that says this would be an assault on our democracy because people/parties are being suppressed? A. I think the suggestion in the NCOP's changes to the Amendment Bill is a good one. If a political party not only has to register but also collect a certain number of signatures to support its being on the ballot paper, this will result in a natural screening of parties on the ballot paper, because some of the weaker parties that do not have the appropriate structures in place will not be able to deliver the number of signatures required. I think one can easily argue that if a so-called political party trying to get into Parliament cannot even organise the collection of a certain number of seconding signatures, then why should it go to Parliament? It will not have the capacity, as we have seen in recent elections, to get enough votes to be elected. The outcome of the current situation is that you have ballot papers as long as my arm, which confuses voters and some voters might decide not to go and vote because they can’t find a party to vote for. So, by reducing that number considerably, those problems would be solved. I'm not saying that new parties shouldn’t be allowed to stand for election, but rather, if they can organise the collection of the allotted number of signatures in time and get approved by the IEC, which could be the controlling organisation, then they might also be able to run a good election campaign, get out to the people and get the votes so that they would be represented. If they cannot organise the collection of signatures, then they would probably also not be able to get elected, and then there's no need to have them on the ballot paper. So, I think it’s a set of regulations that would be very helpful, not only for the IEC, but also for all voters, who could more easily find solid, substantial parties on the ballot paper to vote for. I think that's a good way forward and I think one could even be less kind to the new and unrepresented parties, because there's no need to have them on the ballot paper if there’s no chance that they will get elected. If they have the support of the people, they will get the numbers they need to get into Parliament. Q. In relation to the creation of a space for independent candidates. We are currently emerging from a very fragmented environment. I think we've been working hard for quite a long period of time on uniting as a country, so that we act as a collective in dealing with the national challenges. Especially at the national level, the very purpose of creating space for people to represent the interests of this society as individuals is to encourage unity and cohesion of South Africans, to act together in dealing with the country’s problems. What is your comment on this? A. I think it's interesting because we talk about creating space for independent candidates a lot, but at the same time, many of us feel that we need the political parties as lightposts in developing the political policy proposals we need going forward, with candidates and all the functions of political parties. And that under normal circumstances it should be enough to have the political parties to organise the political space. The problem is that sometimes individuals come forward who have strong opinions, people who could make a difference in Parliament with their views, but it happens very rarely. The idea is that, if such people do come forward, they can be tested by the voters, and if they can convince the voters in sufficient numbers of their abilities to influence the political debate in the country in a positive way, then they should be allowed to be tested, at least. I think that's the idea of the formulation in the Constitution of South Africa, and in the constitution of many countries, that if a person believes that they have something to offer in political life, there should be a possibility for testing whether the voters would trust that person. But as I said, it happens extremely rarely that people come forward who have convinced the voters that they have something to offer that is over and above what comes from the political parties. And that is why I said in my presentation that it is extremely rare that independent candidates are elected. Something which has surprised me in relation to South Africa, is that the debate about independent candidates has been so intense from some corners. For one thing, there is the constitutionality problem, and for the other, what will happen in actual practice? Have we come across people who we would like to see as independents in Parliament? That can hopefully be tested in the next election, but my guess is that it would be very difficult. It has only happened on one occasion in Denmark, and I know that the Danish political system is very different from the South African system, but on one occasion an independent candidate was elected. It was a comedian who was very popular at the time. He was not your ordinary political comedian; he was just your normal comedian who decided to give it a try. After a couple of elections, I think in the third, he got elected as an independent. And it so happened that he became the person in the middle numbers who commanded the majority in Parliament, because on one side there was the socialist bloc and on the other the bourgeoisie bloc, and then there was Mr Haugaard in between. What he realised was that to hold that position as a relatively ordinary person was extremely complicated. He hated his life in Parliament for that period. I suppose he needed the money, so he stayed for the full term. But then he decided never again, because it was too demanding in all ways for him. And I think we see the same happening in many other countries. So, I think the option must be there, commanded by the Constitutional Court and the Constitution, but there's no reason to think that it's a big issue. The political parties are the building blocks of modern political society and should be so, in my opinion. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - This report has been published by the Inclusive Society Institute The Inclusive Society Institute (ISI) is an autonomous and independent institution that functions independently from any other entity. It is founded for the purpose of supporting and further deepening multi-party democracy. The ISI’s work is motivated by its desire to achieve non-racialism, non-sexism, social justice and cohesion, economic development and equality in South Africa, through a value system that embodies the social and national democratic principles associated with a developmental state. It recognises that a well-functioning democracy requires well-functioning political formations that are suitably equipped and capacitated. It further acknowledges that South Africa is inextricably linked to the ever transforming and interdependent global world, which necessitates international and multilateral cooperation. As such, the ISI also seeks to achieve its ideals at a global level through cooperation with like-minded parties and organs of civil society who share its basic values. In South Africa, ISI’s ideological positioning is aligned with that of the current ruling party and others in broader society with similar ideals. Email: info@inclusivesociety.org.za Phone: +27 (0) 21 201 1589 Web: www.inclusivesociety.org.za

The CEO of the Inclusive Society Institute (ISI), Mr Daryl Swanepoel, met with the Ambassador of the European Union, HE Sandra Kramer, in Pretoria on Wednesday, 1 February 2023. The purpose of the visit was to set in motion processes to establish relationships between the ISI and likeminded think tanks and institutions in the EU and to discuss policy issues across a wide front of topics. This included agriculture, green energy and international relations, amongst others. The ISI and the Embassy are committed to maintaining and strengthening their relationship, and to promote solidarity between the European and South African societies.

The CEO of the Inclusive Society Institute (ISI), Mr Daryl Swanepoel, met with the High Commissioner of Singapore, HE Zainal Arif Mantaha, in Pretoria on Wednesday, 1 February 2023. The purpose of the visit was to set in motion processes to establish relationships between the ISI and likeminded think tanks and institutions in Singapore. There are lessons to be drawn from the Singapore experience, which has many similarities to South Africa. They too had to emerge from a colonial past, are a diverse nation that had to grapple with social inclusion, and they needed to progress from abject poverty, which they successfully did by transforming themselves into the economic giant they are today. The ISI and the High Commission are committed to maintaining and strengthening their relationship, and to promote solidarity between the societies of Singapore and South Africa.

Articles Click on the article title below to read: State-driven developmental state vs people-driven developmental state Lumko Mtimde Social advancement and change through public college education funding Dr Connie September Democratising the United nations Prof William Gumede Ports regulation in South Africa: An equitable tax rate approach Mahesh Fakir & Prof Mihalis Chasomeris Xenophobia in South Africa: The politics of naming, national contract, and the invention of the foreign other Dr William Jethro Mpofu

Copyright © 2023 Inclusive Society Institute PO Box 12609 Mill Street Cape Town, 8000 South Africa 235-515 NPO All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without the permission in writing from the Inclusive Society Institute D I S C L A I M E R Views expressed in this report do not necessarily represent the views of the Inclusive Society Institute or those of their respective Board or Council members. JANUARY 2023 State-driven developmental state vs people-driven developmental state by Lumko Mtimde BSc (UWC), Postgrad Diploma in Telecommunications and Information Policy (UNISA) Abstract The State must create an enabling environment, a roadmap for redress – as required by the Constitution of 1996 – and addressing problems such as high levels of poverty, unemployment and inequality linked, in part, to the history of apartheid. Whereas these challenges are central for redress by a People’s Government, communities are similarly key to the solutions in their own development, accordingly, community development must be people-driven and -centred. It is notable that one of the 6th Administration’s priorities is the building of a capable, ethical and developmental state. The assumption in the implementation of this priority is that it is only possible if key to it, is active citizenry. The paper offers an analysis of the ANC Policy Conference draft discussion documents and policy proposals. It looks at scenarios of development and empirical evidence for such scenarios, where possible, and it acknowledges that for things to take a new turn in the field of policy analysis and scenario planning, much critical thinking and proper implementation must take priority. The paper reviews the literature concerning the definitions of a developmental state, a welfare state, the bottom-up approach to development, the nature of a state-driven development in light of safeguarding citizens, and building digital infrastructure at every corner of the country to facilitate inclusivity and enhance a people-driven democracy. A revolution is multi-layered like an onion, hence there is always a struggle within the struggle. Accordingly, the paper argues that a development state is a process of building the country; the endgame is a welfare state. Keywords: ANC, RDP, Development State, Welfare State, Development Communication, Public Participation. People Driven, Digital Infrastructure, Data Revolution, Social Grants. Introduction What I refer to as the People’s Declaration, the Freedom Charter (1955), a statement of core principles of the South African Congress Alliance – which consisted of the African National Congress (ANC) and its allies: the South African Indian Congress, the South African Congress of Democrats and the Coloured People's Congress – that is characterised by its opening demand, "The People Shall Govern!", lays a foundation for us to understand the kind of state we should have in the post-apartheid South Africa. In its preamble, the Freedom Charter states: We, the People of South Africa, declare for all our country and the world to know: that South Africa belongs to all who live in it, black and white, and that no government can justly claim authority unless it is based on the will of all the people; that our people have been robbed of their birthright to land, liberty and peace by a form of government founded on injustice and inequality; that our country will never be prosperous or free until all our people live in brotherhood, enjoying equal rights and opportunities; that only a democratic state, based on the will of all the people, can secure to all their birthright without distinction of colour, race, sex or belief; And therefore, we, the people of South Africa, black and white together – equals, countrymen and brothers – adopt this Freedom Charter. And we pledge ourselves to strive together, sparing neither strength nor courage, until the democratic changes here set out have been won (ANC, 1955). The Reconstruction and Development Programme (1994), echoing the dreams of a truly democratic society, states: No political democracy can survive and flourish if the mass of our people remain in poverty, without land, without tangible prospects for a better life. Attacking poverty and deprivation must therefore be the first priority of a democratic government. (RSA, 1994) Accordingly, the above quotations, therefore, affirm the central place and role of the State in democracy and sustainable development. Sections 24 through 29 of the Bill of Rights in the South African Constitution (RSA, 1996) recognise the socio-economic rights of citizens, including the right to social security. The National Development Plan (NDP) offers a long-term vision of South Africa. The NDP aims to eliminate poverty and reduce inequality by 2030. According to the plan, South Africa can realise these goals by drawing on the energies of its people, growing an inclusive economy, building capabilities, enhancing the capacity of the state, and promoting leadership and partnerships throughout society (NPC, 2012). The NDP proposes that by 2030, South Africa should have a comprehensive system of social protection that includes social security grants, mandatory retirement savings, risk benefits (such as unemployment, death and disability benefits) and voluntary retirement savings. Part of our approach to social protection is through a social wage, which includes no-fee schools, free basic services and subsidised public transport. In addition to creating more jobs in the private sector, a significant broadening of public employment programmes will also help to ensure that fewer households live below a determined income level (NPC, 2012: Chapter 11). It is acceptable that South Africa needs to build a state that is capable of playing a developmental and transformative role (NPC, 2012: Chapter 13). The Congress of South African Trade Union (COSATU) in its Central Committee in 2005 noted that in South Africa, the concept of the “developmental state” refers to a state-driven development, in contrast to a free-market approach. It noted that the model of the developmental state originated with a U.S. Asian studies scholar named Chalmers Johnson. For him, the critical element of the developmental state was not its economic policy, but its ability to mobilise the nation around economic development within the capitalist system. In effect, these states endorsed a revolutionary project – although, in his view, “What distinguishes these revolutionaries from those in the Leninist states is the insight that the market is a better mechanism for achieving their objectives than central planning” (Johnson, 1999:53). On the 2nd of July 2022, representatives of civil society, faith-based and community organisations, academia, and media from all over the country met and made the following pledge: Inequality, poverty, joblessness, and violence, which we inherited from apartheid, have been made worse by a decade of state capture, corruption, and maladministration by the government. We envisage a new economic model that is inclusive and leaves no one behind, that meets people’s basic needs and is characterised by values of empathy, solidarity, and social and climate justice.(Defend Our Democracy Campaign, 2022) Other than the inequalities inherited by the South African democracy in 1994 – whose redress is enshrined in the Constitution’s Bill of Rights, in the Preamble – various other South African reports present a very worrying picture of the state of affairs in the country. The South African Social Security Agency (SASSA), in its report to Parliament, stated that about 60% of applicants for the R350-a-month Social Relief of Distress (SRD) grant are young, and approximately 5% of all SRD grant applicants hold tertiary qualifications. Statistics South Africa’s (Stats SA) Quarterly Labour Force Survey (QLFS) for the first quarter of 2022, states that the unemployment rate was 64% for those aged 15-24 and 42% for those aged 25-34 years, whilst the national rate stands at 35% (Stats SA, 2022). Prof Ingrid Woolard (Stellenbosch) argues and concludes that excluding the Covid-19 Social Relief of Distress grant, more than 18.3 million social grants are paid out each month, including 13.6 million for children and 3.7 million old-age pensions, totalling R193 billion, or 3.1% of the GDP (Woolard, 2022). The ANC Policy Conference 2022 Discussion Documents (ANC, 2022) notes, the “provision of social grants reduces poverty and contributes to the reduction of income inequality in the country, and empirical evidence shows that the Child Support Grant (CSG), for example, contributes to improved school attendance, educational attainment and access to food. The Department of Social Development pays social grants to qualifying South Africans through the South African Social Security Agency (SASSA). Social grants reach more than 18 million people at a cost of R180 billion a year. The provision of social grants continued during nationwide lockdown with minimal disruptions” (ANC, 2022:97). When scholars analyse the specific material conditions in our country – whether appropriately using Marx’s methods and tools of analysis – we must grapple with understanding the scientific material conditions and resolution of Africa’s problems with a view to changing Africa for the better, qualitatively, not quantitatively. I submit that Marxism is not just about the economy; we must also be able to use its tools of analysis to understand the specific contexts and the consequences it spells out for inaction. This is a seminal point that Gramsci contributes to enrich the theoretical and practical potency of Marxism as a complex tool of analysis. Besides the objective economic and political variables, the Italian revolutionary introduced the equally important subjective variables in any revolution. Gramsci’s hegemony and counter hegemony perspective places an emphasis on these subjective variables, including culture as a weapon, education, religion, consciousness, media, etc. If these domains that affect individuals and institutions are not equally contested, the revolution will be seriously jeopardised. Against the above background, it is imperative to understand and appreciate that the concept of a developmental state imagines the State in the driving seat managing the process of socio-economically building a country, driven by the goal of realising a welfare state. Literature review and framework Barrientos (2010) in an article that links social protection to new perspectives on poverty and vulnerability, identifies and discusses key issues in the emergence of social assistance programmes in developing countries, and assesses their potential contribution to addressing poverty and vulnerability in the South. Barrientos, in the United Nations Research Institute for Social Development (UNRISD), reports that societies all over the world recognise in the last decade that social protection has emerged as a policy framework employed to address poverty and vulnerability in the developing countries. According to the Center for Theory of Change (N.d.), theory of change is essentially a comprehensive description and illustration of how and why a desired change is expected to happen in a particular context. It is focused in particular on mapping out or “filling in” what has been described as the “missing middle” between what a programme or change initiative does (its activities or interventions) and how these lead to the achievement of the desired goals. It begins by first identifying the desired long-term goals and then works backwards from these to identify all the conditions (outcomes) that must be in place (and how these relate to one another causally) to secure the desired goals. It’s important to appreciate a theory of change model, as it captures all the essential elements needed to achieve long-term goals, all things being equal (Weiss, 1995). “To be successful, the theory of change model should communicate what’s required from participants to reach business goals, and the desired goals must be expressed in terms of measurable success-indicators. A theory of change model requires the active involvement from stakeholders and those involved in it should constantly test assumptions that can be measured in the pursuit of the desired goals” (WalkMe, 2018). In the context of a history like that of South Africa, where our democracy emerges with the baggage of concerningly high levels of inequality, we should – in line with the NDP envisaged plan and vision – ensure to enlist a multipronged strategy and tactics to achieve the social outcome where no individual lives below the defined minimum social floor. As part of ensuring the upliftment of all individuals to be above the threshold of extreme poverty, we must begin by objectively evaluating our immediate situation, the challenges, opportunities and so on. The NDP Vision 2030 could serve as a good reference point as we imagine the future and goals we are trying to achieve as country. Having our vision for a better life for all, as the ANC puts it, we need to make a social impact that can deliver it. The NDP has prioritised social protection as a critical intervention to improve the quality of life of South Africans by eradicating poverty, reducing inequalities and addressing unemployment (NPC, 2020). In this light, the South African government, as part of a social wage package, approved a National Municipal Indigent Policy in 2005, which is intended to guide the national initiative to improve the lives of indigents and to improve access to free basic services. The policy recognises the need for intergovernmental cooperation in the process of dealing with indigents, but places a specific emphasis on the municipal sphere, recognising the important role local government has in effectively addressing the needs of indigent households (DPLG, 2012). The indigents are defined as lacking the necessities of life to survive, like water, electricity, food, clothing, sanitation, etc. According to Stats SA’s recently released report of its Non-financial census of municipalities, the number of indigent households across the country’s 278 municipalities registered 3,56 million in 2016, the highest number on record since figures were first published by Stats SA in 2004 (Stats SA, 2020). South Africa provide social grants – the applications for which are administered by the South African Social Security Agency (SASSA) – that strengthen and support the safety net, to improve standards of living and redistribute wealth in order to create a more equitable society. The social protection approach adopted by the South African government: has a number of sub-programme elements that reduce the cost of living for the poorest households. These are a combination of social assistance grants, minimum wages (through waged work in private or public sector) and the social wage (education, health care, free basic services, Reconstruction and Development Programme (RDP) houses, transport subsidies, school feeding schemes, etc). All these elements make a significant impact on poverty and inequality and reduce the cost of living for the poorest households, especially the 17 million who receive social cash grants. (NPC, 2020) A developmental state must provide social protection as an important intervention by providing income support to low-income citizens and a lifeline for the unemployed, poorest and most vulnerable households, as demonstrated during the Covid-19 crisis, as well as during recurring global economic and financial crises. What is a developmental state? There is no consensus on the definition of a developmental state. One will find, however, many useful definitions of it in the literature. There is no doubt that the many and different definitions will draw and reflect the various ideological orientations that undergird it. Developmental state has become a “generic term to describe governments that try to actively ‘intervene’ in economic processes and direct the course of development rather than relying only on market forces” (Stubbs, 2009:5). Jeremy Seekings (2015:1) observes that “enthusiasm for the idea of a 'developmental state' emerged in South Africa in the early 1990s, re-surfaced in the mid-2000s, and re-emerged yet again after 2007”. The enthusiasm to embrace a state-centric development path was animated by the desire toward “shifting the economy onto a more inclusive and faster growth path” (ibid.). Consider also Kaname Akamatsu’s (1962) argument that it is impossible to study the economic growth of the developing countries in modern times without considering the mutual interactions between the developing economies and the developed countries. This approach to conceptualising the role and position of a developmental state finds corroboration among many scholars’ views, whose argument for state intervention in the economy takes advantage of the fact that there is access to the economic conditions, performances and weaknesses of developed countries. The challenge and responsibility of developing states is how to position one’s country, in light of the global economic trends, threats and opportunities, to advance national and public interests. As much as there is a promising case for a developmental state, one often is pressed to consider which route is more preferable in social and economic development: Is it one that is state-driven (developmental state) or a citizens-driven developmental state? Accordingly, a case is made in this paper for a citizens-driven developmental state. In 1994, South Africa produced a Reconstruction and Development Programme (RDP), which was referred to as the end of one process of subjugation and oppression and the beginning of another political era of freedom and development for all. The RDP included an integrated, coherent socio-economic policy framework that emerged out of many months of consultation within the ANC, its alliance partners (the South African Communist Party (SACP), COSATU, South African National Civic Organisation (SANCO), etc.) and other mass organisations in the broad civil society. We have seen what a state-driven developmental state can look like. Measures taken to protect state officials, for example, whilst very important, must occur in equal measure to protect citizens and avoid the lawlessness, increasing crime and criminality, thus also safeguarding the citizens. Another case that requires urgent attention and intervention relates to the appointments in key public entities – like the National Health Insurance (NHI), the South African Broadcasting Corporation (SABC), Independent Communications Authority of South Africa (ICASA), etc. – wherein citizens nominate their proposed leaders to govern the entities and through the people’s representatives in Parliament, the appointments are made, and the Executive Authority effects the appointment. This approach seems a unique South African tried-and-tested working model. In terms of which, then the Boards appoint the required Executive Management like Chief Executive Officers (CEOs) without interference from the Executive Authority. The above approach does still equally give the political parties (including the ruling party), the right to nominate and subject their nominated candidate to the above people/citizens-friendly approach. Other preferred examples of citizens-driven elements include the post-1994 safety and security approach to policing. It urges us to move away from apartheid military kinds of policing towards the kind of policing that is humane, and one where there is collaboration with communities via the concept of Community Policing Forums. This people-driven agenda towards policing, for example, is not top-down, but rather it is bottom-up, where the citizens play a crucial role in directing the fight against crime and building safe and peaceful societies. There are many other examples of a citizen-driven developmental state, but the main argument in this paper is for a bottom-up approach to development, which takes the views of the citizens and their broader participation seriously, in conceptualising and realising a developmental state. What is a welfare state? To begin our discussion of a welfare state, we note that it has several defining features. Firstly, a welfare state is one that plays a central role in the extension of the socio-economic conditions of its citizens. It does so, guided by its commitment to “the principles of equality of opportunity, equitable distribution of wealth, and public responsibility for those unable to avail themselves of the minimal provisions of a good life. Social Security, federally mandated unemployment insurance programmes, and welfare payments to people unable to work are all examples of the welfare state” (Kenton, 2022). The state has a duty to extend the safety net to secure all its citizens. According to Assar Lindbeck (2003), it can do so in terms of two types of government spending arrangements: (i) cash benefits to households (transfer, including mandatory income insurance) and (ii) subsidies or direct government provision of human services (such as childcare, pre-schooling, education, healthcare, and old-age care). Lindbeck (2003) further argues that by definition, the welfare state may also include price regulation (such as rent control and agricultural price support), housing policies, regulation of the work environment, job security legislation, and environmental policies. In this paper, a case is therefore made for a welfare state system, where the state undertakes to protect the health and well-being of its citizens, especially those in financial or social need, by means of grants, pensions, and other benefits. This case is supported by the perceived weakness in this country of the socio-economic elements of a robust society, where it has a functional state, many firms that afford widespread employment of the working population, functional and stable family units, and the generally robust market. In South Africa, with its history of inequality, many of the weakness of these elements necessitate the welfare. In fact, the role of a state that delivers to the welfare of its citizens is enshrined in the Constitutional Act of 1996 (Bill of Rights) in South Africa. The literature indicates that the term ‘welfare state’ first emerged in the UK during World War II (Kenton, 2002). The foundations for the modern welfare state in the UK were laid by the Beveridge Report of 1942. Proposals such as the establishment of a National Health Service and the National Insurance Scheme were implemented by the Labour administration in 1948. Singapore: an example of a welfare state Yunmin Nam (2020) examined the diverse pathways of welfare development in the East Asian region. Nam argues that the existing regime’s approaches characterise East Asian welfare states as possessing low levels of government intervention and investment in social welfare. “However, democratisation in the 1980s changed the socio-economic structures of East Asian countries – leading them to rethink their welfare commitments. The late 1990s financial crisis and globalisation also accelerated the reorganisation of their welfare systems.” Soo Ann Lee and Jiwei Qian (2017) in their paper discussed the major social policies in Singapore that have been designed to accommodate the political rationale and economic growth strategies. They conclude: Singapore has made outstanding achievements in social development with a relatively small government social expenditure … The welfare institutions in the Singaporean welfare state, as an East Asian ‘productivist’ welfare regime, are designed to support economic growth. Furthermore, this study discusses the policy responses in Singapore to the recent developments of economic and social conditions as an example of the evolution of welfare states. (Lee & Qian, 2017) John Goodman (2015) noted that “about 90% of Singapore households are homeowners – the highest rate of homeownership in the world. In healthcare, Singapore started an extensive system of ‘Medisave Accounts’ in 1984 – the very year that Richard Rahn and I proposed ‘Medical IRAs’ for America in the Wall Street Journal. Today, 7 percentage points of Singapore’s 36% required savings rate is for healthcare and is deposited in a separate Medisave account for each employee. Individuals are also automatically enrolled in catastrophic health insurance, although they can opt out. When a Medisave account balance reaches about $34,100 (an amount equal to a little less than half of the median family income) any excess funds are rolled over into another account and may be used for non-healthcare purposes” (Goodman, 2015). The social welfare policy interventions by the state in Singapore are in the best interest of citizens and therefore yield an economic growth that best serves the national interests. South African social welfare policy is also worth noting. In addition to its social grants programme, the number of informal settlement dwellers has been growing on an average of 9 million since 2000. This long passage shares some of the advances that have been made by the South African aspirant welfare state: Since the dawn of democracy in 1994, about 4.8 million houses have been delivered in South Africa providing safe shelter to over 25% of South Africa’s households. Globally 1 billion people live in slums in 161 countries. More than 30% of the urban population live in slums and informal settlements. Approximately 2.8 million households in South Africa do not have access to improved sanitation services. The ANC has resolved to eradicate the bucket system in order to improve sanitation services. By December 2020, a total of 41 290 out of 52 249 bucket sanitation systems were eradicated. Furthermore, a total of 14 235 rural households were served to eradicate sanitation backlogs. The DWS has developed the Water and Sanitation Master Plan, which provides a 10-year roadmap for eradicating the bucket system, providing adequate sanitation, innovative solutions and generating economic opportunities. The DWS provides the Water Services Infrastructure Grant (WSIG), which is used to assist municipalities to procure intermediate water supply to ensure the provision of service infrastructure (e.g. spring protection, drilling, testing and equipping of boreholes). Through this grant, 802 projects were funded for construction nationally, with 142 of these projects completed. (ANC, 2022:100). What do we mean by inclusivity? The RDP process, explained above, was a unique, inclusive, people-driven policymaking attempt in South Africa. South Africa needs to continue with this citizen-driven approach as it brews ownership of challenges and solutions by the people – which approach is key to a robust democracy. An important aspect of a robust democracy is that of inclusivity. Susanne Ricee (2017) defines inclusivity in this fashion: the idea that all types of people, for whatever differences, must be included as much as possible in work and other institutions and must be assimilated. It means that whatever benefits afforded to others must be afforded to everyone, and if possible, if ever they are disadvantaged, society must address that deficiency to ensure equality. Promoting inclusivity is easier in theory than in practice, for biases abound against the marginalised, minorities, women, and people of different genders and mental and physical disabilities. They have been victims of the patriarchal society, majority, the powerful, and the dominant classes throughout history. (Ricee, 2017) The idea of inclusivity involves a society that equally recognises all human beings. It is one that extends opportunities for survival and thriving to all. It identifies those that are weak, marginal, oppressed, women, minorities, disabled, and seeks to create conditions that fully accommodate them. The Constitution of the Republic of South Africa, in its preamble, commits South Africa to lay the foundation for a democratic and open society in which government is based on the will of the people and every citizen is equally protected by law; to improve the quality of life of all citizens and free the potential of each person. Therefore, inclusivity is embraced by the Constitution of South Africa and is a commitment to economic development and equality through a value system that embodies the social and national democratic principles associated with a developmental state. Inclusivity deepens democracy. What does the ANC Policy Conference Discussion Documents propose? On the 20th of May 2022, the ANC published the Policy Discussion Documents as part of preparations for the National Policy Conference, towards the ANC December 2022 Congress (Elective Conference). These discussion documents outline the ANC’s strategic approach to policies and how it shapes and impacts our transformation agenda. ANC President Cyril Ramaphosa states that the new policy frameworks must be underpinned by a comprehensive social compact underpinned by a capable and ethical state, for us to succeed in our undertakings (ANC, 2022:3). The ANC acknowledge that the political and other generations of rights – including social, economic, gender and environmental rights – enshrined in the Constitution of the Republic, derive their origin from the demands of the 1955 Freedom Charter. The ideals of the Freedom Charter are therefore embedded in the country’s Constitution (ANC, 2022:6). The ANC Discussion Document Chapter 6 dealing with Social Transformation notes that “in addition to the social grants, the DSD portfolio provided an additional social relief package, consisting of the following: Covid-19 Social Relief of Distress (SRD) of R350 per month to adults aged 18-59 with no income from May 2020 to April 2021 Caregiver Social Relief of Distress (CSRD) Child Support Grant (CSG) Top up of existing grants – The Old-Age Grant, Disability Grant, Care Dependency Grant and Foster Child Grant were each topped up by R250 per month in May to October 2020 inclusive. The CSG was topped up by R300 per child in May 2020 only. The introduction and roll-out of a new Special COVID-19 R350 grant for those between 18 and 59 reached 6 million new individuals who have not had access to a grant, in a very short space of time. The top-ups on existing grants have provided a cushion to the most vulnerable individuals. Social grants overall proved to be the most effective mechanism available to government to cushion millions of the most vulnerable individuals and households from the dire socioeconomic impact of Covid-19. The Social Development portfolio is also introducing and strengthening policies that are aimed at reducing high levels of poverty, inequality, vulnerability and social ills. These policies include: The Green Paper on Comprehensive Social Security – it seeks to integrate social grants, mandatory social security contributions and voluntary contributions into a coherent system that ensures that all South Africans are included. The Maternal Support Policy – it seeks to integrate the relevant systems from key departments such as DHA, DoH, DBE (ECD and Education), DSD, Employment and Labour, and SASSA. The linkage of pregnant women to comprehensive social protection packages would further contribute to the ongoing development of synergistic linkages between services provided by the DSD. The Policy on linking children grants beneficiaries to government services will integrate social welfare services, education, and health within the cash transfer system. Draft Policy (Basic Income Grant) Proposal on Income Support to 18-59 Year Olds will expand the safety net to this additional vulnerable group, whilst also ensuring improved targeting of government services that will assist in empowering social grant beneficiaries. The Fundraising Amendment Bill seeks to consolidate the various Relief Funds into one National Social Development and Relief Fund that will enable the Fund to be more proactive and developmental in disaster mitigation.” (ANC, 2022:99). This paper, in the next section, “Analysis of the ANC propositions”, looks at what the ANC proposes, an analysis thereof, and the outline of my argument. The ANC proposals are consistent with its caring mandate and mission to promote a better life for all. Given the historical background of South Africa, the social welfare benefits are critical in transforming the economy. The document, under “Organisational Renewal: Progress and Challenges” (ANC, 2022: Chapter 2), refers to a challenge of existential crisis. Accordingly, “Renewal, re-engineering and regeneration therefore has to focus on the vital matters of the renewal of the values and integrity of the Movement, identifying and developing cadres who would be loyal to those values and the strengthening of our common vision for South Africa and the achievement of our organisational mission” (ANC, 2022:27). The document goes further, stating that “despite these existential challenges, there is ironically agreement about the mission, character, and tasks of the ANC in the current period. This consensus is contained in Strategy and Tactics (1997/2017), which articulates the central mission of the ANC as the liberation of Africans in particular and black people in general from socioeconomic bondage, by resolving the fault lines created by apartheid colonialism and patriarchy, and the creation of a National Democratic Society” (ANC, 2022:28). The draft document proposes, “A diverse and inclusive capacitated collective of public representatives, at each sphere of government, with a collective minimum skillset, which enables them to govern a modern state, at that level, has become an imperative. At present we use the exact same electoral process in the ANC to elect our internal leadership collectives and to elect ANC public representatives, from the same pool, members in good standing. The result being that we mostly duplicate the internally elected leadership as public representatives. An almost mirror image. These processes are further exacerbated when factional wars are raging in the movement. This is very restrictive and limiting on the ANC” (ANC, 2022:34). The ANC in Chapter 6, Social Transformation, proposes that “the comprehensive strategy for and the coordination and monitoring of the protection of vulnerable groups led by the Department of Social Development must be resourced to enable effective protection of children, the elderly, people with disability, and people with Albinism across relevant departments and spheres of government” (ANC, 2022:95). On social protection, the document proposes that “child-headed households including street (homeless) children must be prioritised in social protection policy, in EPWP opportunities. The child support grant should be extended from the age of 18 to 21 for beneficiaries that are still studying in order to eliminate the advent of vulnerability” (ANC, 2022:96). On housing subsidisation, the ANC proposes that “the sale of subsidised houses by beneficiaries should be prevented and beneficiaries who no longer need the house must be assisted to return the house to the State for compensation or allocation of an alternative opportunity in another area. The rental of subsidised houses to non-beneficiaries must be discouraged especially in the face of growing need. Accelerate the issuing of title deeds and registration of subsidy houses in favour of the ‘family’ rather than the individual beneficiaries” (ANC, 2022:97). The discussion documents noted again that the report of the 54th National Conference states, “The ANC’s approach to state power is informed by the Freedom Charter and the principle that ‘The People Shall Govern’. The attainment of power by the ANC is a means to fulfil the will of the people and ensure a better life for all”. Analysis of the ANC propositions The ANC discussion documents reaffirm what the ANC 54th Conference resolved on, which is to build a democratic and capable developmental state, with the agility and resolve to drive and implement the programme of social transformation and the creation of a National Democratic Society (ANC, 2022:31). With regard to the Theory of Change, the ANC need to acknowledge that the renewal is not going to succeed if it overemphasises (which is necessary) internal organisational dynamics. It needs to equally focus on building a new cadre system and capacity at all levels (locally and nationally) to radically improve on its capacity to deliver services to the people, and to focus on the objective of change, which is delivering on its organisational mission to better the lives of the citizens. The ANC as it recalibrates – digitising its membership systems, empowering each member to actively and equally participate in its activities through using automation and new technology platforms – needs to understand that empowering its members will also require creating an enabling environment for a citizens-driven democracy and development. Whilst the discussion documents propose a diverse and capacitated public service, the same efforts should be spent on capacitating all citizens, in particular the youth, so they are empowered to actively participate in governance. Digital skilling should be mainstreamed at schools, TVETs and universities, and society readied to effectively use new technological platforms and improve efficiencies. The ANC recommends the adoption of adaptable, flexible and transparent government policies needed for a capable developmental state, with a bias towards policies which benefit the marginalised, poor and unemployed, and directed at narrowing inequality (ANC, 2022:31). Digitisation will go a long way to improve efficiencies and enable the ANC to achieve these recommendations. In line with the digitisation interventions, the ANC proposes the modernisation of SASSA’s national administration to be more effective and efficient in line with government’s overall objectives for the public service, whilst maintaining seamless integration with provinces to ensure that there is adequate support, decision-making, and to ensure accountability through the organisation. “The use of pay points also needs to be phased out to support financial integration of communities by the use of a more modern payment system” (ANC, 2022:97). The National Infrastructure Plan 2050 (NIP 2050), published by the Minister of Public Works and Infrastructure in March 2022, is very welcome. The goal of the National Infrastructure Plan 2050 (NIP 2050) is to create a foundation for achieving the NDP’s vision of inclusive growth. This phase of the NIP 2050 focuses on four critical network sectors that provide a platform: energy, freight transport, water and digital infrastructure. The Plan notes that there has been good performance in digital infrastructure rollout over the past decade; by 2019, 93% of the population was covered with 4G/LTE, up from 53% in 2015. Over 85% of the population live within 10 km of a fibre access point. This coverage bodes well for NIP 2050 efforts to improve digital access for low-income communities. The NDP envisages a seamless information infrastructure that is universally available and accessible, at a cost and quality at least equal to South Africa’s peers and competitors. Whilst South Africa is far off the NDP’s goals from 2021, the 2030 goals must remain in place. There is evidence of sufficient capacity to deliver on these objectives if they are implemented through private-public cooperation. To achieve the vision for digital infrastructure, the NIP 2050 says that: High-speed broadband will be universally accessible. Regulation will enable competitive and universally accessible broadband public sector capacity will be strong and able to drive the required policy agenda. Partnerships will be strong and there should be centres of digital excellence promoting a growing knowledge base of delivery and innovation. The information and communications technology (ICT) skills base will be broad, robust and ready for the future. Government services and buildings will be digitally enabled. Private sector participation in achieving universal broadband access will be prevalent. The NIP 2050 further notes that the digital SIPs will be deepened and augmented and 3-year priority actions to 2023/4 are outlined. For example, digital migration and spectrum auctions will take place in 2021/2, in that sequence; that the policy for rapid deployment of electronic communications networks and facilities will be finalised in 2021/2; that arrangements will be made to enable private participation in public interest digital delivery projects from 2022/3; that 80% of public buildings will be digitally enabled by 2024/5; that high-speed broadband will be accessible in every community by 2024/5; that there will be consideration of free basic data for low-income users; that government services be digitised; that a data centre strategy will be finalised in 2021/2; and that a satellite communications strategy will be finalised in 2021/2 for implementation beginning by 2022/3. If the ANC government was to deliver on its commitment to the NIP 2050, ensuring each and every corner of South Africa is connected with access to high-speed broadband and internet, the digital skills rollout throughout the country will enable a people-driven and citizens-driven development state. Citizens in villages, townships and everywhere else in South Africa should have access to stating their development needs, shaping policy, and participating in the implementation thereof. The rollout of this NIP 2050 is a priority to improve where things are going in the country, as it will contribute to the creation of a knowledgeable and informed society. The Economic Recovery and Reconstruction Plan (ERRP) also asserts that the infrastructure rollout is a key driver to the recovery and will facilitate inclusivity. The ANC in Chapter 3, Digital Communications and the Battle of Ideas, notes the NDP 2030 highlights that “access to information via print, broadcasting and the internet are vital for building an informed citizenry. It also contributes to education and economic development” (ANC, 2022:54). High-speed broadband rollout, investment in digital infrastructure, building a digitally skilled workforce, enhancing digital transformation, creation of an effective competition, promotion of universal service and access, improved government communications, support for community and small commercial media, will contribute to a citizens-driven developmental and welfare state. For the District Development Model (DDM) to succeed, the citizen participation must be guided by the very concept of the Freedom Charter, “The People Shall Govern”. Most notably, the ANC Discussion Documents stated that “the economic challenges have been worsened by a recent series of negative economic shocks including the Covid-19 pandemic, violence and looting in KwaZulu-Natal and Gauteng, massive flooding and damage in KwaZulu-Natal and the Eastern Cape and fraught geopolitics, including the conflict between Russia and Ukraine” (ANC, 2022:141). These developments coupled with some reported failures in respect of service delivery, as expressed in several Presidential Imbizos and Auditor-General of SA (AGSA) reports, are contributing to citizens’ impatience, and present the potential for instability and social strife. The ANC needs to adopt policy interventions that will fast-track the redress of these challenges and bring hope, to bring trust to the public. Further, the ANC needs to decisively deal with corruption, criminality, end loadshedding, fix embattled state-owned entities (SoEs), recover the economy, reduce unemployment, and rebuild a people-driven state. The ANC Discussion Documents also note and recommend that “to further consolidate and advance the progress made in implementing the Economic Reconstruction and Recovery Plan (ERRP), the ANC must play a leading role in deepening the processes of social compacting around economic policy interventions for long-term and sustainable growth and job creation. Such a process of social compacting should build on the foundation established among social partners in the development and implementation of the ERRP. Further, the process should be more explicit about the trade-offs, timeframes, contributions, and sacrifices to be made by specific constituencies towards rebuilding the economy. Mechanisms to ensure accountability for non-delivery on the commitments made must be established” (ANC, 2022:143). International best practices Internationally, as seen above in terms of the East Asian and Scandinavian countries, a people-driven development and welfare state cares for its citizens, people take care of the social net. Partnership with the private sector is value adding, but citizens must be the main actors. “The idea that the state should play a leading role in economic development was central to early development economics” (Chang, 1999:182-199). China is one of the countries in the world with a large population. It is developing and its drive to develop seems to be an incentive for it to be a developmental state model. Its economy is state guided, or a socialist market economy as it defines it. The other interesting model is that of Denmark and Japan, but I will not expand on these cases given limitations of space in this paper. What further thoughts need to go to the ANC proposals and recommendations? The ANC needs to strengthen civil society participation, create dialogues that cover all stakeholders, ensure active community participation in local economic development forums, build capacity of public officials orientated towards partnerships, and create an enabling environment that promotes meaningful public participatory processes and a balance of less talk and more action in regard to implementation. The political will must be open to new ideas and have the ability to listen, not just tell, and try to understand where people’s input is coming from. Leadership should have the ability to put themselves in the position of the people and keep their calm. South Africa must avoid tilting towards a state-driven developmental state, as that will not work and will lead to more instability. The state must not erode the people’s power. For example, a people-driven developmental state must promote both rural and urban sustainable human settlements and turn rural areas into hubs of agricultural production – with villages developed to compete favourably with commercial farmers. Different scholars have different takes on defining and understanding a developmental state and Gumede (2010), in his paper, refers to the Mkandawire (2001b) argument, that developmental states are “social constructs” by different role-players in a particular society. Conclusion The above picture painted in this paper of continued poverty, inequality and unemployment, confirms that the situation regarding the poor and vulnerable households in South Africa requires state intervention. In addition, with the population of about 64 million, the number of dependants exceeds the number of social grant beneficiaries by a considerable margin. Therefore, grant money will continue to make a contribution to the challenges of poverty and inequality, forming an integral part of the support of households, beyond just the beneficiary. Whereas some argue that a social security grant system targeting about 19 million people is not sustainable, similarly, others argue that the absence of such an intervention is not sustainable. South Africa must prioritise deployment of digital infrastructure – in addition to the other infrastructure requirements such as roads, electricity, sports and recreational facilities, etc. – digital skills, and access to high-speed broadband throughout the country, in order to create a meaningful environment for public participation, efficiency, improved access to public services and operation of digital platforms, thus enhancing a people-driven developmental state. The state power is critical and imperative to drive change and the state role in changing society for the better is fundamental, but by itself, state power is not sufficient. There is similarly a need to populate people’s power, through mass participation and involvement. Appreciating both in a citizens-driven developmental state concept, I must admit that people’s power on its own, without state power, is equally insufficient – they must be complimentary and work together in a democracy. The Basic Income Grant (BIG), or Universal Basic Income Grant (UBIG), must be ventilated, robustly discussed, as discussions are raised to extract South Africans from the perceived mentality of dependence and entitlement to a people’s culture of self-sufficiency. The welfarist approach must be interrogated, having regard for its good and bad, for all to see so that resolutions, plans, programmes and actions of the ANC and government become developmental, promote self-reliance, self-sufficiency, and not dependency, but caring, and respond to citizen’s reality and needs. workable approach must bring to life the aspirations of the people enshrined in the 1955 Freedom Charter and the 1962 SACP Road to South African Freedom (SAHO, 1962). Social spending must be classified and understood to support production and productivity. A development state is a process of building the country and the economy, the endgame is a welfare state. A development state is not an end in itself, but a transition to a welfare state, a caring state serving the interest of the people. References African National Congress (ANC). 1955. The Freedom Charter. [Online] Available at: https://www.anc1912.org.za/the-freedom-charter-2/ [accessed: 31 January 2023]. 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Cape Town: CSSR General, UCT. South African History Online (SAHO). 1962. The Road to South African Freedom. [Online] Available at: https://www.sahistory.org.za/archive/road-south-african-freedom-1962 [accessed: 31 January 2023]. Statistics South Africa (Stats SA). 2020. Non-financial census of municipalities for the year ended 30 June 2020. [Online] Available at: https://www.statssa.gov.za/publications/P9115/P91152020.pdf [accessed: 31 January 2023]. Statistics South Africa (Stats SA). 2022. Quarterly Labour Force Survey, Quarter 1: 2022. [Online] Available at: https://www.statssa.gov.za/publications/P0211/P02111stQuarter2022.pdf [accessed: 1 February 2023]. Stubbs, R. 2009. Whatever happened to the East Asian Developmental State? The Unfolding Debate, The Pacific Review, 22(1):1-22. WalkMe. 2018. How Do You Define Change Management? The Best Approaches. [Online] Available at: https://change.walkme.com/how-to-define-change-management/ [accessed: 31 January 2023]. Weiss, C. 1995. Nothing as Practical as Good Theory: Exploring Theory-Based Evaluation for Comprehensive Community Initiatives for Children and Families. In: New Approaches to Evaluating Community Initiatives. New York: Aspen Institute. Woolard, I. 2022. The role of social grants in economically enabling South African women. In: Women’s Report 2022: Women and Fiscal Policy, Paper 3 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - This report has been published by the Inclusive Society Institute The Inclusive Society Institute (ISI) is an autonomous and independent institution that functions independently from any other entity. It is founded for the purpose of supporting and further deepening multi-party democracy. The ISI’s work is motivated by its desire to achieve non-racialism, non-sexism, social justice and cohesion, economic development and equality in South Africa, through a value system that embodies the social and national democratic principles associated with a developmental state. It recognises that a well-functioning democracy requires well-functioning political formations that are suitably equipped and capacitated. It further acknowledges that South Africa is inextricably linked to the ever transforming and interdependent global world, which necessitates international and multilateral cooperation. As such, the ISI also seeks to achieve its ideals at a global level through cooperation with like-minded parties and organs of civil society who share its basic values. In South Africa, ISI’s ideological positioning is aligned with that of the current ruling party and others in broader society with similar ideals. 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Copyright © 2023 Inclusive Society Institute PO Box 12609 Mill Street Cape Town, 8000 South Africa 235-515 NPO All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without the permission in writing from the Inclusive Society Institute D I S C L A I M E R Views expressed in this report do not necessarily represent the views of the Inclusive Society Institute or those of their respective Board or Council members. JANUARY 2023 Democratising the United Nations by Prof William Gumede Associate Professor, and former Convener, Political Economy, School of Governance, University of the Witwatersrand; and former Programme Director, Africa Asia Centre, School of Oriental and African Studies (SOAS), University of London; and author of South Africa in BRICS (Tafelberg). Abstract Russia’s war with Ukraine – and global responses to it – is not only remaking the post-Cold War world, but has shown that many existing global institutions, particularly the United Nations (UN) have lost their credibility, relevance, and authority. Unless something is done about reforming the UN into a more credible organisation, the global rule of law will collapse. This article explores the central weaknesses of the UN and the reform processes aimed at restoring its credibility. It concludes that the UN should be democratised in such a way that a few countries – or regional blocks – do not dominate the organisations decision-making or are not enabled to manipulate or block action. Introduction Russia’s war with Ukraine – and globally responses to it, is not only remaking the post-Cold War world, has shown that many global institutions established to keep peace between countries, have become redundant. The UN was established in 1945 following the end of the Second World War, by 51 countries to maintain international peace and security. The United Nations, spectacular absent in the invasion by Russia, joined by Belarus, of Ukraine, have been spectacularly absent in most of the recent violent conflicts between countries. This underscores the fact that the global organisation established after the Second World War to prevent conflict between countries appear to have lost its credibility, relevance and authority. It has been left to individual country leaders, the European Union and the North Atlantic Treaty Organisation (Nato) and the G20 to desperately try to end the hostilities. The UN was also absent in the descent into chaos last year of Afghanistan when the Taliban took over, and the government and citizens fled the country en masse. The UN has also been largely silent in the face of China’s ongoing threats against Taiwan, which the Chinese dragon views as part of it – which Taiwan rejects, and not a sovereign country. Unless something is done about reforming the UN into a more credible organisation, the global rule of law will collapse. The decline of the UN raised the spectre of more copy-cat incidents of aggression by powerful countries against more vulnerable one, making the world even more unstable, violent and chaotic. Without a credible UN, the world will increasingly be divided between countries that have nuclear military versus those who do not have. Many countries, having seen how Russia used its military power to dominate the US, EU and North Atlantic Treaty Organisation (Nato), will desperately try to acquire or shore up nuclear military abilities. Clearly, the UN in its current form is not fit for purpose to address current and future global challenges. Indian Prime Minister Narendra Modi said: “The credibility and effectiveness of global institutions is being questioned. The reason for this is that there has been no change in these institutions despite the passage of time. These institutions reflect the mindset and realities of the world 75 years ago” (Mehta 2020). Even France, a permanent member of the UN Security Council has conceded that the UN Security Council has reached its sell by date. French President Emmanuel Macron said recently UN Security Council “no longer produces useful solutions today” (French Ministry of Europe and Foreign Affairs 2021). The UN, and other global institutions, laws and rules will have to be collectively democratized or abolished and new more relevant, consensual ones created, or the world plunge into more Russia-Ukraine like conflicts and eventually a global nuclear Third World War. New multipolar world Many of the global multilateral organisations that anchored the post-Cold World War consensus, whether the United Nations, World Bank, International Monetary Fund, International Finance Corporation (IFC) and World Trade Organisations (WTO) have also lost their credibility. The post-Cold War Western-led global order, assumptions and consensus are in profound crisis of credibility. The US-led global hegemony wilted in the aftermath of the 2007/2008 global financial crises, unilateral military interventions in developing countries, without seeking global consensus and the often manipulation of multilateral organisations for self-interest, rather than for the greater good of the world. Furthermore, during the 2007/2008 global financial crisis some of the neoliberal economic thinking that underpinned the US post-Cold War ideology hegemony lost its lustre, when, in order to save economies, companies and livelihoods, Western countries used decidedly un-neoliberal tools, such as state investment in private businesses. Since the end of the Cold War, and the collapse of the communist alliance led by the Union of Socialist Soviet Republics (USSR); the US-European Union-led Western alliance has dominated global political, economic power, institutions and ideology. This has now come to an end. The world has now changed into a multipolar one, away from the domination of the US-led global order which has held sway in the post-Cold World War era, into one where power will become more evenly spread across regions and countries across the globe. The world has seen the economic, political and ideas’ rise of emerging powers such as China, India, Brazil, Indonesia and Turkey and others, which have resulted in a multipolar global order, which has challenged the US-EU-led Western dominated global order. It is very likely that instead of one or two powers, dominating the world, we are likely going to see a world where there is not one single as in the case of the US in the post-Cold World War or two competing, as was with the US and the USSR during the Cold War, but multiple power poles. The US shambolic withdrawal from Afghanistan last year, when the Taliban took over, and the government and citizens fled the country en masse, most probably was the symbol of loss of its global hegemony. Russian President Vladimir Putin, in the decline of the US-EU post-Cold World war hegemony and had tried prior to the launch of his invasion of Ukraine, to refashion the old USSR alliance, against the US-European dominated world, but this time, with Russia, with old allies of the USSR and new emerging powers. As part of the strategy to reintegrate the old USSR, Putin in 2015, for reintegrated some of the former economies of the Soviet Union into a regional trade bloc between Russia, Belarus, Kazakhstan and Armenia, called the Eurasian Economic Union. Developing countries are increasingly clubbing together as a group in international fora. African countries are collaborating with each other or with others as a group more. Africa now account for more then a quarter of the total membership of the UN. There have been several initiatives by developing countries to build alternative global institutions. In 2003, India, Brazil and South Africa established an alliance, IBSA, which promised to align the globe’s largest developing country democracies, across continents to trade with each other, to oppose the dominance by industrial countries of global trade, rules, ideas and institutions, and share development experiences. IBSA was established after India, Brazil and South Africa had been invited at the time as observers to the 2003 G8 summit of industrial countries in France, and left feeling their own fates and that of the developing world are being decided by a small group of unrepresentative developed countries. Following the 2003 G8 summit, India, Brazil and South Africa strongly felt they must formally club together, to push for a bigger say in global governance for developing countries, to diversify their trade away from industrial countries and to share their unique lessons of the twin pursuit of development and democracy amidst multicultural societies, with deep poverty and inequalities. In 2009, BRICS was established in 2009 by China, Russia, India and Brazil, with South Africa joining in 2010. For its members, the BRICS partnership offers geopolitical allies for these countries to press for the restructuring of the global trade, economic and political architecture to give Africa and developing countries a fairer say – and therefore better able to compete - in relation to their Western counterparts. The potential protective wall of BRICS membership may provide individual members the policy space to make independent development, trade and political policy decisions – which may not otherwise be the case, yet so crucial for the sustainable economic development of individual. The BRICS partnership also offers participating countries the space to resolve disputes, whether trade, political or diplomatic constructively. The new multipolar world demands a new kind of the UN or a different organisation entirely. Post-Cold War multilateral global institutions seen as marginalising developing countries The post-Cold War multilateral global institutions have in the past been dominated by the US-EU often for purely self-interest, rather than for the global good – which has undermined their authority, effectiveness and credibility among the majorities of countries in the world. This has fostered a global climate where it appears dominant countries can get away with breaking global political, economic, legal, market and trade rules for self-interests – while developing countries cannot. Developing countries have less say within global institutions – which set the rules of the global market, whether the United Nations, World Bank, International Monetary Fund, International Finance Corporation (IFC) and World Trade Organisations (WTO). Some scholars have referred to the phenomenon as global apartheid: industrial powers had more power than developing countries, particularly African countries (Bond 2004). For example, since the Second World War, the US has always chosen the president of the World Bank “using the appointment as a vehicle to advance American economic interests, power and development priorities around the globe” (Zumbrun 2019). Europeans have traditionally selected the head of the International Monetary Fund. The World Bank is owned by 189 member countries. The members elect a board of executive directors. However, industrial countries have in the main larger voting shares than developing countries and have more power in decision-making. The US has the largest voting share at around 16%. This is above the 15% share threshold which gives a country veto power on key decisions – the US is the only country with veto power at the World Bank. Many developing countries were critical of the US favourite, Jim Yong Kim, for World Bank president in 2012 (Zumbrun 2019). Following Kim’s early retirement in 2019, three years before his term ended, divisions sharpened between industrial and developing countries over who should replace him. Industrial countries often punish other countries or multilateral organisations if these adopt policies which go against the domestic policies of industrial countries. Developing countries do not have the global power to react similarly. In 2017, the administration of US President Donald Trump, withdrew the US membership of the UN Educational, Scientific and Cultural Organisation (UNESCO) (Beauchamp 2017; John 2017). UNESCO in 2011 had admitted the Palestinian territories to the organisation as an independent member state called Palestine. In the UNESCO decision to admit Palestine, 104 countries voted in favour of allowing Palestine, while 14 opposed it, with 52 states abstaining. A US law stipulated that US funding will be cut from an organisation recognising an independent Palestine. Global development institutions have been criticised for being biased towards Western countries at the expense of African and developing countries, which have little say in the control, policies and ideas of these institutions. In the current global economic system, developing economies do not have the policy independence to use monetary and fiscal policies to stimulate their own economies – lest they face a market, investor and Western media backlash. Many unilateral monetary policies adopted by industrial countries to deal with their domestic crises often destabilise African and developing countries. Global capital markets are also against many African and developing countries. So unfavourable is the current global political, financial architecture and cultural systems that policies, decisions and events which are triggered in industrial countries, over which developing countries have little say, often undermines well-being of developing countries. When in financial crisis, western countries often come up with unilateral monetary policies which are destabilising African and developing countries. For example, these governments, often manipulate the value of their currencies to improve their export competitiveness. Again, African and developing countries do not have the same power to come up with unilateral monetary policies to protect their economies, strengthen their currencies and boost employment, they will face backlash from Western governments, global financial institutions and markets (Panitchpakdi 2011). In fact, when in financial crisis, African and developing countries are often force-fed economic, political and trade policies – from global financial institutions such as the IMF and World Bank, which are often astonishingly inappropriate, in return for funding by these multilateral organisations. If African and developing countries do not follow the prescripts they are often punished by the markets, withdrawal of investment by the private sector, diplomatic isolation and negative global media reporting. Western countries often come up with unilateral monetary policies which are destabilising African and developing countries. For example, these governments, often manipulate the value of their currencies to improve their export competitiveness. Following the past global financial crisis, the US Federal Reserve, the European Central Bank and the Japanese central bank introduced quantitative easing in 2015. However, these quantitative easing policies eroded the competitiveness of emerging market economies (Rajan 2014; Sablik 2019; Powell 2018). The former Reserve Bank of India Governor Raghuram Rajan (2014) has rightly warned that the US Federal Reserve’s monetary policy was causing spillovers in emerging markets, with seesawing capital flows, volatility and the destabilizing of financial markets. Global trade rules and laws are stacked against African and developing countries. High tariff and non-tariff barriers in industrial countries block African countries from exporting value-added products which create more jobs and more wealth to more people, to industrial countries (Africa Progress Panel 2012). African free trade agreements with Western countries, such as the Partnership Agreements with the European Union and the African Growth and Opportunity Act with the US are mostly disadvantaging African and developing countries. If African and developing countries object to global rules stacked against them, they are often threatened with retaliation, whether blocking their products withdrawal of trade or development aid sanctions or the political isolation of specific countries (Gumede 2012). African and developing countries have few recourses for trade, economic and political disputes with developed countries - they are marginalized in the WTO’s Dispute Settlement Mechanism (Africa Progress Panel 2012). How the world should respond to global crises, reform of international organisations, laws and rules and appointments of heads of UN agencies and multilateral institutions now increasingly divide the world into Western countries versus developing countries. Increasingly, developing countries have tried to circumvent global multilateral organisations or establish alternative global institutions to the existing ones, where they can. The BRICS (Brazil, Russia, India, China and South Africa) grouping have established a series of alternative global institutions rivalling existing ones, like the BRICS Development Bank (Gumede 2012). Appointments of UN general secretaries and heads of agencies The Security Council members have also dominated the election of UN General Secretaries – which means that general secretaries increasingly are often not get wider legitimacy among countries. The 5 permanent members have often forced their own choices of UN general secretaries. As the world’s get more uncertain, dangerous and complex, UN heads forced on other countries by the Security Council’s 5 permanent members, have recently often been bland figures, almost invisible who lack global country support beyond. In the past UN general secretaries were larger than life figures, with global personal or country authority, credibility and reputations, many who could through their own personal appeal persuade country leaders. The five permanent members also dominates the appointments of heads of UN agencies, such as UNESCO, UNDP and the World Health Organisation. And at times when non-permanent members prevail in the appointments of heads of UN agencies, these appointees are often undermined by permanent members, as it has been the case with WHO head Tedros Tedros Ghebreyesus, whose appointment was largely engineered by non-permanent members. A case in point was the appointment of the head of the World Health Organisation in 2017 and his reappointment in 2022 (Africa Progress Panel 2012). Developing countries successfully pushed for the appointment of Tedros Adhanom Ghebreyesus, who was endorsed by the African Union, as the World Health Organisation Director-General in 2017. His criticisms of Western countries for hoarding Covid-19 vaccines during the pandemic caused outraged among Western countries. Tedros waged a fierce campaign to get poorer countries a fair share of Covid-19 vaccines. Support for or against Tedros became a proxy battle between Western and developing countries. Developing countries came to his support and he was re-elected unopposed in 2022. At his re-election has head of the WHO in August 2022 Tedros (2022) said: “The global community cannot properly address the mountain of health emergencies and challenges we face, including the Covid-19 crisis and emerging pandemic threats, ‘in a divided world’”. Inequality between countries in global affairs and law Developing countries are also unequal in international law. For a case in point, the US, China and key industrial countries have not signed up to the International Criminal Court (ICC), and their leaders and citizens are not subject to its jurisdictions. Industrial countries’ security, intelligence and police forces often operate across the borders in African and developing countries, something which developing and African countries cannot do. US-led coalitions, for example, have frequently used their power in the UN to push through invasions in developing countries’ regimes perceived to be anti-Western – in Iraq, Libya and elsewhere – under the disguise of defending human rights. Ironically, these countries support equally evil regimes in other developing countries as long as they are pro-Western. Such decisions, many developing countries say, are often based purely on protecting industrial countries’ commercial interests. Developed countries have increasingly manipulated global political, economic institutions and laws for purely self-interest, rather than for the global good. This has fostered a global climate where it appears dominant developed countries, can get away with breaking global political, economic, legal and trade rules for self-interests, at the expense of developing countries. Developing countries appear to have less power in global relations then industrial countries, especially former colonial powers. The voices of developing countries often appear to have less weight than those of industrial countries, although new emerging powers such as China, India and Brazil, with large economies are increasingly pushing back. Former South African President Nelson Mandela was also critical of Western nations abusing their domination of global and multilateral organizations for their own selfish ends, rather than for the global good. In his farewell speech to South Africa’s parliament, Mandela said: “We see how the powerful countries, all of them so-called democracies, manipulate multilateral bodies to the great disadvantage and suffering of the poorer developing nations.” The French economist Jean Dresch in 1948 described the economic, political and trade relations between African colonies and colonial powers at independence as: “In essence, it consists of taking money out of a country its export products and selling imported products to the native population which has received money for the exports. It is a very elementary circle in which the market, in so far as is possible, is in the hands of the mother country, and the colony is condemned to produce only raw goods without manufacturing them at home” (Dresch 1948). Very little appears to have changed, since Dresch’s description of the power relations between former colonies – whether in Africa, Latin America or Asia, and former colonial powers, the industrial countries. Global racism Racism against black or darker skin people in industrial countries, global multilateral institutions and multinational companies are systemic – undermining the much-vaunted idea of globalisation, the tighter integration of countries resulting from increased global financial, trade and services flows, widespread penetration of new technologies and advances in transport. Global racism against black and darker skinned prevent them from freedom of movement across borders, specially from African and developing countries to industrial countries, whether for work, trade or living. Blacks and darker skinned people are more likely to be stopped at customs entry to industrial countries. The Council of Europe’s Commission Against Racism and Intolerance in its 2022 annual report said: “Racism in policing (in the European Union countries) continued to be an issue in a number of countries, including in the context of enforcing pandemic-related restrictions. The ECRI report refers in particular to racial profiling in stop-and-search activities, the use of racist language and excessive use of force against individuals, which not only targeted individual victims, but stigmatised communities as a whole. Victims of such practices have often felt insufficiently supported by the authorities”. The idea of globalisation makes no sense when dark skinned people cannot move freely from developing to industrial countries; and products, especially value-added ones that foster wealth, jobs and economic growth, from predominantly dark skin developing countries face higher tariff barriers in industrial countries. “Critics of the way globalisation is organised refer to people as the ignored side of globalisation … (T)he freedom of movement of people has not enjoyed any easing of conditions” (COE 2012: 18). During the Covid-19 pandemic, many industrial countries were accused of putting stricter entry conditions for entry into their countries on citizens from black and darker skin countries. During the Covid-19 Omicron variant restrictions in late 2021, the Canadian government was accused of racism after only restricting entry from African countries, while many European countries had higher Omicron loads, but their citizens did not the face the same travel restrictions into Canada. The UN, World Bank, International Monetary Fund, International Finance Corporation (IFC) and World Trade Organisations (WTO) set the rules for the global politics, economy and trade. All of these global institutions are dominated by Western countries. These global institutions have been criticised for being biased towards Western countries at the expense of African and developing countries, which have little say in the control, policies and ideas of these institutions. Western countries and global agencies often appear to act with more urgency in disasters, human rights violations and environmental neglect when the victims are white around the world. Global interventions often appear to take place only when Western business interests and citizens’ lives are threatened in African and developing countries. The organisational cultures of multilateral organisations, such as the Western-dominated International Monetary Fund, World Bank, International Finance Corporation (IFC), World Trade Organisation and the United Nations, have often also exhibited unconscious bias towards developing countries, in their decision-making, lending practices and appointments. The World Bank’s shareholding is dominated by the US (23.66%), Japan (5.87%), Germany (5,36%), France (5,04%) and the United Kingdom (5,04%). A 2009 report by the US Government Accountability Project (GAP) reported that “only four black Americans held professional positions out of more than 1,000 U.S. nationals. This figure represents a significant proportional decline even from the abysmal levels reported thirty years ago” (GAP 2009; Chiles 2012). The World Bank’s own internal survey during that time showed that SubSaharan Africa, Caribbean and black American staff do not appear to have the same opportunities to advance than others (GAP 2009; Chiles 2012). Africa accounted for over 50% of the World Bank’s development assistance, but only 2.5% of the professional staff in the development economics section – responsible for ideas on poverty alleviation were African (Chiles 2012). The decline of the UN UN in its current form have lost its credibility, relevance and authority. The UN has in many cases failed to maintain global peace, security and intervene timely in humanitarian crises. In more recent times it “failed to effectively respond to international crises such as the genocide in Rwanda, the Srebrenica massacre in Bosnia, the second Iraq War, the Syrian civil war, Russia’s annexation of Crimea, and mass atrocities in the Sudanese region of Darfur and Myanmar’s Rakhine State” (Friedman 2022). In 2020, the then President of the UN General Assembly, Volkan Bozkir said “competing interests among its members and frequent use of the veto have limited the Council’s effectiveness”, and that even in the most urgent humanitarian crises, the organisation has “failed to provide a timely and adequate response” (UN 2020). The mistrust in the UN, has caused many countries not to cooperate with UN-led attempts to mobilise international cooperation in global crises, such as wars, the health pandemics and disasters. During the Covid-19 pandemic the UN Security Council was spectacularly absent in providing leadership. The Covid-19 pandemic has “laid bare the United Nations Security Council’s incapability to produce quick solutions to contain the spread of the virus. The UNSC held very few meetings even as the pandemic was spreading death and destruction” (Mehta 2020). A dispute between the US and China which lasted three months after the global outbreak of Covid-19, delayed a resolution proposed by UN Secretary General Antonio Guterres calling for greater international collaboration to combat the disease, support for poorer countries and requesting countries in wars to call ceasefires to prioritise combating the disease (Mehta 2020). The UN released a report, “Our Common Agenda”, on the future of multilateralism in September 2021. The “Our Common Agenda” report highlighted the failures by countries to cooperate under the UN banner to tackle global crises. The report points out the failure of countries to coordinate efforts to combat the Covid-19 pandemic. Following the UN “Our Common Agenda” report, the UN Secretariate was tasked to develop policy responses to the criticisms of the failings of the organisation. A global gathering, called a Summit for the Future is planned for September 2023, when the recommendations from the “Our Common Agenda” will be discussed and a “New Agenda for Peace” for global peace and security agreed on (Gowan 2022). Alongside the planned Summit for the Future, the UN has also appointed a “High-Level Advisory Board on Effective Multilateralism convened by Ellen Sirleaf Johnson, the former Liberian President and Stefan Löfven, the former Swedish Prime Minister to come up with proposals for a change in global governance structures (Gowan 2022). The perception that the UN is biased against developing countries have led many developing countries to unite behind calls to reform the organization. For another, many developing countries on principle vote against or abstain on issues in UN pushed by industrial countries. The last couple of years developing have increasingly formed blocs opposing industrial countries – turning the UN into “a us (developing countries) versus them (industrial countries). This has further undermined the authority, focus and workings of the UN. Nevertheless, the rising developing country calls for reform of the UN has up to now being ignored by industrial countries. For another, the collapse in credibility of the UN has given countries such as Russia and China the opportunity to act unilaterally. The decline of the UN raised the spectre of more copy-cat Russian-like incidents of aggression by powerful countries against more vulnerable, making the world even more unstable. Unless something is done about reforming the UN, the rule of law at global level will collapse. For another, unless the UN and other multilateral organisations are made more representative, inclusive and equal, countries who feel excluded may form alternative global organisations. Many developing countries are increasingly turning their back on the UN – because they have no voice. During the first few weeks of Russia’s invasion of Ukraine, when Russia as a permanent member of the Council blocked UN action, Ukrainian President Volodymyr Zelensky (2022) called for new more democratic global institutions. Zelensky proposed a new “union of responsible countries” to replace the UN. Such a new UN would intervene within 24 hours of a country experiencing an attack by another country, natural disaster, or health crisis, saying “a union of responsible countries that have the strength and consciousness to stop conflicts immediately.” And many other countries are reluctant to contribute to UN activities, such as peacekeeping. On the ground, because of the perceived bias of the UN, many UN peacekeeping forces have often been – been wrongly attacked in Africa by locals. UN Security Council – central shortcomings The central weakness of the UN is the Security Council which is limited to 5 permanent members - China, France, Russia, the United Kingdom and the United States, with outsize powers. The five have veto power on key UN decisions. The UN Security Council is it is, is simply not relevant to the changing world anymore. The only substantial reform of the UN Security Council was introduced since the establishment of the UN in 1945 was in 1965, when the number of elected, non-permanent seats, but without the veto, was increased from six to ten. The UN Charter was amended to make this possible. There have been two broad reforms focuses, one to expand the UN Security Council beyond the five permanent members and the other to reform the Council’s processes, meeting procedures and administration, called the working methods (Kugel 2009; Swart 2013; Lehman 2013). In 1992, an Open-ended Working Group on the Question of Equitable Representation on and Increase in the Membership of the Security Council and Other Matters Related to the Security Council was established to spearhead reforms. The group’s workings were on the basis of consensus. However, the reform group collapsed because of disagreements (Lehman 2013; Swart 2013). By 2005, a number of different developing country groups had emerged split along the lines of the type of reforms they wanted. The Africa Group and the Group of Four (G4), consisting of Japan, Germany, Brazil and India called for the expansion of permanent seats. Another country grouping, the Uniting for Consensus group, formed by countries including Italy, South Korea and Argentina, limited their proposals to only an extension of non-permanent seats. Because of the impasse, the UN members in 2008 proposed to conduct what is called intergovernmental negotiations at the General Assembly of the UN. In such negotiations decisions can be resolve by a two-third majority of the General Assembly. However, by 2013, of eight rounds of negotiations, the process collapsed. It has not moved since. Jerry Matjila (2020), South Africa’s UN representative blamed the UN’s failure to maintain global peace and security as “largely due to its current outdated configuration”, which makes it impossible for it to make decisions, make decisions in the self-interest of permanent members and leading to non-permanent members rejecting what appears to be biased decisions by the five permanent members. India’s Prime Minister Narendra Modi said: “The credibility and effectiveness of global institutions is being questioned. The reason for this is that there has been no change in these institutions despite the passage of time. These institutions reflect the mindset and realities of the world 75 years ago” (Gupta 2020). The five permanent members have often abused their power for their own national interests, rather than in the common interests of humankind. The UN’s credibility was destroyed by those 5 permanent members abuse of the organisation for selfish interests, forcing other countries to turn their back on the organisation as a place where they have voice. These include, the invasion of Iraq, with questionable reasons, with many countries outside the 5 permanent members opposing it, and the invasion of Libya, which were also opposed by many countries, have undermined the UN. The Security Council members have also dominated the election of UN General Secretaries – which means that general secretaries often did not get wider legitimacy among countries. Appointments as heads of UN organisations such as UNESCO, UNDP and UNCTAD are often also heavily influenced by the permanent 5. The veto power of the 5 permanent members is particularly anachronistic. The legitimacy of five countries having a veto over decisions at the UN Security Council has been bitterly questioned (UN 2020). Critics of the veto have been rightly said it was often arbitrarily used, or used to protect the five countries’ self-interest, rather than the interest of humankind broadly, and that it has undermined the functioning, effectiveness and legitimacy of the UN. The 5 permanent members have often forced their own choices of UN general secretaries. As the world’s get more uncertain, dangerous and complex, UN heads forced on other countries by the Security Council’s 5 permanent members, have recently often been bland figures, almost invisible who lack global country support beyond. In the past UN general secretaries were larger than life figures, with global personal or country authority, credibility and reputations, many who could through their own personal appeal persuade country leaders. Challenges of reforming the UN administration Some countries have also rightly called for an overhaul in the way that UN conducts its business, its processes and meeting formats, called its working methods (Nadin 2014). Article 30 of the UN Charter (1945) says that the Security Council must adopt rules of procedure, or operating procedures of its administration. The Security Council adopted a Provisional Rules of Procedure (S/96) in 1946. The rules of procedures have remained provisional since. Security Council permanent members have been unenthusiastic about making the changes, beyond the most superficial. The rules of procedure remain untransparent, lack participation and accountability. How decisions on sanctions are made, where peacekeeping forces should be deployed and how to hold decision-makers accountable are veiled in secrecy. In 2005, the UN World Summit Outcome Document proposed the Council way of operating should become more accountable. It recommended the Council improve its working methods, by becoming more transparent and inclusive in its decision-making processes. However, the permanent five members of the Security Council have consistently blocked proposals to make the working methods, procedures and decisions of the Council accountable. Some non-permanent members have been wanting reform of the Council to simultaneously address the composition of the Council and the working methods of the organ. Others have tried to separate the working methods reforms from these of calls to change the composition of the Council. In 2005, five countries, Costa Rica, Jordan, Liechtenstein, Singapore and Switzerland, formed a group, called S-5 to mobilise for reform of the working methods of the Council. The S-5 group stayed clear from proposing Council composition reforms. The S-5 group stayed within the confines of proposing reforms that will be passed by a simple majority in the UN General Assembly (Lehmann 2013). In 2012, the S-5 proposed a draft resolution (A/66/L.42/Rev.2) calling for administrative transparency, inclusiveness and accountability in the workings of the Security Council. It called for greater inclusion of non-permanent members in decision-making on peace-building initiatives, in preparing, monitoring and ending mission mandates. The S-5 group called for the Security Council to provide information about its activities, decisions and planned actions, including holding monthly briefings to UN members about these. The S-5 resolution called for the permanent members not only to be transparent in the use of the veto, but to limit the use of the veto. They proposed the permanent members must explain why a veto is used. The group suggested the veto not be used to block UN action against mass atrocities. The S-5 proposals also called for greater participation, inclusion and transparency in the appointment of the General Secretary of the UN. The appointment of the UN General Secretary has been dominated by the 5 permanent members. The S-5 group also called for greater participation in the workings in and for the end of domination by permanent members of subsidiary bodies of the UN. The S-5 group proposed a change in the relationship between the Security Council and the General Assembly, away from the current one where the permanent members can override General Assembly resolutions or ignore them. They argued or greater accountability of the Security Council to the General Assembly. The permanent members rejected the reform proposals from the S-5 group, insisting only they, permanent members, can decide on the appropriate reforms of the working methods of the Council. The permanent members put sufficient pressure on the UN administration to make obligatory for the S-5 group proposals to be adopted by a two-thirds majority of the General Assembly, something not easy to achieve. The 5-permanent members, despite their political differences, were united in their opposition to the proposed transparency, accountability and inclusivity reforms. At the time Russia and China were pitted against the US, France and the UK over the Security Council’s handling of the Syrian civil war. The opposition by the five permanent members were particularly riling for many non-permanent members, as latter put pressure, inducements and even coerced poor developing countries to support them (Lehmann 2013). China was accused of pressuring African countries in which it had large investments, loans and projects to not support the reforms to the working methods of the Council proposed by the S-5 group (Lehmann 2013). Furthermore, the “Uniting for Consensus Group” at the last-minute after initially supporting the S-5 proposals, withdrew their support before the vote was to take place. This lobby, “Uniting for Consensus Group”, and nicknamed the “Coffee Club”, was founded by Italy, Mexico, Egypt and Pakistan in 1995, have since been joined by others including Argentina, Spain and Canada. They did so because the G4 group of countries, Brazil, Japan, Germany and India, referred to as the G4, which competes over UN reform direction with the Uniting for Consensus Group, had supported the S-5 proposals. Following the opposition by the 5 permanent members and the Uniting for Consensus Group, the S-5 withdrew their UN working methods reform resolution. For another, they also withdrew it for tactical reasons, to prevent a precedent be set, at the insistence of the permanent members, that critical reforms, such as the working methods reform, would need a two-third majority vote in the General Assembly (Lehmann 2013). By 2012 the S-5 group’s attempts to reform the working methods of the UN had collapsed. “The failure of the S-5 was first and foremost a show of force on the part of a P5 (permanent members) determined to maintain their control over the representation of member states interests and the reform agenda at the UN” (Lehmann 2013: 3). Following the failure of the S-5 reform proposals, 27 small and mid-size members of the UN in 2013 launched a fresh effort to reform the UN Security Council’s internal workings and its relationship with the broader UN membership, calling themselves Accountability, Coherence and Transparency (ACT). The group included Sweden, Norway, Finland, Ireland and Chile. The ACT group stated their objectives as: “[T]he UN Security Council (UNSC), in its present composition, shall work in a more transparent, efficient, inclusive, coherent, legitimate and accountable way, both within its own structure, but also in relationship with the wider membership” (ACT 2013). It argued that a Security Council that is accountable was “more legitimate, coherent and efficient” (ACT 2013). The ACT stayed clear of proposing reforms on democratising the Security Council. The ACT included some of the reform proposals of the S-5 group – four of the S-5 members were ACT members. The ACT repeated the S-5 group proposal that the Security Council should not used their veto when a decision is mass human rights abuses. In 2015, ACT proposed a Code of Conduct to guide Security Council action against genocide, crimes against humanity or war crimes “which calls upon all members of the Council (permanent and elected) to not vote against any credible draft resolution intended to prevent or halt mass atrocities” (ACT 2013). The group asked for more due process when the Council decides on sanctions against errant countries. The group called for more fairer allocation of penholdership – the role of initiating and negotiating Council draft resolutions, which has been in the past heavily skewed towards allies of the permanent members. Furthermore, it called for more inclusive and transparent process for the distribution of the Chairs of the Council’s subsidiary bodies. They also want troop-contributing countries to UN peacekeeping operations to participate in Council decisions when and where to send peacekeepers. The ACT group also wants more transparency in the relationship between the Security Council and the International Criminal Court and the International Criminal Tribunal for the former Yugoslavia. The ACT group proposed more open meetings of the Council, regular briefings and wider consultation before resolutions are prepared, by the Council to the Assembly. The ACT group want more meetings between the UN Security Council and civil society organisations. The UN reform debate so far In 2009, the UN established the Intergovernmental Negotiations Framework (IGN) to look at Security Council reforms. The discussions within the forum are considered “informal”, and therefore the UN General Assembly rule of procedure do not apply. Many countries have called for the “urgent need for transparency and application of general assembly’s rules of procedure to the intergovernmental negotiations” (Naidu 2020). Some countries have accused the permanent members of deliberately stalling turning the consolidated text of the “informal” Intergovernmental Negotiations Framework into formal negotiations, which will apply the General Assembly’s rules of procedure (Naidu 2020). At a UN Assembly debate in 2020 on Security Council reforms, Assembly President Volkan Bozkir, from Turkey, said reform is “an unavoidable imperative, both challenging and essential” (UN 2020). Bozkir warned: “This process can and should be an opportunity to correct the problems of structure and functioning of the Council. It should not create new privileges” (UN 2020). UN Security Council reform to bring in it more equitable representation has been on the UN General Assembly programme since 1979, with very little progress. Ronaldo Costa Filho, Brazil’s representative at the UN Assembly said inclusive representation at the Council is a precondition for restoring the legitimacy of the organisation (UN 2020). Recent reform proposals argue for the expansion of the 15-Member Council beyond the five permanent seats held by the United States, United Kingdom, Russia, China and France and the remaining non-permanent membership. The proposals all push for greater regional representation and greater participation in the Council affairs to increase the legitimacy of the Council. Changing the Council’s composition and substantial decisions need a two-thirds majority member of member states in the UN’s General Assembly. Most of the UN reform debate has focused on reforming the Security Council, specifically to reduce the dominance of the 5 permanent members. There are essentially three broad overarching reform proposals or lobbies. Some countries, such as Brazil, Japan, Germany and India, referred to as the G4, have proposed enlarging the Council (Nadin 2014), by including at least six new permanent members, which would include Brazil, Japan, Germany, India, two African countries and introducing additional three elected seats on the Council. Another proposal is creating “new permanent seats in each region, leaving it to the members of each regional group to decide which member states should sit in those seats, and for how long” (Nadin 2014). This lobby, “Uniting for Consensus Group”, and nicknamed the “Coffee Club”, proposed a 26 member Council, with 9 permanent seats among regions, and the remainder of the seats would be held for two-year terms, with the option to get re-elected for another term (UN 2020). The Uniting for Consensus Group was founded by Italy, Mexico, Egypt and Pakistan in 1995, have since been joined by others including Argentina, Spain and Canada. The Uniting for Consensus group reject an increase in the number of permanent seats in the UN Security Council, but argue for the increase in non-permanent seats. They believed that increasing permanent seats will increase the power inequality – but just adding more countries that will have access to Council power. The group now has 50 countries in Africa, Asia and Latin America. African countries as a group, have proposed two permanent seats and two additional elected seats for Africa on the Council (Nadin 2014; UN 2020). All the different proposals for reform include Africa in one form or the other on a transformed Council. African countries cobbled together their common position under the ambit of the 2005 Ezulwini Consensus and the Sirte Declaration. At the 2020 UN Assembly debate, the Chinese representative said: “Reform must focus on equality between big and small States, strong and weak, rich and poor” (UN 2020). South Africa has advocated for a 26-seat Council with an increase in permanent and non-permanent seats and giving representations to all five regions of Africa in some form on the Council (Matjila 2020). The US supports “modest” expansion of the Council “as long as it does not diminish the effectiveness of the Council or impact veto power” (UN 2020). There has been compromise reform proposals suggested by individuals outside the formal UN reform negotiations process. Zeid Ra’ad Al Hussein (2022) the former UN High Commissioner for Human Rights and former Jordan ambassador to the UN have proposed that a super-majority in the UN General Assembly should override any veto of a permanent member. Such a super-majority of member countries could be based on three-quarters or seven-eights of the membership vote. Former Colombian Finance Minister José Antonio Ocampo and former Turkish Economy Minister Kemal Derviş have similarly proposed a majority veto be introduced, they called it a “a large double majority—representing, for example, at least two-thirds of member countries and two-thirds of the world’s population—to override a veto.” Clearly, given that permanent members appear resolutely opposed to relinquish their veto, such majority vote proposals to override the veto of permanent members should be considered. UN reform opposition, and lack of consensus Currently, any change to the UN Charters – which involves reform of the composition of the UN Security Council needs a two-thirds majority and supported by all permanent members of the UN Security Council. A veto from any of the five permanent members of the Council stops any decision to be taken by the Council. In the past, China has used its veto power to stop efforts to discuss criticisms of its role in Tibet, Hong Kong or Taiwan (Mehta 2020). China for example used its veto power to block sanctions against Pakistan-based militant Jaish-e-Mohammed Masood Azhar, who have been accused of terrorism, for over a decade, until it budged in 2019 (Mehta 2020). Some developing country analysts have accused China of “using a variety of excuses to delay the intergovernmental negotiations process, which has been going on for over 10 years” (Mehta 2020). The intergovernmental negotiations process refers to country discussions at the UN on reforming the Security Council. India has accused China of dragging its feet on reform, because it did not want India to become a permanent member of the Council (Mehta 2020; Gupta 2020). China “supports reasonable and necessary reform” of the Council. The Chinese dragon does not want to abolish the Council or the idea of permanent membership, neither the veto. However, China wants to increase the representation of developing countries on the Security Council (CGTN 2022). “At present, the makeup of the Security Council is out of balance between the North and the South, and reform should correct the over-representation of developed countries, earnestly improve the representation of developing countries, correct the historical injustice suffered by Africa, and give more opportunities to small and medium-sized countries that come from Asia, Africa, Latin America and Arab countries and small island countries to serve in the Council and play their important role” (Zhang 2021). Russia has also used its veto power to block UN action against it (UN 2022). In February 2022, Russia vetoed a UN Security Council resolution that have would have demanded the country stop its invasion of Ukraine and withdraw its troops (UN 2022). Some countries, such as Pakistan and Colombia, oppose Security Council expansion. In the UN Assembly 2020 debate, the Pakistan representative said since the 5 current permanent members cannot agree on policies, adding additional ones will increases decision paralysis. Columbia’s represent said that expanding the Council will not automatically increase transparency of the structure. There have been a number of proposals not to eliminate, but to the limit the veto. Mexico for example have argued for limiting, rather than eliminating the veto that permanent members have (UN 2020). Mexico and France have proposed to retain, but to restrict the instances in which the veto could be used. Mexico and France argue proposed that the veto be restricted in the cases where the UN must urgently intervene when mass atrocities are committed – to prevent paralysing inaction. The UK does not support the elimination of the veto but advocate its responsible use. UK representatives in the UK emphasise that the “UK has not used its veto since 1989 and will never use it on any credible draft resolution to prevent or end a mass atrocity” (Allen 2020). The US and the UK are not enthusiastic about large-scale reforms of the UN Security Council. The UK supports “modest expansion of the Security Council in both permanent and non-permanent categories”, which includes the “creation of new permanent seats for India, Germany, Japan and Brazil, as well as permanent African representation on the Council”, to bring “the Security Council’s total membership to somewhere in the mid-twenties” (Roscoe 2021). The US is “open to a modest expansion of the Council in permanent and non-permanent categories as long as it does not diminish the effectiveness of the Council or impact veto power”. The US is opposed to taking away the veto power of permanent members. The US insists that any alteration in the Council structure must be “made by consensus” (UN 2020). Historic feuds between individual countries are often also played out in the debate over UN Security Council reform- and undermines building developing country consensus on reforms. China got Taiwan expelled from the UN and Security Council membership in 1971. China then took Taiwan’s place on the Security Council, after it became vacant (UN 1971). South Korea for example opposes Japan securing a permanent Security Council seat because of Japan’s former colonisation of South Korea. China has consistently opposed Japan’s admission to the UN Security Council (AFP 2005). China has insisted that Japan should not be granted permanent status on the Security Council until it atones for its wartime history (AFP 2005). In 2009, Japan’s public bid for a permanent UN Security Council unleashed two days of violent protests in China (Fincher 2009). Former Chinese Premier Wen Jiabao at the time said: “I think the core issue in the China-Japan relationship is that Japan needs to face up squarely to history,” before China will support its Security Council seat bid (Fincher 2009). India claims China is blocking its ambition to secure a permanent Council because of frosty relations between the two countries (Mehta 2020). In 2020, Indian Prime Minister Narendra Modi claimed China has stood in India’s way to become a permanent member of the Security Council and into associated UN international fora such as the Nuclear Suppliers Group. Modi claimed China deliberately tagged India’s entry into the Nuclear Suppliers Group to Pakistan’s acceptance, although India, according to Modi having a an “impeccable non-proliferation record”, which he said was not the case for Pakistan (Gupta 2020). Conclusion: A new UN democratisation agenda New global institutions are needed or current ones needed to be remade to be more relevant to the new more complex, uncertain and unpredictable post-Cold War world where the ideologies of the past, old institutions and old ways of looking at the world are increasingly becoming largely irrelevant. If the UN is to be retained, the UN must not only be reformed, it must be democratised to ensure equitably representation, participation and decision-making to ensure the credibility, legitimacy and embrace of the organisation. The UN’s administration must be democratised to “increase transparency and enable greater engagement of the Council members especially small and medium sized countries in the Council’s work” (PRC 2022). In fact, the working methods of the UN must be democratized in such a way to allow all members to have equal participation. The idea of a UN Security Council with permanent members is clearly outdated. Yet, permanent members appear resolutely opposed to relinquish their veto. So far, proposals for reform have been mostly about increasing the numbers of countries on the UN Security Council. Proposals that call for majority votes in the General Assembly – if permanent refuses to let go of their veto power - to override the veto of permanent members should be considered. Ultimately, the idea of a limited number of countries having veto power should also be abolished entirely. The veto is not only unfair, make countries unequal and open to abuse, it has also paralysed the function of the Council. The UN should be democratised in such a way that a few countries – or regional blocs do not dominate the organisation’s decision-making, or able to manipulate or block action. Importantly, democratisation of UN decision-making must be based on every country having equal power. 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Zack Beauchamp (2017) “Here’s what UNESCO is – and why the Trump administration just quit it”, Vox, October 12. https://www.vox.com/world/2017/10/12/16464778/unesco-us-withdrawal-trump Zeid Ra’ad Al Hussein (2022) “Reform or Dissolve: Ukraine’s Challenge to the United Nations”, International Peace Institution public, April 14. https://www.youtube.com/watch?v=sK9BmL54xws&t=1544 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - This report has been published by the Inclusive Society Institute The Inclusive Society Institute (ISI) is an autonomous and independent institution that functions independently from any other entity. It is founded for the purpose of supporting and further deepening multi-party democracy. The ISI’s work is motivated by its desire to achieve non-racialism, non-sexism, social justice and cohesion, economic development and equality in South Africa, through a value system that embodies the social and national democratic principles associated with a developmental state. It recognises that a well-functioning democracy requires well-functioning political formations that are suitably equipped and capacitated. It further acknowledges that South Africa is inextricably linked to the ever transforming and interdependent global world, which necessitates international and multilateral cooperation. As such, the ISI also seeks to achieve its ideals at a global level through cooperation with like-minded parties and organs of civil society who share its basic values. In South Africa, ISI’s ideological positioning is aligned with that of the current ruling party and others in broader society with similar ideals. Email: info@inclusivesociety.org.za Phone: +27 (0) 21 201 1589 Web: www.inclusivesociety.org.za

Copyright © 2023 Inclusive Society Institute PO Box 12609 Mill Street Cape Town, 8000 South Africa 235-515 NPO All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without the permission in writing from the Inclusive Society Institute D I S C L A I M E R Views expressed in this report do not necessarily represent the views of the Inclusive Society Institute or those of their respective Board or Council members. JANUARY 2023 Social advancement and change through public college education funding by Dr Connie September Ph.D. in The Management of Technology and Innovation in Education, Da Vinci Institute. Abstract Policies of the Technical Vocational Education and Training (TVET) sector that lend itself towards social advancement have become evident. The aim was to explore the policies, legislation and regulations of the funding realm in the public colleges towards a response with empirical evidence of improved social gains in South Africa. The significant findings of the study revealed the magnitude of youth unemployment prevalent in the country. The results of the study render a single policy intervention ineffective, and therefore a multipronged approach offers better prospects towards a social outcome of employability possibilities for young people. Many countries have dealt with challenges to construct funding formulae. Government policies often tend to increase rather than reduce the divergence between private and social valuations (an external effect which leads to misallocation of resources). Overall, the study concludes that policymakers and stakeholders must optimally combine priorities in order to ascertain the social value of the related areas. Consideration towards activation policies to encourage and help youth find a job is to be based on the “mutual obligations principle” as a form of improved social outcomes, whereby payment of unemployment benefits is combined with job search requirements and compulsory participation in Active Labour Market Programmes. Key words: social gains; policy and legislation; multipronged; mutual obligations. Introduction This paper outlines the policy and legislative prescripts of funding of the public colleges sector in South Africa and their concomitant social outcomes. More broadly, it explores evaluation techniques to gain a full view of the value that those social programmes can have on increased funding for the TVET sector. An increased interest in policies of the TVET sector towards a developmental approach of economic growth and skills development seems evident. The point of entry into legislation on the values and principles, which act as bastions underlying the Constitution, results from the ultimate importance of the law in the inducement of a desired result in the implementation process, according to Maluleke (2000:46). In order to translate policy and legislation, the economy and social relations have to become key drivers for delivery. Success is achieved through assessment and evaluation with a developmental state having the organisational and technical ability to translate broad objectives. A developmental agenda to give effect to increased funding in the TVET sector is firstly displayed within a relationship between expenditure and the social change within the individual student and, more broadly, collectively in societies. Thus, a social return-on-investment not only fosters trust and cooperation, but also enhances the benefits of investment in infrastructure as well as human capital. With a developmental state increasing the financial investment into the TVET sector, realising the social value, the funding is therefore not seen as a bothersome expense, but an investment in societal improvements. A framework for a social return-on-investment has the ability to assess expenditure and become reviewable towards a new funding model that can detail the social outcomes to be achieved. In essence, expenditure must relate to an achievement of a policy outcome as policy outcomes are informed by budget allocations. The developmental role that the state has accorded to the TVET sector – as part of transforming the type of outcome of the sector – appears to have a deliberative policy intent with an inclusive social justice perspective to redefine its traditional relationship with education, as well as within the economy as encapsulated in legislation. This means that any financial increases to the TVET sector must resonate with a responsive outcome towards a social return to such an investment. Background The history of Further Education and Training (FET) colleges in South Africa can be traced back to the technical colleges that supported the apprenticeship system. These were reserved for the white population only and were found in major centres and industries during the apartheid era in South Africa. This culminated in capital intensiveness in high-skill white enclaves alongside low-skilled black labour. By 1994, the college sector remained racially fragmented. It was further characterised by being linked very weakly to the labour market with students not having access to practical training. This further contributed to graduate unemployment within a broader global crisis of youth unemployment (King & Mc Grath, 2002). The decision to place the public technical colleges in the same further education and training stream as senior schools at a provincial government level came with serious challenges for the public college sector. These included the neglect of funding as well as the college provisions in the National Accredited Technical Education Diploma (NATED) programmes. As early as 1993, The Committee of Technikon Principals agreed to reallocate funding from the historically advantaged technikons to the disadvantaged institutions (Moja & Hayward, 2000). A considerable increase in funding for the public colleges saw the budget grow in 2010 from R3.8 billion to R5.45 billion in 2013/14, a 43% increase (DNA Economics, 2015). The South African government’s policy intention of the public funding for the TVET colleges outcome is encapsulated within the National Norms and Standards within the Continuing Education Training Act of 2006. The public colleges migrated in 2009 to the Department of Higher Education and Training (DHET), with the establishment of a single ministerial portfolio for higher education. Background to Funding Intention Prior to 1994, off-budget financing of educational development programmes was identified and has been uneven in impact and effectiveness (ANC Education Policy, 1994). Inequitable funding formulae and procedures were seen to encourage wasteful or extravagant spending in some quarters, while under-funding critical services for low-income communities and other disadvantaged groups remained a challenge. The legislative obligation – as derived from the Constitution (1996) – provides in Section 26 of the Public Finance Management Act (PFMA) 1 of 1999, that Parliament must appropriate money for each financial year for the requirements of the state. Expenditure management has three administrative levels and intents which include: Policy determination objectives and resource needs Resource allocation to those objectives and needs Assurances that the objectives and needs are carried out efficiently, economically and effectively (Premchand, 1993:22). The national norms and standards for funding technical and vocational education and training colleges, in accordance with section 23 of the CET Act (2006), considered the public TVET Colleges to address the cost-effective services; bring about change in skills development; prepare graduates for labour market employability; as well as contribute towards the growth of the South African economy. Background to Policy Formulation The South African college system has its own unique function, which was preceded by consolidating a fragmented sector; address an unchanged college curriculum; expose learners to practical experience in a work-related environment; as well as address qualitative learning and teaching. The public college policy and legislation had to be an operation tailored to the needs of the country as established (CET Act, 2006). The introduction of the Green Paper (DOE, 1998) saw the state indicating an intention to steer and oversee vocational education and training, and hence the policy change of public colleges was renamed Further Education and Training (FET) colleges. To increase the investment and involvement of employers in training, the Green Paper (1998) called for the introduction of a levy-grant and the introduction of learnerships (a model to extend apprenticeships). These policies were enacted into the Skills Development Act (1998) and the Skills Development Levies Act (1999). A joint policy paper by the Departments of Education (DOE) and Labour (DOL) (2001) ensured the output for vocational education and training culminated in the Human Resources Strategy, which sought to provide a baseline on supply and demand issues. Whilst inequities between historically privileged colleges as well as under-resourced colleges still existed, the South African government introduced a further economic reform, namely the Accelerated and Shared Growth Initiative in South Africa (ASGISA) in 2006. The introduction of ASGISA can be read as part of a broader shift in emphasis, which was part of the rationale that came from an acceptance that policies have not been working well enough. ASGISA emphasised the increase of skills, the upgrading of FET colleges and introduced a policy called the Joint Initiative for Priority Skills Acquisition (JIPSA) (2006). This prompted the emergence of an increased focus on colleges with more theoretical input and less artisanship; skills training for the workplace; as well as the introduction of the National Certificate Vocational (NCV), which replaced the NATED programmes. South Africa required further revision and additional policy development. This led to The National Skills Development Strategy III (NSDS) (2010) to enhance the integrated national framework. The New Growth Path (NGP) (2011) was released in 2010 as a strategy to reduce unemployment by 10% by 2020. Arising from the White Paper on Post School Education and Training (WPPSET) (2013), a draft Joint Policy Statement on “enhancing the efficacy and efficiency of the National Technical and Vocational Education and Training (TVET) System” (2016) called for an integrated approach to realise the development of intermediary level skills required by the economy which were to be produced by the TVET system. The National Plan for the Post-School Education and Training (NPPSET) (2019-2030) provided a roadmap for the implementation of the policy vision of the White Paper on Post School Education and Training (WPPSET) (2013). These policies came against the backdrop of an increasing hostile labour market and economic environment for the TVET sector. An uptake of learnerships and the placements in employment of graduates of the public colleges were constrained by the lack of employer demand for entrants. The newly established National Planning Department of the South African government in 2009 led to the National Development Plan (2012) being produced. The plan included detailed proposals that the South African government has to achieve by 2030. The TVET colleges are the catalyst within these policies to drive the developmental needs of South Africa, a country which is advancing towards a developmental state. In spite of getting higher growth from an increased expenditure on the TVET colleges, the reduction of unemployment in South Africa has not occurred. According to Statistics South Africa, the South African economy shed 2,2 million jobs in the second quarter of 2020, while in the first quarter of 2021 the unemployment rate increased to 43.2%, as per the expanded definition of unemployment (Stats SA, 2021). Between 1994 and 2012, the average economic growth rate was 3.2% (Bhorat, Cassim & Tseng, 2016), whilst since 2012, the annual growth rate fell from 2.2% to 1.3% in 2015, which Sheppard and Cole (2016) noted was below the estimates of the National Development Plan of more than 5% per annum to 2030 (National Planning Commission, 2011). Aim The aim was to explore the policies and legislation, together with the regulations and related norms and standards, as they all manifest themselves in an integrated way and respond with empirical evidence of improved social gains to the requirements of a developmental state. Objectives The research endeavoured to find the reasons behind the fact that a developmental approach to skills development into the economy, and the reduction of unemployment, had not been realised despite an increase in TVET funding and related policy changes. It also proposed solutions based on the findings and included conclusions reached from the research. In support of the aim, the research objectives were to: Examine the rationale of the South African developmental state which devotes a considerable increase in the public college sector budget allocation. Examine the policy, norms and standards processes established to analyse the demonstration of social gains on government expenditure. Research Question The research question was motivated by the researcher’s real-life observation and experience in fulfilling what is termed in parliament an oversight responsibility of parliamentary committees as per the rules of parliament over DHET, the Minister and their entities. Primary Research Question What is the nature and scope of the public funding of the public college sector and how does it affect the social gains in higher education in South Africa? Secondary Questions In order to address the primary research question, the following secondary questions were posed: What is the rationale behind the South African developmental state devoting a considerable increase in the public college sector budget allocation? What are the policy, norms and standard processes established to analyse the demonstration of social gains on government expenditure? Methodology The researcher undertook a conceptual and theoretical framework of literature review in South Africa. This was done by doing a desktop literature review of scholarly articles; examining books and reports; as well as the financial norms and standards of TVET allocation, legislation and policies of the public college sector in South Africa. The study comprised a qualitative research method employed together with a [1]grounded theory data analysis process and applying an inductive lens to the theory development reasoning. Conceptual and Theoretical Framework The theories of the financial frameworks and norms and standards were found to have a relationship with the dictates of the Constitution (1996). The institutions built; the philosophies adhered to; the prevailing ideas of the time; and the culture of society were all determined by the economic structure of a society according to Karl Marx, in Burke (2000). The research approach took into consideration that education is a societal issue and a socio-economic approach to funding policies might be best. The conceptual framework was developed based on the literature of current studies and theories. The researcher identified and constructed a global view of TVET funding and policies, as well the linked concepts that together provided a comprehensive understanding of the phenomenon of policies of various countries and international bodies. Major Findings Theoretical and Conceptual Findings Policy papers such as the NDP (2012) and The WPPSET (2013), as well as the Revised Norms and Standards (2021), provide the theoretical intentions of government currently. They outline policy directions to guide the DHET and the institutions for which it is responsible to contribute to building a developmental state with a vibrant democracy and a flourishing economy. In addition, the national policy framework of Department of Planning Monitoring and Evaluation (DPME); the list of skills and occupations in high demand; and the presidential district models to effect skills development provided for a practical response to the national skills development objectives and the CET Act (2006). Policies that address unemployment are broadly divided between those that consist of the demand side and those that consist of the supply side. Education is part of the supply side policies that can address and solve occupational immobility and reduce structural unemployment. The political economy of education, which is about demand and supply, has a relationship with employment opportunities and dictates – as with other commodities or services – and the amount produced (Todaro & Smith, 2009). The effective financing of TVET education causes the demand side to have more educated students with prospects of future earnings. The magnitude of the youth employment challenge facing South Africa makes its resolution impossible by a single employment policy. A combination of interventions, or a multipronged approach, is likely to offer the greatest potential for young people to gain decent work opportunities and alleviate youth unemployment. Emergent Themes and Concepts of the Policy and Legislation Policies and proposals for confronting youth unemployment should be guided by the underlying issues that explain why youth employment is so low (National Treasury, 2011). ASGISA identified urgent skilled persons (engineers, artisans, technicians, and planners) and quick and effective solutions, as well as skills for local economic development, as paramount. However, no new funding for new programmes emerged and relatively high economic growth was not experienced. In addition, a continuation of socio-economic decline became prevalent. Employers were unenthusiastic regarding government policies (Mc Grath & Akoojee, 2007). These findings are consistent with the NDP (2020) evaluation plan towards 2030. The themes that emerged spoke of the targets that were set for the TVET sector, which are unlikely to be achieved. The broad visions of the National Development Plan (2012); the New Growth Path (2011); the Industrial Policy Action Plan 2 (2011); and the Human Resource Development Strategy for South Africa 2010-2030 (2009) collectively articulate a TVET college sector that contributes towards inclusive growth. The themes that emerged from the skills supply and demand reports highlighted rising unemployment and low literacy and numeracy skills. They also cited a continuous increase in those not in education, employment or training – referred to as the NEETS – with females bearing the brunt of these challenges. A positive increase in the enrolment of young people in the TVET sector has not produced encouraging information on skills needs in South Africa (ibid). The misalignment and mismatch of funding allocation, and the skills demand and supply, are prohibiting factors towards economic growth in the country. Thus, alignment with trade and investment strategies, together with economic growth, education and training is required. Each year, the sector education training authorities publishes the hard-to-fill vacancies; the skills gaps, the critical skills and sectoral priority occupations and interventions lists as part of their sector skills plan. The findings reveal that, thematically, an outdated curriculum and insufficient exposure to the workplace towards apprenticeship is prevalent within the TVET sector. Employers view the type of skills produced as not addressing the skills required in the labour market. The Revised National Norms and Standards for Funding TVET (2020) revealed the following within its funding formula for the TVET sector: guidance towards the public college sector through an expenditure framework on how funds allocated are structured towards the public college sector in fulfilling its mandate. However, a National Treasury review (2016) shows that funding the public colleges is based on full-time equivalent enrolments. Public colleges receive a proportion of the 80% allocation and the total funds made available for public colleges are allocated according to the province in which they are located. A recurring theme that emerged showed that, due to the absence of effective monitoring and evaluation, a mismatch of policy implementation of the national skills development strategy principles and funding allocation is prevalent. The same phenomenon is prevalent according to the documented analysis about the TVET sector in Africa. It reveals that the TVET systems are also supply driven. The National Evaluation Plan 2020-2025 is a government evaluation agenda consisting of priority evaluations identified by the DPME. One of the guiding principles is the alignment to the key priorities of government which means that evaluations should be guided by the NDP. It is essential to align the evaluation process with planning and budgeting so that plans and policy development are informed by evidence attained from that strategic alignment. The economic documented analysis provides the findings of what constitute problems of plan implementation and plan failure. Government policies often tended to increase rather than reduce the divergence between private and social valuations (an external effect which leads to misallocation of resources). The Philosophy of Karl Marx on Education Marx advocated a philosophy that stated, “education should correspond to the development of society and industry: it should technologically stimulate it as well as socially anticipate scientific assumptions for the future and a much faster development of the society” (Ivković, 1999). Discussion There needs to be an ability to look at what is happening in the sphere of policy as it relates to strategy; policy output; the role of a developmental state; quality and relevance of data and delivering quality. An integrated approach between government departments, the public colleges and other stakeholders enhances a sense of societal ownership of continuous improvement in the TVET system. Policy interventions to address the youth employment challenge need to concentrate on narrowing this gap. The policy review experience reveals the important aspects of the policy process, such as the commitment to make policies clear; a commitment to provide resources to the policy goals; and a commitment to intervene in the areas of inefficiencies and crisis. It is for this reason that the ruling African National Congress party in South Africa resolved in 2007 at its national conference to become a developmental state where the government will become intimately involved in the macro and micro-economic planning in order to grow the economy and reconstruct and develop the country. According to the Green Paper (2012:1), locating the TVET college in a developmental state is an important instrument for the developmental state (strong state intervention) to improve graduate access to socially and economically rewarding jobs; redress racial income equality; secure college-to-work transitions for NEET (Not in Education, Employment, or Training) and dropouts; as well as develop skills for the poor, vulnerable, historically disadvantaged and marginalised to sustain their livelihoods (HRDCSA, 2014). This model in the South African TVET system is in line with the National Development Plan (2012), the then New Growth Path (2011), the Industrial Policy Action Plan 2 (2011) and the Human Resource Development Strategy 2010-2030 (2009). To achieve this the findings revealed that, to address developmental challenges, an alternate budgeting and funding model must be revised to allow for adequate funding of building capacity. The constitutional and legislative obligations and the role of government is to ensure sustainable economic development, growth and management of the public finances for the greater good of the country. The consistent view espoused by the National Treasury (2011:58) was that the TVET sector must assist to reduce youth unemployment and absorb young people into the formal labour market. The investment in college education should measure the sum of all economic and non-economic net benefits that accrue to society at large, and the students in particular. Economic impact is more easily measured, but it is the social impact that completes the whole return-on-investment (ROI) as studies indicate that social implications in training are most important to understand as they provide a true value of training that is often neglected in TVET research due to difficulty in measuring it (Schueler & Loveder, 2017). The National Treasury holds that high youth unemployment is an inhibiting factor to the country’s social and economic development. Unemployment is not a new problem in South Africa, although its incidence peaked early in the current decade. Part of the explanation for high unemployment in South Africa is that economic growth has not been high enough over the last 30 years. Employment growth between 1994 and 2014 was completely inadequate to reduce unemployment, further raising the level of urgency with which skills development should be treated (Stats SA, 2014). In recognising the economic emphasis placed on the TVET sector, there is a need to consider the social segment that lends itself to the human development factor. The documented economic analysis provides the findings of what constitute problems of plan implementation and plan failure. Government policies often tended to increase rather than reduce the divergence between private and social valuations (external effect which leads to misallocation of resources). A case in point in the least developed countries is that the economic signals and incentives have served to exaggerate the private valuations of the returns to education at the secondary and tertiary levels to a point where the private demand for more years of schooling exceeds the social payoff (ibid). As stated, policy justification must allow for implementation and justification of financial investments in the TVET sector. Todaro and Smith (2009) offer several reasons for plan failure that must be considered: The gap between the theoretical economic benefits of planning and its practical results in most developing countries has been quite large. Plans are often overambitious and try to accomplish too many objectives at once without consideration that some of the objectives are competing or in conflict. Insufficient and unreliable data on which the economic value of a development plan depends lacks quality and reliability of statistical data. The institutional weaknesses of planning processes of most developing countries include the separation of a planning agency from the day-to-day decision making machinery of government. Planners, administrators and political leaders fail to engage in dialogue and internal communication about goals and strategies. The lack of political will with poor plan performance and the wide gap between plan formulation and plan implementation. The above reasons for plan failure as pointed out by Todaro and Smith is testimony of government’s lack in undertaking social valuations of the benefits of financial costs attributed towards the implementation of policies. A contribution can also be made towards continuous assessments of the labour market needs, which in turn can address the changing nature of skills requirements. As part of continuous assessments of skills and labour market needs, communications must occur with major stakeholders of the public colleges on efficient improvements towards preparing students for employability. The financial contribution that the South African government allocates to DHET, which in turn allocates funds to the TVET sector to address an expansion of effective access to deserving students, is in line with its constitutional obligations of ensuring the right to education on an equitable basis. However, the TVET sector cannot be judged on expenditure towards providing access to students only. The special role accorded to the TVET sector, however, must be judged on the basis of whether the sector has achieved its developmental purpose. Todaro and Smith (2009) relate the phenomenon of a gap between theoretical economic benefits of planning and its practical results, which are large. Within the TVET sector, several policies have been introduced. The success hinges on overcoming the mismatch between funding and policy as well as overcoming the gap between theory and practical results. A plan is only as credible as its delivery mechanism. The TVET sector policies are only credible if they can be seen to produce its developmental agenda. Consideration should be given towards what Todaro and Smith (2009) referred to as the role of the state in the development of policymaking. Instead of planning policies unwittingly and so doing contributing to a perpetuation of negative outcomes in their implementation, evaluation must address the following: The objectives of the policies should not compete or conflict with each other. Overcome vagueness in the design on specific policy achievements in its stated objectives. Close the gap between plan formulation and implementation. Recognise the socio-economic value of a development plan to ensure that data remains qualitative and reliable. A developmental state must address institutional weaknesses of separation of planning and day-to-day decision making with political will to close the gap between plan formulation, lack of commitment and plan implementation. A policy is judged in real life if it won sufficient support, proved capable of implementation and succeeded in achieving its objectives to be responsive to society. Almost any education and training policy will come to nil in practice if it does not win the support of two essential constituencies: those who are expected to benefit from it, and those who are expected to implement it. International Comparisons of College Policies and Funding for Social Change Effective policymaking is a challenge that many countries in Africa are facing, suitable to country context (ILO, 2013). Many countries have dealt with challenges to construct funding formulae according to the OECD reviews of VET (Field, Musset & Álvarez-Galván, 2014). A special role has now been accorded to the TVET sector internationally as part of what UNESCO (2015) referred to as being the master key to developmental objectives of alleviating poverty; conserving the environment; and achieving sustainable development and quality of life for all. The literature shows that debates internationally around responses and policy reform for skills development focus on matching transition of economic growth with types of skills or moving towards a higher growth trajectory characterised by an increased investment in higher-level skills as done in the East-Asian transition. The G20 countries discussed the main youth employment challenges and highlighted the role of policies to increase both quantity and quality of jobs for young people (OECD & ILO, 2011). Across the G20 economies, policy action over the recent past has been most concentrated in the areas of boosting demand and job creation; improving transitions to work; maintaining cost-effective Active Labour Market Policies (ALMPs); strengthening vocational education and training; and expanding quality apprenticeship and internship programmes (OECD & ILO, 2014). At the G20 meetings, the labour and employment minister’s policy recommendations, that were endorsed, entailed improving active employment policies particularly for young people and vulnerable groups; establishing social protection floors; as well as strengthening the coherence of economic and social policies. The South Korean experience tended to be more sequenced and designed to support the needs of the economy. The Korean government addressed and invested in primary then secondary education, whereafter the government shifted to higher education to address the country’s skills needs. In various countries, the labour market influences the dynamics and policies in vocational education and training, such as reducing unemployment and meeting industry skills too (Keating, Medrich, Volkoff & Perry, 2002). It is evident that different labour markets have distinctive labour market types. The developing economies have different features, such as informal labour markets and reduction in rural employment and urban drifts with China being a growing labour market. It is important therefore to undertake a comparative policy and legislative analysis to reflect on its effectiveness of its stated social objectives, such as the country’s inability to reduce unemployment and address the skills mismatches of labour market demand and supply. The debate on supply and demand arises as it relates to low- and middle-income countries, where the argument for supply is that a government-financed TVET system is a supply-driven system, which may lead to youth being trained in irrelevant skills or under-trained with no employment prospects. The argument for a demand-side system financed and managed mainly by employers exists. TVET financing plays a major role in leveraging the TVET direction, as well as having country-specific objectives and priorities guided by the policy objectives. Korea provided an interesting illustration from the East Asia region of how a country’s TVET financing mechanisms have changed as TVET objectives changed (Lee & Kim, 2016). TVET financing approaches do not operate in isolation of other TVET reforms and therefore governments need to create a conducive policy, regulatory and administrative climate for a financing mechanism to function. Conclusions and Recommendations The theoretical policy purpose of TVET Colleges in South Africa needs to shift and be broadened to include the human capital, human capability and sustainable development approaches. The budget on its own will not achieve a developmental state, but integration of all plans together with mobilising society as the NDP envisioned has those possibilities. The district development model has been introduced to activate the levers for achieving common purpose of legislative and policy mandates of different spheres of government and departments. Evaluating the municipal laws and regulations towards the WPPSET and NDP objectives must be taken into consideration towards a further positive outcome of the TVET sector within the district development model. At the point where high levels of unemployment have settled, stabilisation policies are required and can play a major role in turning the situation around. The ability to effect policy, funding and practices requires systems-thinking of how different role-players in government and other stakeholders in the TVET system interact and impact each other. Systems-thinking in education can take the form of an agreement or legislative introduction of an agreement between government and stakeholders; a framework of cooperation on a common agenda; and a structured operational plan led by government in cooperation with stakeholders. This approach could further encourage government as the key mechanism through which funds are allocated to partner with other funders; civil society; the private sector to take a systems approach in developing a comprehensive costed; and a nationally owned public education system plan that supports the TVET policy. The current policy outcomes are therefore expectant of producing the developmental objectives as set by the various policy decisions. The literature and documented reviews speak of a phenomenon in most developing countries where the government plays a dual role in the TVET sector. The multiple roles of government are that of a policy maker, a regulator and a training provider and, in most instances, it does so in an inefficient way due to the lack of coordination (Todaro & Smith, 2009) as well as facing financing constraints and capacity. A policy justification must be shown in its true meaning of being implementable. Karl Marx referred to a curriculum that should not have an outcome of producing abstract knowledge. The TVET sector, according to Marx, must produce productive and creative citizens. Todaro and Smith (2009) relate the phenomenon of a gap between theoretical economic benefits of planning and its practical results, which are large. The social value of the business community must be obtained through the attainment of skills that match the needs of the world of work. TVET financing as an indicator is largely determined by the rules and regulations whereby financial resources are collected, allocated and managed. Relevance considers the extent to which TVET is responsive to labour market needs and requirements. Ideally, the TVET outcome on the labour market should be measured by the share of TVET graduates who obtained a job after completion of training; the time span between graduation and placement; the ratio between the average wage of TVET graduates; and the average wage of those who did not follow the TVET path. In many G20 countries, activation policies to encourage and help youth find a job are based on the “mutual obligations principle” whereby payment of unemployment benefits is combined with job search requirements and compulsory participation in Active Labour Market Programmes. In the case of internships, they can serve as stepping-stones for career development in more stable occupations, but only if they provide a good learning experience and a gateway to a good-quality job, rather than simply being used by employers for hiring cheap labour to do low-skilled work. In the case of Brazil, for example, the multi-annual programme that the Federal Government has implemented aims to use apprenticeship as a tool to permanently attract youth into the formal labour market. In the United States, a four-year community college job-driven training fund was established, which offer competitive grants to partnerships of community colleges; public and non-profit training entities; industry groups; and employers to launch new training programmes and apprenticeships that prepare participants for in-demand jobs and careers. In contrast, in best-practice countries, it has a higher status and has been extended to providing state-of-the-art skills – increasingly at an advanced level – in ICT, logistics, creative arts and fashion, or social and personal services. Policymakers and stakeholders must optimally combine priorities related to the components of the focus areas and indicators in order to ascertain the social value of the related areas. References African National Congress. (1994). The reconstruction and development programme, a policy framework. Johannesburg: Umanyano Publications. Bhorat, H. Cassim, A. & Tseng, D. (2016). Higher education, employment and economic growth: Exploring the interactions. Development Southern Africa, 33(3): 312-327. Burke, B. (2000). Karl Marx and education. [Online] Available at: https://infed.org/mobi/karl-marx-and-education/ (Accessed 26 June 2019). Department of Education (DOE). (1998). Green Paper on further education and training. 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[1]Grounded theory is a qualitative method that allows a researcher to study a particular phenomenon and to discover new theories based on the collection and analysis of real world data. Grounded theory data analysis offers a great contribution in areas in which little research has been done such as a social return-on-investment. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - This report has been published by the Inclusive Society Institute The Inclusive Society Institute (ISI) is an autonomous and independent institution that functions independently from any other entity. It is founded for the purpose of supporting and further deepening multi-party democracy. The ISI’s work is motivated by its desire to achieve non-racialism, non-sexism, social justice and cohesion, economic development and equality in South Africa, through a value system that embodies the social and national democratic principles associated with a developmental state. It recognises that a well-functioning democracy requires well-functioning political formations that are suitably equipped and capacitated. It further acknowledges that South Africa is inextricably linked to the ever transforming and interdependent global world, which necessitates international and multilateral cooperation. As such, the ISI also seeks to achieve its ideals at a global level through cooperation with like-minded parties and organs of civil society who share its basic values. In South Africa, ISI’s ideological positioning is aligned with that of the current ruling party and others in broader society with similar ideals. Email: info@inclusivesociety.org.za Phone: +27 (0) 21 201 1589 Web: www.inclusivesociety.org.za

Copyright © 2023 Inclusive Society Institute PO Box 12609 Mill Street Cape Town, 8000 South Africa 235-515 NPO All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without the permission in writing from the Inclusive Society Institute D I S C L A I M E R Views expressed in this report do not necessarily represent the views of the Inclusive Society Institute or those of their respective Board or Council members. JANUARY 2023 Ports regulation in South Africa: An equitable tax rate approach by Mahesh Fakir, Ex-CEO of Ports Regulator of South Africa & Prof Mihalis Chasomeris (Corresponding Author), Associate Professor, Graduate School of Business and Leadership, University of KwaZulu-Natal Abstract Background: The Ports Regulator of South Africa (PRSA) allows South Africa’s National Ports Authority (NPA) to use a rate of return pricing methodology called the Required Revenue (RR) model to annually apply for tariff increases. From 2011 to 2017, the PRSA allowed the use of the pass-through of corporate tax rate (28%) approach in the RR model. However, from 2018 it applied an equitable tax rate approach that is derived from the corporate tax rate applied to the group profit, shared between the sums of all the pre-tax profits of profit-making divisions within the group. It can be argued that the equitable tax rate approach should have been used from 2011. Objectives: This paper compares the pass-through of corporate tax rate approach to the use of an equitable tax rate in the RR model from 2011 to 2017. Method: The calculation of the equitable tax rate uses Transnet’s annual segmental financial statements. The results are compared with the revenue results from the pass-through of the corporate tax rate approach. Results: Applying the equitable tax rate (15.73%) as opposed to a pass-through tax rate (28%), the NPA revenue would have been R2.6 billion (US$187m) lower, a substantial saving for port users. Conclusion: Continuing to apply this equitable tax rate approach could result in future annual savings of about R500m (US$36m) for port users if the NPA remains a division. However, if the NPA is incorporated as a subsidiary, then the original pass-through of corporate tax rate approach should resume. Keywords: Port Pricing, Rate of return regulation, Ports Regulator of South Africa, National Ports Authority, Transnet. JEL: R48, Introduction There is economic regulation of ports in several countries including South Africa, Australia, India, Greece, Peru, Philippines, Portugal, Canada, the Netherlands and Brazil (Angelopoulos et al., 2019). The regulation of port prices (tariffs) typically uses either a price cap methodology or a rate of return methodology (Gumede and Chasomeris, 2017). In South Africa, a version of the rate of return methodology forms the basis of what the Ports Regulator of South Africa (PRSA) refers to as the Required Revenue (RR) model (Ports Regulator of South Africa, 2017a). An RR model calculation is used to determine the total quantum of revenue that the National Port Authority (NPA) may collect in any one year from port users after approved adjustments to port tariffs by the Ports Regulator. The RR model incorporates port user payments for infrastructure, operating expenses, and enables the Ports Authority, (as the regulated entity) to make a risk-adjusted return on port assets (as determined by a weighted average cost of capital (WACC) formula) (Gumede and Chasomeris, 2018). Several of the values of the variables used in the calculation of the RR model have been critiqued by port users and other port stakeholders. For example, evidence shows a substantial overvaluation of the NPA regulatory asset base and an unrealistically high asset beta that assumed the NPA to be a higher risk entity than it actually is under regulation. Such issues have resulted in higher prices to port users and higher revenues and profits to the NPA (Chasomeris, 2015; Meyiwa and Chasomeris, 2020). This paper continues the constructive critique of the RR model and focuses on the treatment of tax in the RR model (a form of rate of return regulation). This paper compares the pass-through of corporate tax approach to the use of the equitable tax rate in the RR model. It refines the rate of return methodology and indeed the RR model, by considering the case where a regulated entity is not a ‘stand-alone’ entity, but a ‘division’ within a ‘group’ consisting of many ‘divisions’ not individually liable for the payment of taxes. An Equitable Tax Rate takes the losses of the loss-making divisions that are part of the group into account, and further, the principle of proportionality is applied between the profitable divisions in apportioning and sharing the tax burden to the size of their profits. South Africa’s National Ports Act of 2005 (Act) envisages a commercial ports system whose state ownership of port infrastructure is vested in the National Ports Authority (NPA) as a state monopoly, and further creates the Ports Regulator of South Africa as an independent economic regulator to ensure fairness in pricing (RSA, 2005) and prevent monopolistic abuse. The Act sets out that the NPA be incorporated as a subsidiary wholly owned by the Transnet group (SOC), upon the Act coming into effect. Up to the present, over a decade and a half since the passing of the Act, the NPA has remained a division of Transnet rather than the ‘subsidiary’ envisaged, for reasons beyond the scope of this paper. In the application of its RR tariff methodology, the Ports Regulator had previously treated the NPA as a subsidiary in the calculation of allowed revenue for tax, as incorporation could have happened at any time. In 2017 the Regulator for its 2018/19 tariff determination modified its tax calculation to reflect a reduced tax allowance in treating the NPA as a division. This paper contributes in several ways. First, in attempting to contribute to the work of other Economic Regulators regulating unincorporated divisions of a corporate group, it examines theoretical differences in the tax treatment of regulated subsidiaries or stand-alone regulated entities, as opposed to regulated divisions within a corporate group. It then derives formulae for the new Equitable Tax Rate approach used by the Ports Regulator to assist in correcting such ‘disproportionalities’ arising out of the corporate form of regulated entities. Second, it reports on the development of a model for a new “equitable tax rate” method, which considers the profits and losses of other divisions with a group, for the determination of a fair tax rate for a regulated division within a group. Third, it uses NPA financial statements for the period 2011 to 2017, to provide an empirical application and analyses of the equitable tax rate approach in the calculation of the RR model. The relevant formulae and a practical system of implementing the “equitable tax rate” approach, ensures that the profits and losses of other divisions with a group, is taken into account in determining regulatory tax allowances for a regulated division within an unregulated group using the Required Revenue (rate of return) Tariff Methodology. Finally, it explores and confirms the Ports Regulator of South Africa’s (2017) approach to taxation of the NPA and further, extrapolates this to the calculation of the tariff determinations in previous years in order to estimate future port user savings through reduced port tariffs, as well as the potential loss to port users over the seven years of regulation (2011 to 2017), before the new equitable tax rate approach was conceived and applied. Literature Review South Africa’s system of nine state-owned commercial ports is rare internationally, and the economic price regulation of this system is largely unprecedented. There is one National Ports Authority (NPA) (as opposed to regional or municipal ports authorities). Planning of investment in port infrastructure and marine services is done nationally. Hence, there may be cross-subsidization between ports and port users and a sharing of resources between the nine ports. The NPA also controls the licensing of terminal operators and this has been an issue with some stakeholders that believe there are competition issues and a conflict of interest as the NPA, under Transnet, issues licenses to both private sector terminals and their sister division called Transnet Port Terminals (Meyiwa and Chasomeris, 2020). Consequently, the NPA makes a single annual tariff submission to the Ports Regulator, using the RR model to calculate the required revenue for the entire NPA. This is in contrast to the regulation of ports in other countries like India and Australia. In India, the Tariff Authority for Major Ports (TEMP) regulates the 12 major ports and a separate tariff application submission is made for each port. Thus, the income and expenditure of each port is known by the TEMP. A lack of published audited financial information by ports has hindered public participation in the regulation of South Africa’s ports. Furthermore, as the NPA is a regulated division of an unregulated Transnet Group, together with consolidated accounting techniques, creates further complexities and inadequate access to information that could improve regulation of the port authority. Indeed, a study by Meyiwa and Chasomeris (2020) used content analyses to examine 137 port stakeholders’ submissions from 2009/2010 to 2018/2019. They concluded that the governance structure of the NPA was shown to promote anticompetitive behaviour and they recommend a swift incorporation of the NPA as a stand-alone entity outside of Transnet. Acciaro (2013: 211) reviewed port pricing literature from 1974 to 2013 and found that most studies make use of anecdotal evidence and that “from a methodological point of view, there are very few empirical studies and… most papers that deal with port pricing as a core issue make use of conceptual economic models and game theory.” The regulation of port prices (tariffs) typically uses either a price cap methodology or a rate of return methodology (Gumede and Chasomeris, 2017). South Africa’s National Ports Act of 2005 (RSA, 2005: S30) sets out a commercial ports system of nine ports whose infrastructure is owned by the state through a National Ports Authority as a state-owned monopoly (a part of the Transnet state owned logistics group), and therefore creates the Ports Regulator whose functions in terms of section 30(1) of the Act are to: “Exercise economic regulation of the ports system in line with government’s strategic objectives; Promote equity of access to ports and to facilities and services provided in ports; Monitor the activities of the Authority to ensure that it performs its functions in accordance with this act.” The Ports Regulator in its economic regulation function, has adopted the RR approach that transparently builds up cost and other components. The Regulator (Ports Regulator of South Africa, 2017a:5,6) explains that the RR approach is used to determine fair port pricing for all port stakeholders. It allows cost recovery as well as a reasonable profit (return on assets) to the regulated entity, and therefore allows for all the regulated entity’s operating costs, depreciation, and notably for the purposes of this paper, the profit tax that the entity requires to pay on allowed profit. The method protects port users from “paying excessive monopolistic prices, with the argument being that monopolistic firms should be required to charge the price that would prevail in a competitive market”. This RR approach, in addition, fulfills the requirements of the National Ports Act directives which require that the Regulator ensures that approved tariff levels allow the Ports Authority to (Ports Regulator of South Africa, 2017a: 5): “Recover its investment in owning, controlling and administering ports and its investment in port services and facilities; Recover its costs in maintaining, operating, controlling and administering ports and its costs in providing port services and facilities; and Make a profit commensurate with the risk involved in ports services and facilities”. Indeed, there appears to be consensus in the literature on the importance of cost recovery for port infrastructure (Haralambides, 2002; Santos et al, 2016). In the case of the NPA, in addition to full cost recovery, a return on port assets related to risk is allowed, and is calculated using the RR approach. The formula for the RR, as per the Port Tariff Methodology of the Ports Regulator for Tariff Years 2018/19 – 2020/21 (Ports Regulator of South Africa, 2017a:7), is as follows: “Where: RR = Revenue Required; v = Value of the assets used in the regulated services; d = Accumulated depreciation on such assets; w = Working Capital; r = Regulated Return on Capital; D = Depreciation accounted for in the period of the tariff; E = Operating costs (OPEX); T = Taxation expense; C = Claw-back; ETIMC = Excessive Tariff Increase Margin Credit; WEGO = Weighted Efficiency Gains from Operations; (v – d + w) = Regulated Asset Base”. This formula is an international standard building block model. Tariffs for the year ahead, and two following years of the multi-year methodology validity period, are based on forecasts of the variables of the RR formula listed above. As each year passes, the forecasted assumptions are replaced with actual data, and when all the actual data is available for a tariff year, the formula is used to re-determine the tariff, and a corrective adjustment is made in the following year via the claw-back mechanism (C) (Ports Regulator of South Africa, 2017a). Quantities pertaining to the various variables are either clawed back or given back from or to the regulated entity’s RR, to address any differences between estimates and actuals. Claw-back calculations are performed each year within a multi-year tariff determination system. As actual data for the first tariff year will only be available in the second year, the applicable claw-back, will only be completely implemented in the third year, often on a 50/50 basis. As an example, cargo volumes for any year’s tariff calculation can only be an estimate, until the year has passed, whereupon the actual measured volumes will be used for the calculation of claw-backs. Similarly, any component or variable of the RR formula may thus be estimated as accurately as possible in a particular year, and subsequently rectified using the claw-back mechanism in the subsequent two years when the actual data is known. The items in the formula dealing with “Excessive Tariff Increase Margin Credit (ETIMC)” as well as with “Weighted Efficiency Gains from Operations (WEGO)” (Ports Regulator of South Africa, 2017a:7) are notable modifications by the Ports Regulator to the standard building blocks of the RR approach, and while ETIMC has been used previously by the Ports Regulator as an innovative ‘savings’ mechanism in the regulatory practice in previous years to reduce potential higher than inflation tariff spikes, the WEGO is a new innovation that incentivizes performance improvements in the operation of the ports system by the use of either additional or reduced profits (Ports Regulator of South Africa, 2017a). To correct for differences in estimates, versus what actually materializes in the year in which the tariffs are applied, the RR approach also contains the ETIMC. As explained in the published Methodology: “the ETIMC mechanism allows for large increases in required revenue and/or tariffs that may arise from volume volatility or substantial capital expenditure programmes in future years to be partly offset by moderately higher tariff increases in the short-term” (Ports Regulator of South Africa, 2017a: 7). Thus, amounts that could be clawed-back, reducing tariffs in the following year, could also rather be retained in the ETIMC facility to be used in reducing tariffs in years in which higher prices are anticipated, thus resulting in a smoother price path and greater certainty in pricing. Several concerns about the RR model have been raised including that it may “incentivise unnecessary port capital expenditure (investments)”, “bloat operating expenditure” and set port authority prices at higher “levels that are not in the best interests of the country’s trade competitiveness and economic development objectives” (Chasomeris, 2015; Gumede and Chasomeris, 2017). In addition, port stakeholders (mainly port users) have complained that the application of the RR model has allowed the NPA to generate excessive profits that are not adequately reinvested into the port infrastructure and marine services, but are rather used to subsidise other less profitable divisions in the Transnet Group (Meyiwa and Chasomeris, 2020). Treatment of Taxation within the Revenue Required Approach In terms of South Africa’s Income Tax Act of 1962 (RSA, 1962) (as amended), a “(Pty) Ltd”, as a subsidiary of a holding company pays tax directly to the revenue authorities at the corporate tax rate (presently 28%), whilst the tax liability of a group consisting of divisions is by the group alone. From the inception of the Ports Regulator’s interim methodology in the 2014/15 financial year (Ports Regulator of South Africa, 2013a) and also in the first multi-year methodology for 2015/16 to 2017/18 (Ports Regulator of South Africa, 2014a), taxation has been a pass-through expense set at the corporate tax rate of 28%. In Equation 2 below, “Net revenue before tax allowance is the revenue after all costs, including interest and depreciation, have been accounted for, ie. it is the net return to equity before being grossed up to make allowances for taxation” (Ports Regulator of South Africa, 2013a). The reasons for the 28% pass-through tax rate approach may include simplicity, ease of calculation and certainty to the sustainability of the NPA. In addition, according to the National Ports Act 12 of 2005, the NPA was expected to be incorporated as a wholly–owned subsidiary of the Transnet Group, rather than remain a division, and it was therefore correct for the Regulator to contemplate that this could have happened at any time. Thus, in terms of the Act, it was not inappropriate for the Regulator to assume the incorporation of the NPA into National Ports Authority (Pty) Ltd with Transnet as the sole member and shareholder, as before actual incorporation or registration, the Act deems it to be the Authority and expects it to function as the Authority. The Ports Regulator’s methodology uses a ‘vanilla weighted average cost of capital (WACC)’ to calculate a return on equity, which comprises a “post-tax cost of equity” and a “pre-tax cost of debt” (Ports Regulator of South Africa, 2013a). However, the idea that this is a pragmatic solution of a ‘notional’ tax allowance as an approximation to the actual tax payable by the Ports Authority, in practice comes nowhere close to satisfactory, as the incorporation of the Authority (from a division into a subsidiary) had not materialized more than a decade after the Act had been promulgated, and the warning issued by the NPA (TNPA, 2012:25,26) “[the] Authority is not a legal entity for which tax is calculated and paid. Furthermore, any attempt to estimate a pro rata share of actual tax paid by Transnet may be quite unrepresentative of the tax burden that would have be borne by the Authority had it been a separate corporation.” seemed to be without merit. Indeed, this article will show (see table 5) that over the seven years of regulation (2011 to 2017), tax allowances provided for by the Ports Regulator within its RR tariff methodology have been disproportionately large in relation to the actual tax liability of the Transnet Group in most years. In four of the seven years, the NPA tax allowance was over half (50%) of the actual tax liability of the Transnet Group, and much more than the group tax in FY2016, at 216,30%. A solution that did try to estimate a pro rata share of the actual tax liability of the Transnet group therefore had to be found. In its second Multi-Year Tariff Methodology for 2018/19 to 2020/21 (Ports Regulator of South Africa, 2017a), the Ports Regulator states that it will accept the current corporate tax rate of 28% (t) adjusted in relation to the taxation of the Transnet Group as a whole, as the NPA is a division within the group. It envisaged a proportional tax rate, with assumption that the NPA is an operating division that does not independently pay tax, as opposed to a subsidiary of Transnet Group which would have been liable for its own tax submission. This annually approximated proportional tax rate will be readjusted through the claw back mechanism from information it would obtain from annually published audited Transnet Group Financial Statements. This represented a departure from previous methodologies in intent, and the actual mechanism of how it could work. Indeed, the Ports Regulator of South Africa (2017b: 12,13) concludes that “the continued revenue allowance of 28% of profit for NPA taxes can only be fair for a stand-alone entity paying its taxes directly to the South African Revenue Service (SARS) and that if the NPA remains one of the profit-making divisions of Transnet, among other such divisions, an equitable tax rate for the fair sharing of the group tax payable in any year has to be calculated for all profit-making divisions or business units.” Section 3 explains how to derive and calculate an equitable tax rate. Research Methodology: An Equitable (Proportional) Tax Rate In a group scenario, the profits of profit-making divisions are reduced by the losses of loss-making divisions before tax payable is calculated. Put in another way, if the revenue of each division is equal, then the higher costs of the loss-making divisions add to the lower costs of the profitable divisions, thus reducing the overall taxable profit payable by the group. In general terms the following equations can describe the scenarios with respect to corporate structure and corporate tax liability in any applicable year. Total tax liability in a year for a group of n number of divisions each numbered i =1 to n: Where: t = the corporate tax rate; = Pre-tax Profit of profitable division i; = Loss of loss-making division I; Td = total tax liability of group of divisions On the other hand, total tax liability in a year for the same divisions above treated as separate companies, noting that loss making companies pay zero tax is given by: Where: t = the corporate tax rate; = Pre-tax Profit of profitable company i; Ts = total tax liability of group of divisions treated as separate companies. Where: t = the corporate tax rate; = Pre-tax Profit of profitable company/division i; = Loss of loss-making company/division i; Ts = total tax liability of group of divisions treated as separate companies; Td = total tax liability of group of divisions. Thus, in any tax year, the aggregation of divisions incorporated as separate companies is liable to pay more tax than the corporate group consisting of unincorporated divisions by an amount equal to the sum of losses of the loss-making divisions, which illustrates how the losses of loss-making divisions within a group offset or dilutes the profits of profit-making divisions in reducing the tax liability of the group, leaving the group with comparatively more available cash. If one or more of the divisions in the group are regulated entities, with tax being calculated separately as part of an RR regulatory approach, and tax is calculated on the basis of a pass-through at the corporate tax rate (t) then this could result in: disproportionately larger tax contribution by regulated divisions towards group tax than unregulated divisions; the group obtaining much more cash from the regulated divisions than is fair for the payment of tax by the group; unfairness to the users of the services of the regulated divisions as they would be required to pay higher prices to make up higher required revenue than proportionally necessary for their contribution to group tax. One way for regulators to determine a fair approach to the calculation of taxes, for regulated divisions within a group, within the RR methodology is to determine an equitable tax rate. The formula of an equitable tax rate (te) which, when applied to all profitable divisions treated as separate companies, must result in the tax applicable when the corporate tax rate (t) is applied to the aggregate profits of the group of divisions. In mathematical terms: Therefore, to determine te as outlined in the problem statement above: but the term ( ) is equivalent to the aggregate taxable profit of the group (which accounts for divisional losses) which can be written as Pg Thus, from the equations above, it is clear why the Regulator Record of Decision (Ports Regulator of South Africa, 2017b:13) concludes that the equitable tax rate (te) applicable to any of the profit-making divisions in a financial year will thus be the corporate tax rate multiplied by the (Transnet net profit and divided by the sum of profits of profitable divisions or segments): Where: te = equitable tax rate, t = the corporate tax rate, Pg = Transnet Group total pre-tax profit for the financial year, Σ𝑃𝑖 = The Sum of pre-tax profits of profitable divisions or segments for the financial year. The method for the determination of an equitable tax rate requires two other sets of data, namely the group profit on a year on year basis, as well as group segmental data which shows either the revenues and costs associated with each division or business unit (segmental income statement), or pre-tax profit and loss data per division in the year. In this case it is the Transnet Group, within which the NPA is a division. In addition, it would be useful for such data to have been published over a number of years in order to determine a reasonable moving average of an equitable rate that can be applied in any one year and readjusted using the ‘claw-back’ variable within the RR formula used by regulators. The equitable tax rate formula in future would thus be applied as follows (Ports Regulator of South Africa, 2017b): it would be applied for the NPA as a profit-making division; it would use the claw-back mechanism to readjust the estimated equitable tax rate when audited segmental financials become available; it would be used in the calculation of cost of equity (resulting in a higher return); it would use a five year moving average of previously calculated ‘actual’ equitable tax rate and then utilize the claw-back to readjust for the actual equitable tax rate for the applicable year. The application of the equitable tax rate calculation would be on condition that the Transnet Group annually publish segmental financials that have been audited, for the group and each division, otherwise the regulator will not provide for tax in the RR, and the RR tax allowance would be considered to be already allowed within the profit allowed (Ports Regulator of South Africa, 2017b). Results and discussion: Application of the equitable tax rate in the regulation of South Africa’s ports This section applies the equitable tax rate approach to segmental financial data that was collected from published Transnet Annual Reports from 2011 to 2017. The Transnet divisional profits and losses relative to the Group profits are recorded in Table 1 for five divisions, namely the National Ports Authority (NPA), Transnet Port Terminals (TPT), Transnet Freight Rail (TFR), Transnet Pipelines (TPL) and Transnet Engineering (TRE). All other business units including head office are recorded as all other segments. The total taxable group profit is the arithmetic sum of each of the divisional profits including all other segments and elimination of intersegmental transactions. Table 1: Transnet Divisional Profits and Losses as a Percentage of Group Profits Source: Authors compiled and calculated from: Transnet Annual Financial Statements: segmental reports (Transnet 2012; 2013; 2014; 2015; 2016; 2017; 2018). Table 1 shows losses of loss-making divisions listed in italics whilst those of profit-making divisions are listed in bold. The NPA contribution to group profits has been both consistent and high over the period that it has been regulated. TFR has on many occasions exceeded the NPA profits but has also shown some years of poor profitability as well as losses. TPL as a regulated division has also shown consistent profitability, with Transnet Engineering showing profits in some years and losses in others. In particular, in examining the 2016 financial year, it is clear that the NPA recorded a profit close to thrice that of the group as a whole, due to the lowest aggregate divisional profit and the largest aggregate divisional loss incurred by the group over the seven-year period under consideration. In this regard it is not impossible to conceive that the taxation allowed by the Ports Regulator covered the tax liability of the group as a whole and even contributed to profits of the group, and that this may legitimately be regarded as an unfair burden on port stakeholders who cover this required revenue through user charges for the use of port infrastructure owned by the NPA as well as for related marine services performed by the NPA. Taxation allowed for in the RR of the NPA amounted to R889 million, for financial year ending 2016, whilst the profit tax payable on the R1468 million group profit was only R411 million. This implies that a division within a group benefited from a tax allowance that was 216% of what its group was actually liable to pay to the tax authorities for that financial year. Table 2 aggregates the sum of all profitable segments as well as all loss-making segments in the Transnet Group for the financial years under consideration and calculates the equitable tax rate for each financial year. As expected, the equitable tax rate in each year is significantly lower than the 28% corporate tax rate on profits. The average equitable tax rate over the seven-year period was calculated at 15.73%. Table 2: Calculation of Equitable Tax Rate (%) from Divisional Profit and Loss (R’million) data Source: Authors compiled and calculated from Transnet Annual Financial Statements: segmental reports (Transnet 2012; 2013; 2014; 2015; 2016; 2017; 2018). In any year, regulators are obliged to provide a tariff, before segmental results on profits are known, and the tariff contains within it, the revenue required for the tax liability for the regulated entity as per the RR regulatory methodology. When the corporate tax rate was taken for granted as the correct rate, 28% was always used. Now that it is realized that this results in unwarranted revenue, an approximate tax rate has to be used, then corrected in the following year through the claw-back mechanism allowed for within the RR calculations. It makes sense that instead of using the maximum of the corporate tax rate and then clawing back on this after actual segmental results are published, the average equitable tax rate over several years should be used as a closer approximation of what the actual equitable rate will be when it is published. The claw-back mechanism may then be used to adjust the tax revenue either upwards or downwards as may be appropriate. Table 3: Calculation of Tax on Group Profit at 28% compared to application of the derived Equitable Tax Rate to Profitable segments (R’million) Source: Authors compiled and calculated from Transnet Annual Financial Statements: segmental reports (Transnet 2012; 2013; 2014; 2015; 2016; 2017; 2018). Table 3 demonstrates that the application of the equitable tax rate in each year, to the aggregate of the profitable segments in the group, yielded the exact profit tax on the group profit at the 28% corporate tax rate. Figures in the last column calculated by applying the equitable tax rate to the sum of profitable segments/divisions (te x ΣPi) exactly equals figures in the third column calculated from applying the corporate tax rate to the group profit (t x Pg). This is theoretically demonstrated below as follows: If: It means: which implies that: Where: te = equitable tax rate; t = the corporate tax rate; Pg = Transnet Group pre-tax profit; Σ𝑃𝑖 = The Sum of profits of profitable divisions; P1, P2, P3, … ,Pn = Individual profits of each profitable segment numbered 1 to n. This confirms that if the equitable tax rate as derived, is applied to the profits of each profitable division separately, their tax contributions to the group will in aggregate amount to the group tax at the corporate tax rate (tPg). Thus, a much lower tax rate, the equitable tax rate, applied to the profits of the profitable divisions in each financial year, is sufficient to fund the full annual tax liability of the group albeit that the group pays tax at the higher corporate tax rate of 28%. Thus, a regulator may exercise this equitable tax rate approach for the calculation of an equitable tax share for the particular regulated division within a group, regardless of the non-regulated divisions, as long as their audited segmental pre-tax profit and loss information is made available. More importantly for regulation, is that a regulator of a divisional entity may apply a lower tax rate in calculating the tax allowance for the required revenue of the regulated entity, thus saving the users of the services of the regulated entity money, as long as the lower tax rate that is applied, equates to the equitable tax rate as derived. This is because it is only at the equitable tax rate, that the tax allowed for the regulated division will comprise the minimum fair share of that division (as one amongst all profitable divisions) towards the tax liability of the group as a whole, at the corporate tax rate. Only when there are no loss-making segments/divisions within the group, will the sum of profits of profitable divisions equal the group profit, and only then will the equitable tax rate reach its maximum value, equaling the corporate tax rate. That is, in the equation te ΣPi = tPg , if ΣPi = Pg, then it follows that under this condition te = t. For as long as there are loss making segments/divisions, the group profit will be smaller than the aggregate of profits of profitable divisions, and the equitable tax rate will be lower than the corporate tax rate. Table 4 shows a comparison of tax allowed by the Ports Regulator versus tax allowance calculated using the equitable tax rate formula for each financial year from 2011 to 2017. The equitable tax rate result in each year is significantly lower than the tax previously allowed thus indicating that the use of this method could result in substantial savings to port users. Specifically, a saving of between a low of 27.97% in 2011 to a high of 77.58% in 2016 If the method had been used from the outset, then the average percentage reduction in tax revenues for the seven-year period would have been 43.83%. In quantitative terms this would have amounted to an aggregate saving for port users of just over R2.6 billion (US$187m) over the seven-year period. Table 4: Calculation of tax savings to port users if the derived Equitable Tax Rate to Profitable segments method was applied instead of the corporate tax rate of 28% (R’million) Source: Authors compiled and calculated from Ports Regulator Records of Decision (Ports Regulator of South Africa, 2011; 2012; 2013b; 2014b; 2015; 2016a; 2016b). While future savings to port users depends on the profitability of each of the divisions and the overall profits of the Transnet group going forward, as these are the determinants of the equitable tax rate approach, possible savings to port users in 2016 and 2017 years are over R500 million per year ($36m). It is therefore not inconceivable that the use of the equitable tax rate approach could save port users similar significant amounts in future. Table 5: Addressing the disproportionality: Previous Allowed tax vs Equitable tax rate as % Group tax Source: Authors compiled and calculated from: Transnet Annual Financial Statements: segmental reports (Transnet 2012; 2013; 2014; 2015; 2016; 2017; 2018); Ports Regulator Records of Decision (Ports Regulator of South Africa, 2011; 2012; 2013b; 2014b; 2015; 2016a; 2016b). Table 5 shows that the equitable tax rate is consistently below 50% of the Group tax liability in all financial years, even in 2016 when the largest division in the Transnet Group, TFR made a loss. This makes much more sense as the NPA is only one of five of the usual profit-making divisions, albeit that its profit has been consistently large over the years of regulation. The spread between the smallest (12,7%) and largest (48,48%) tax derived from the use of the equitable tax rate (as a percentage of the group tax) has also narrowed, as compared to the previously allowed tax, which is spread between 19,58% and 216,30% respectively. This indicates greater consistency of resulting tax burden to users. Table 5 also confirms that the use of the equitable tax rate does not result in the divisional tax allowance exceeding the group tax liability in any year, indicating greater fairness and potential future savings to users. Conclusion The simple pass-through of corporate tax rates by regulators using rate of return regulation in the economic regulation of unincorporated divisions of an unregulated corporate group results in unfairly high prices to users and excess revenue to the group. In South Africa, it has been observed by the Ports Regulator, that a tax allowed at the corporate tax rate of 28% on the NPA profit as a part of the required revenue calculation, has been excessive when compared to what the Transnet Group was liable to pay as tax in any particular year, over the period when the “tax pass-through” approach was in effect. While an allowance of 28% of profit for the NPA would have been fair if it was a subsidiary or a ‘stand-alone’ company directly paying its taxes to the tax authorities, while it is still a division, the only fair rate that a regulator should use for the calculation of allowed revenue for taxes should be the Equitable Tax Rate. As compared to a pass-through approach, the Equitable Tax Rate takes into account the losses of the loss-making divisions/segments/business units that are part of the group, and further, the principle of proportionality is applied between the profitable divisions in apportioning and sharing the tax burden in relation to the size of their profits. The use of the Equitable Tax Rate as opposed to a pass-through approach, also ensures that in no period is the tax allowed by the Regulator more than the tax liability of the group as a whole. The Equitable Tax Rate approach therefore addresses this anomaly which is characterised by an unfair price burden on the users of goods and services of regulated divisions, as well as unfair windfall profits for an unregulated group (the Transnet Group) from its regulated division(s) (the NPA). The Equitable Tax Rate formulae derived for the calculation of an appropriate tax allowance in this context, used with the claw-back mechanism, forms a pragmatic system of addressing this problem, as it is simple in its conception and easily implementable without onerous data constraints. Its practical implementation shows how the NPA administered prices could be lowered. Specifically, calculations using Transnet’s annual segmental financial statements show that over the period 2011 to 2017 by applying the equitable tax rate (average of 15.73%) as opposed to a pass-through tax rate (28%), NPA revenue would have been R2.6 billion (US$187m) lower, a substantial saving for port users. Continuing to apply this approach could result in future annual savings of about R500m per annum (US$36m) for port users if the NPA remains a division. However, if it is incorporated as a subsidiary, as required by the National Ports Act, then the original ‘pass-through’ approach of the prevailing corporate tax rate adopted previously by the Ports Regulator, in anticipation of the imminent implementation of the Act, should resume. As this paper attempts to make a contribution on a methodological aspect and a circumstantial legal variation in the practical application of the rate of return economic regulatory methodology as adopted in a South African ports context, it will refrain from making any judgement on the repayment, or the attribution of blame, for the substantial amount of additional taxation allowed over the period concerned, in the absence of guidance on such circumstances within the body of knowledge of the rate of return methodology. This may well be within the scope of a future study. However, to its credit, it is noted that the Ports Regulator did not just blindly apply an academic interpretation of rate of return methodology. Rather it both recognised the circumstantial issues at play, as well as derived the necessary equitable tax formula and thus modified its implementation of rate of return regulation in fairness and to the benefit of port users. It is therefore complimented on standing true to its principles in service to the ports’ community and the wider economy, and for its academic contribution to the modification and application of economic regulatory methodology. References Acciaro, M. (2013). A Critical Review of Port Pricing Literature: What Role for Academic Research? The Asian Journal of Shipping and Logistics, Vol.29 No.2, pp.207-228. Angelopoulos, J., Chlomoudis, C., Flegkas, C., Leonardou, P., & Vrysagotis, V. (2019). Uncharted Waters-Independent Regulation for Port Concessions. 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Annual Financial Statements 2017, Available at: https://www.transnet.net/InvestorRelations/AR2017/Transnet%20AFS%202017.pdf [Accessed: 6 October 2018] Transnet (2018), Transnet. Annual Financial Statements 2018, Available at: https://www.transnet.net/InvestorRelations/AR2018/Transnet%20AFS_FINAL_310818.pdf [Accessed: 6 October 2018]. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - This report has been published by the Inclusive Society Institute The Inclusive Society Institute (ISI) is an autonomous and independent institution that functions independently from any other entity. It is founded for the purpose of supporting and further deepening multi-party democracy. The ISI’s work is motivated by its desire to achieve non-racialism, non-sexism, social justice and cohesion, economic development and equality in South Africa, through a value system that embodies the social and national democratic principles associated with a developmental state. It recognises that a well-functioning democracy requires well-functioning political formations that are suitably equipped and capacitated. It further acknowledges that South Africa is inextricably linked to the ever transforming and interdependent global world, which necessitates international and multilateral cooperation. As such, the ISI also seeks to achieve its ideals at a global level through cooperation with like-minded parties and organs of civil society who share its basic values. In South Africa, ISI’s ideological positioning is aligned with that of the current ruling party and others in broader society with similar ideals. Email: info@inclusivesociety.org.za Phone: +27 (0) 21 201 1589 Web: www.inclusivesociety.org.za

Copyright © 2023 Inclusive Society Institute PO Box 12609 Mill Street Cape Town, 8000 South Africa 235-515 NPO All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without the permission in writing from the Inclusive Society Institute D I S C L A I M E R Views expressed in this report do not necessarily represent the views of the Inclusive Society Institute or those of their respective Board or Council members. JANUARY 2023 Xenophobia in South Africa: The politics of naming, national contract, and the invention of the foreign other by Dr William Jethro Mpofu PhD in Decolonial Studies (Philosophy, Communication, Politics), Masters in Media and Communication Science, Masters in Political Studies, Post-Graduate Diploma in Media Studies & Honours in African Literature Abstract That the hatred and violent attacks of black Africans from other countries in South Africa is xenophobia might be a simplification and a politics of naming that conceals the racist, classist, and world-systemic origins of the problem. The term xenophobia might conceal rather than reveal the modern and colonial history of the hatred and violation of the foreign other that takes place within such a nation-state as post-apartheid South Africa, which is haunted by the racism and coloniality of the World System, whose legal and political sensibility structures its polity and economy. This essay describes the National Contract that beholds post-apartheid South Africa to a modern and colonial World System which excludes and includes people along the lines of race and the social classifications that come with it. How nations and their states invent themselves and construct and produce the foreign other is discussed to flesh out how the nationalism and patriotism that criminalise the foreign other are rooted in the colonial unconscious of the nation-state and the World System. Xenophobic hatred and violence might be spectacular in South Africa but are not uniquely South African. All nation-states – as artefacts and properties of the modern colonial World System – are racist, nationalist, classist and xenophobic. The hatred and violent attacks of black foreign nationals from other countries in South Africa cannot be understood or challenged without engagement with the racism and coloniality of the nation-state as an artefact of the World System. Keywords: Xenophobia, Politics of Naming, National Contract, World System, Nation-State, South Africa Introduction The foreign other as the outsider to the nation and the other to the state is a true reject of the power that Immanuel Wallerstein (2004) has called, the “World System”. In the World System – that is, an organisation of nation-states punctuated by geographical maps of countries and legal borders of states that produce local citizens and alien subjects – nationality and citizenship have achieved tyrannical currency. Nationality and citizenship have become the talisman of being human and belonging in the nation-state. It is of analytical importance, in this essay, to look at the nation-state as but a unit within the World System, which is the ultimate organising idea that shapes the workings of the economies and polities of nation-states. In such a typical nation-state as South Africa, where the foreign other is a double-outsider that suffers identarian exclusion by the nation and legal exclusion from citizenship by the state, the foreign other is produced into a candidate for multiple forms of hate and violence that, at their zenith, lead to beatings, immolation, and other diabolical forms of murder. Even such a rigorous parliamentary democracy and celebrated Constitution as South Africa’s are not equipped with enough legal and political resources to protect the foreign other. The foreign other in South Africa does not only endure inequality in a land of storied inequality, but also exists under conditions that birth the experience of unequality itself. Unequality as a violence describes the foreign other as located outside the order of equality and inequality but down under the radar of the law, order, and social justice. The condition of the foreign other in the nation-state is darker, in the experiences it produces, than what Giorgio Agamben (2008) called the “state of exception”, where the other is ejected from the sphere of the protection of the law and exposed to the elements of the “state of nature”, which may be worse than the punishments of the beasts in the animal kingdom. It is not only extremely cold and extremely hot outside the arms of the laws of nations and their states, but it is also bloody and, actually, deathly for the foreign other as the imperilled of modernity and the coloniality that accompanies it. One can claim that nation-states, as organised and structured by the World System, are formed against the foreign other, who is positioned as an intolerable and nonsensical outsider. Even democracy, which is understood as the refuge, if not an orphanage, of the oppressed and the excluded of the world does not sufficiently accommodate or protect the foreign other. The limits of democracy as a furniture of western modernity, imposed together with the nation-state on the Global South, are tested and exhausted in the excluded condition of the foreign other. Achille Mbembe (2021) was concerned with the foreign other as the excluded, even in supposedly democratic nation-states that have easily become societies of enmity: Perhaps it has always been this way. Perhaps democracies have always constituted communities of kindred folk, societies of separation based on identity and on an exclusion of difference. It could be that they have always had slaves, a set of people who, for whatever reason, are regarded as foreigners, members of a surplus population, undesirables whom one hopes to be rid of, and who, as such, must be left completely or partially without rights (Mbembe, 2021:20). Displacement and dispossession, the deprivation of place and denial of possessions, come to be the place and the possession of the foreign other, who becomes a powerless object. As a powerless object, the foreign other becomes an item subject to powerful observations and descriptions by scholars, journalists, politicians, activists, and some right-wing anti-immigrant movements like the Operation Dudula movement in South Africa. Never is the foreign other a subject to the observers, sympathetic or hostile, but is always an object to be observed, discussed and displayed. In the punchy essay of 1943, We Refugees, Hannah Arendt is concerned with the painful objecthood of the foreign other in the shape of the refugees who, in their search for subjecthood, call themselves otherwise because “in the first place, we don’t like to be called refugees, we ourselves call each other newcomers or immigrants” (Arendt, 2009:264). The foreign others, by-products of the workings of the nation-state within the World System, do not see themselves the way they are seen, named and described by the privileged others. They seek to reject their production, their being a product of the observation and naming industry of curious scholars, dutiful journalists, powerful politicians and angry anti-immigrant activists who want them gone at best and dead at worst. In this essay I seek to ponder not just the pain of the foreign other but their legal and political paradox. The paradox being that the nation-states of the World System that fear and hate the foreign other, and brutalise them, cannot exist without them; and the foreign other would not exist if it was not for the nation-states as an industry that creates insiders and their outsiders, geographically, legally and politically. It is neither an exaggeration nor a simplification, but it is a veracity that there would be no foreigners if there were no nations and no states. The existence, legal and political reality of nation-states, necessitates the existence of the foreign other, who might in one be nationless and stateless, a national and a citizen of nowhere and, therefore, a child of everywhere. As such, the foreign other might be the true citizen of another, an alternative world system, even if it is for now a decolonial fantasy of a world without nations and a world that is innocent of the colonial crime of borders. As an artefact of the modern colonial World System, which was imposed on the Global South at the pain of genocides and epistemicides of conquest, the nation-state is a crime scene if not a cemetery for the foreign other. Recurrent eruptions of xenophobic protests and violence in South Africa speak to a growing national and state habit of systematically punishing the foreign other. As much as this is true, it is also true that South Africa might be presenting spectacles of violence against the foreign other, but the hatred and exclusion of the foreign other takes place in other African countries. South Africa’s attractive economy, vivid polity, and exemplary democracy have made the country a compelling destination for the foreign other. As such, South Africa is a fitting location for a study of how the World System and its nation-states invents and governs the foreign other who is produced into what Frantz Fanon (1963) called, “the wretched of the earth” – that is, the oppressed of all oppressed. Xenophobia: The Politics of Naming What I refer to as the politics of naming concerning what is understood as xenophobia in South Africa, is that the term xenophobia is used to conceal the true nature of the hatred and violence against black Africans from other countries. I have made the observation that, in actuality, what is circulated in journalistic and scholarly literature as xenophobia in South Africa is systemic and structural racism that is rooted in the colonial and apartheid history (Mpofu, 2020) of South Africa and other nation-states. It is my observation that the term xenophobia, as it denotes the fear and also hatred of foreign others by native nationals of South Africa, tends to conceal rather than reveal the systemic and structural constructs of racism at a world and local scale. These constructs produce and locate black Africans of other countries in South Africa as alien and foreign others who are on the receiving end of nationalist and, ultimately, racist passions of hatred and violence. I note that in a country which has not fully recovered from the homeland racist nationalism that placed black natives of South Africa according to geographical and ethnic lines, the black Africans from other countries take the place of racialised and excluded outsiders, who become candidates for hatred, discrimination and violation. In that way, what is termed xenophobia is, in my view, actually racism and the coloniality of being and belonging that accompanies it. In the South African academy and media, and in political circles, frequent eruptions of protests and violence against black Africans from other countries are referred to, not only as xenophobia, but also “Afrophobia” and “black-on-black violence”. The terms, collectively, construct and distribute the unfortunate impression that black South Africans in their national exceptionalism, fear and hate black Africans from other countries. Afrophobia and black-on-black violence refer to black people of South Africa as low-end brutes who hate others and themselves. The terms xenophobia, Afrophobia and black-on-black violence tend to apportion the blame for violence to the victims, who, in my view, are black people, nationals and foreign others – the systematic and structural rejects of the World System. The construction and production of foreign others within such nation-states as South Africa plays out within their borders, but actually emerges from the World System as the producer and organiser of the nation-states themselves. As understood by Charles Mills (1997:1), “white supremacy is the unnamed political system that has made the modern world what it is today”. White-skinned people are the ultimate citizens and nationals of the World System and tend to be welcome in most nation-states, including South Africa. This observation may be confirmed by the fact that there have not been xenophobic protests and attacks against white-skinned foreign nationals in South Africa. It has also happened that some black South Africans have been attacked and some killed after being mistaken for Africans from other countries in the continent. It is white-skinned people, foreigners and nationals of South Africa who seem to be systemically and structurally insulated from xenophobic violence, protected by the cover of white supremacy, which is the currency of being and belonging in the World System and its nation-states. What W.E.B. Du Bois (1903) described as the pathetic “souls of black folk” was not a reference only to black descendants of slaves in the United States of America, but also to black people at a world scale who are foreigners even within their own continent and nation-states. For instance, that black South African nationals remain marginalised from the mainstream post-apartheid economy is a truism that is in the public domain. In other words, black South Africans might be a political majority in terms of their population, but they remain an economic minority in their peripherisation from the mainstream economy, despite their nationality and citizenship. Where black nationals are economically marginal as they are in South Africa, it stands to reason that foreign black nationals would become the marginals of all marginalised, excluded and loathed. The marginality and exclusion of black South Africans from the mainstream post-apartheid economy led then Vice President, Thabo Mbeki (1998) to conclude that South Africa was “two nations, the one black and the other white”. In Mbeki’s understanding, white people in South Africa belonged to their own economic and social nation from which black people were excluded. The economic and social nation of their own that black people in South Africa inhabit is specifically poor and characterised with stiff competition for life opportunities and resources. In that competition, black Africans from other countries occupy the position of aliens, enemies and other undesirables. What is important to observe is that white South African nationals and white foreign nationals generally remain protected from xenophobic violence by their skin colour and social class, which positions them as the favoured and privileged of the World System, whose logic is white supremacy and racism. In that way, class and race, as social markers and classifiers intersect to exclude blacks in general and black foreign nationals specifically from the South African economy and polity. It is my observation and also argument that what appears to be xenophobia punishing and excluding black Africans from other countries in South Africa, is actually racism (Mpofu, 2020). It takes a decolonial and wider understanding of what racism is to illuminate that the violence against foreign nationals in South Africa is based on racism, which is not only a heritage of the apartheid era but a logic of the World System that governs all nation-states, systemically and structurally. Ramon Grosfoguel provides that expanded and deeper understanding of what racism is and how it works. It is noted that: “Racism is a global hierarchy of superiority and inferiority along the line of the human that has been politically and economically produced and reproduced for centuries . . . The hierarchy of superiority and inferiority along the lines of the human can be constructed through diverse racial markers. Racism can be marked by colour, ethnicity, language, culture and/or religion” (Grosfoguel, 2016 :10). If indeed colour, ethnicity, language and culture are racial markers that can be used to include and exclude one by the other, then it is convincing that black Africans from other countries are victims more of racism than xenophobia in South Africa. In other words, xenophobia, especially in the South African context, is a tributary of the larger systemic and structural problem of racism and the white supremacy that accompanies it in the World System. Unbeknown to them, the black and poor South Africans who choose to attack black Africans from other countries are being vehicles and conductors of white supremacy and racism, which socially manifest as the hatred and fear of foreign nationals in the streets of South Africa. The National Contract in South Africa Contract theory is not only real, but it also continues to widen and deepen in the way in which it illuminates how power works and organises the powerless. From its genealogies and provenances in western philosophy, where philosophers such as Thomas Hobbes, John Locke, and Jean-Jacques Rousseau adumbrated on it, contract theory has been enriched by decolonial thinkers who continue to deploy it to shine light on the dark corners where power hides its multiple violences. Concerning post-apartheid South Africa and the coloniality that haunts the polity and the economy, Melissa Steyn (2012) explicates an “ignorance contract”, where some guilty white perpetrators and beneficiaries of apartheid entertained deliberate forgetfulness and ignorance of the evil of racist rule. They entertain the ignorance so powerfully that Steyn wonders why one can never meet a white South African who owns up to having perpetrated, supported or benefitted from apartheid. From that, one can observe how power uses its privilege to ignore and to creatively forget its violences and plead innocence. In other words, power has the privilege to unknow its crimes and evils by politically contracting itself to convenient and comforting ignorance. British feminist, Carole Pateman (1998) described the “sexual contract”, where the idea of the social contract that is supposed to be foundational to liberal democracy actually conceals a “patriarchal pact that establishes men’s sex right over women” and by extension non-gender conforming peoples in the modern colonial world system. Hidden behind the enchanting modernising and liberating gestures of the social contract is patriarchy, which advances male and heteronormative supremacy. What Pateman achieves is to unmask the logic of patriarchy and sexism, which is systematically and structurally hidden behind the rhetoric of the social contract, much the same way the rhetoric of democracy and constitutionalism of nation-states tends to hide the logic of inequality, racism and other violences. The hate and attacks of foreign others from Africa in South Africa happen as the country’s Constitution is globally celebrated and vivid parliamentary democracy admired as exemplary. From the vantage point of political philosophy, examining the World System, Charles Mills (1997:1) observes in western philosophy “no mention of the basic political system that has shaped the world for the past several hundred years”, and that “this omission is not accidental”. The omission of white supremacy and racism as organising ideas of western and colonial modernity constitutes a kind of “ignorance contract”, where racial power and privilege are comfortable concealing rather than revealing their violences. The gravamen is that “white supremacy, both local and global, exists and has existed for many years; the conceptual claim – white supremacy should be thought of as itself a political system, white supremacy can illuminatingly be theorised as based on a contract between whites, a Racial Contract” (Mills, 1997:7). As a political system, the Racial Contract does not only bind whites, socially and politically, but it forcibly presses its signature on non-whites who are on the receiving end of white supremacy. As such, in nation-state settings such as South Africa, post-apartheid South Africa specifically, the racial contract holds the distribution of power with the many-fingered grip of the octopus. It is for that reason that the celebrated South African Constitution and the storied parliamentary democracy of the Republic do not seem to have sufficient legal and political resources to protect the poor majority blacks who are black foreign nationals from other African countries. From how the Racial Contract envelopes the nation-states within the white supremacist and modern colonial World System, I observe a National Contract where nationalism and patriotism as ideologies and passions are not innocent of racism. The national who becomes a xenophobe pretends and may actually believe that he, she or they are a dutiful patriot charged with the love and duty to cleanse the nation and the country of foreign intruders. That national believes in and fortifies colonial homelands and colonial borders. The xenophobe is at once a racist who cements the bricks of colonial and racist infrastructures of the nation-state, which is a province of the World System. In that way, nationalism as an ideology of power, being and belonging to a nation, tends to escalate or degenerate into the racism that gave birth to it in the very first place. Frantz Fanon (1963) worked hard to illuminate the degeneration of nationalism in the case of West Africa where: “National consciousness, instead of being the all-embracing crystallisation of the innermost hopes of the whole people, instead of being the immediate and most obvious result of the mobilisation of the people, will be in any case only an empty shell, a crude and fragile travesty of what it might have been”. As if writing about present-day South Africa, Fanon noted how “from nationalism we have passed to ultra-nationalism and finally racism” and “these foreigners are called on to leave and their shops are burned and their street stalls are wrecked” (Fanon, 1963). My observation is that the nationalist road, as a passionate and ideological road, leads back to the Racial Contract. The nation-state carries a nationalist and racist birthmark from its violent birth and growth in Europe, where it was colonially transported to be imposed on Africa. As I argue below, the national, in pursuing nationalism and advancing the patriotism to the nation-state, always runs the risk of degenerating into hate and violence against the foreign other who is the systemic and structural other to the World System. Political commitment to the nation-state and its demands on the outsider to the national maps and borders, leads to the Racial Contract, which puts whites at the top of the pyramid of being and belonging in the nation-state and its source, the World System. The causalities of frequent and often diabolical attacks of black Africans from other African countries in South Africa have been explored by scholars, journalists and politicians, in the main. Some have blamed poverty, where South Africans in the scramble for scarce life opportunities tend to hate and attack poor black foreign nationals, who are understood to be parasites on the scanty national cake. Others have blamed black foreign nationals for bringing crime, disease and violence to South Africa – which is mistakenly understood to be an exceptional country, a piece of Europe in Africa – which must be protected from the pollution from other African countries that black foreign nationals bring into the Republic. Black foreign nationals have been accused of taking away not only scarce jobs from South Africans, but also “our women”, who foreigners snatch from the nationals, as if women in South Africa are essentially the entitled property of any South African man. I note the possible credibility of some of these “popular” understandings of the causalities of hatred and fear of black foreign nationals in South Africa, but I insist that the National Contract in its rootedness in the Racial Contract that governs the modern and colonial World System turns some South Africans into xenophobes. In his Reflections on xenophobic violence in South Africa, Michael Neocosmos dismisses the primacy of most of these causalities and blames a “political discourse” that is “the result of political ideologies and consciousnesses” that impassion some South Africans into fear and hatred of black foreign nationals from elsewhere in Africa. To blame is “a state discourse of xenophobia, a discourse of South African exceptionalism and conceptions of citizenship founded exclusively on indigeneity” (Neocosmos, 2008:587). The political ideologies and consciousnesses that possess the state and the nation in South Africa are, in my view, passions of the Racial Contract that produce and shape the National Contract, which weaponises borders, nationality and citizenship against the foreign other. In other words, the foreign other is invented racially by the nation-state and is then criminalised as a loathed enemy that is a candidate for hate, insult, assault and murder. The Invention of the Foreign Other By being and belonging to a modern World System, the nation-state as a domain of power that is housed within a country, carries the memory and sensibility of modernity and coloniality. Regarding post-apartheid South Africa, for instance, Peter Hudson (2013) describes the state as a carrier of the “colonial unconscious” in that the history of apartheid, racism and coloniality haunts the institutions and structures of power in the Republic. That apartheid classified South Africans into races and ethnicities and settled them in homelands, with white people at the centre and black people in the periphery, cannot be ignored in observing how black Africans from other countries are treated in the country. Black Africans from Zimbabwe, Mozambique, Nigeria and other African countries have no homeland to go back to in the history of South Africa, hence the perpetual populist demand that they should go back to their countries. What is simplistically called xenophobia in South Africa is that apartheid “colonial” and racist unconscious that is also a homeland mentality and political sensibility. It demands as apartheid did that black South Africans themselves, and black Africans, go back where they belong in the homelands. What Neocosmos (2008) describes is a South African state and nation that, because of its history of excluding the racial and the ethnic other from the centre of the polity and the economy, cannot help itself from fearing and hating the foreign other. In that way, the South African nation-state is sold and bought to the Racial Contract, which classifies, settles and excludes along the lines of race and the ethnicities that it constructs and circulates. There is more to the assertion by Greg Mills (2011:402) that in the modern world “nations are constructed around a common hatred of their neighbours and a common misunderstanding of their own past”. In its self-understanding as a nation-state, South Africa might be systemically and structurally possessed with a mythologisation of the foreign other as an alien and a pollutant to be gotten rid of. That mythologisation of the foreigner might be accompanied by the imagination of South Africa as pure, different and exceptional from other African countries. In that nations are “imagined communities”, Benedict Anderson (1983) clarifies that nations and their states, such as South Africa, work with the imagination of themselves against an imagination of others as outsiders to be managed in or managed out. Nation-states, such as post-apartheid South Africa, are fertile grounds that systematically give birth to what Mahmood Mamdani (1996) called “citizens” and their “subjects”. The foreign others are constructed, given birth to, by the nation-state as not only subjects but actually objects that are outsiders to the nation, the state, and the country as a geographical entity with its forbidding maps and borders to keep the outsider outside. The passports and permits that are demanded from the foreign others are actually not for helping them “pass the port” of borders or “permitting” them to stay in the country, but rather, they are signatures and monuments to their objectification. The foreign others as imagined and invented by the nation-state and its political imaginary appear as refugees, immigrants, illegal and undocumented travellers and settlers, summarised in the name of foreigners. The foreign others create in the nation-state what Slavoj Zizek (2017) calls a “double blackmail”, where those who are against them and want them out have convincing reasons, and those who sympathise with them and want them documented and permitted to stay also have their compelling reasons, while their condition of exclusion and oppression remains unchanged. Being the foreign other does not only have race to it, but it also has class. It is for that reason the true foreign other is always the poor black African that is a border jumper, an economic refugee, political exile or fugitive from somewhere else in Africa. Xenophobic violence in its diabolical expression pits black poor South Africans against black poor Africans from elsewhere. The educated, professional and monied African from elsewhere enjoys documentation, permanent residence, naturalisation and citizenship. That classy black African becomes more national than some poor South African nationals and benefits from the systemic and structural xenophilia of the state that is reserved for the white persons or those blacks who have been washed white by money. It is in that way that in the nation-state of the World System, nationality and citizenship can actually be sold and bought as a commodity that some can afford while others cannot. The true foreign other in such a nation-state as post-apartheid South Africa is black and poor, excluded and unwanted, a wretched of the earth. The foreign others are colonial subjects that are excluded along the lines of race, class, nationality and ethnicity first in the World System, and next in the nation-state as a legal and political unit that is located in the geographical location called a country, such as South Africa. Conclusion It is my observation, argument and conclusion that what we simplistically call xenophobia, in the media and the academy, is actually a political ideology and passion that combines ideas of race and class. It is a combination of ideas and practices that target the black and the poor for exclusion and for attack. Even the terms “Afrophobia”, “black-on-black violence”, and black on “black hatred” do not capture that at the bottom of violent attacks on black and poor foreign others in South Africa there is racism in its full intersection with classism. I can argue here that those that pass the test of race and class in South Africa, even if they are foreigners, are safe from what we call xenophobia. If what we call xenophobia, in the media and the academy, is actually the fear and hatred of foreigners, then the fortune of white skin colour and possession of big money can wash away being a foreigner and buy nationality in South Africa. As such, what we call xenophobia, the fear and hatred of foreigners, in the media and the academy, is a misleading misrepresentation and simplification of terms. In confronting what we simplistically call xenophobia, we are faced with race in its intersection with class, and in its working with the ideology of nationalism in one nation-state that is housed in one country, South Africa. Colonial borders, state laws, and institutions, political parties, and government, and the population of South Africa are systematically and structurally thrown into a historical and political theatre where the invented foreign others have violence and exclusions performed and deployed against them. References Agamben, G. (2008). State of exception. In State of Exception. Chicago: University of Chicago Press. Anderson, B. (1983). Imagined Communities. New York: Verso. Arendt, H. (2009). The Jewish Writings. New York: Schocken Books. Du Bois, W. E. B. (1903). The souls of black folk. Chicago: McClurg. Fanon, F. (1963). The Wretched of the Earth. New York: Grove Weidenfeld. Grosfoguel, R. (2016). What is Racism? Journal of World-Systems Research, 22(1), 9-15. Hudson, P. (2013). The state and the colonial unconscious. Social Dynamics, 39(2), 263-277. Mamdani, M. (1996). Citizen and Subject: Contemporary Africa and the Legacy of Late Colonialism. Princeton: Princeton University Press. Mbembe, A. (2021). Out of the dark night: Essays on decolonization. New York: Columbia University Press. Mills, C. (1997). The Racial Contract. Ithaca and London: Cornell University Press. Mills, G. (2011). Why Africa is Poor: And What Africans Can Do About It. Johannesburg: Penguin Books. Mpofu, W. (2020). Xenophobia as Racism: The Colonial Underside of Nationalism in South Africa. International Journal of Critical Diversity Studies, 3(2), 33-52. Neocosmos, M. (2008). The politics of fear and the fear of politics: Reflections on xenophobic violence in South Africa. Journal of Asian and African studies, 43(6), 586-594. Pateman, C. (1988). The Sexual Contract. Oxford: Polity Press. Steyn, M. (2012). The ignorance contract: recollections of apartheid childhoods and the construction of epistemologies of ignorance. Identities, 19(1), 8-25. Wallerstein, I. (2004). World-Systems Analysis. USA: Duke University Press. Zizek, S. (2017). Against the Double Blackmail. Milton Keynes: Penguin Books. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - This report has been published by the Inclusive Society Institute The Inclusive Society Institute (ISI) is an autonomous and independent institution that functions independently from any other entity. It is founded for the purpose of supporting and further deepening multi-party democracy. The ISI’s work is motivated by its desire to achieve non-racialism, non-sexism, social justice and cohesion, economic development and equality in South Africa, through a value system that embodies the social and national democratic principles associated with a developmental state. It recognises that a well-functioning democracy requires well-functioning political formations that are suitably equipped and capacitated. It further acknowledges that South Africa is inextricably linked to the ever transforming and interdependent global world, which necessitates international and multilateral cooperation. As such, the ISI also seeks to achieve its ideals at a global level through cooperation with like-minded parties and organs of civil society who share its basic values. In South Africa, ISI’s ideological positioning is aligned with that of the current ruling party and others in broader society with similar ideals. Email: info@inclusivesociety.org.za Phone: +27 (0) 21 201 1589 Web: www.inclusivesociety.org.za

Copyright © 2023 Inclusive Society Institute PO Box 12609 Mill Street Cape Town, 8000 South Africa 235-515 NPO All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without the permission in writing from the Inclusive Society Institute D I S C L A I M E R Views expressed in this report do not necessarily represent the views of the Inclusive Society Institute or its Board or Council members. Authors: Anton Cartwright Prof James Blignaut Dr Anokhi Parikh Content Contributors: Prof Josephine Musango Prof Tania Ajam Dr Motsamai Molefe Moderator: Prof Zweli Ndevu Project Manager: Daryl Swanepoel JANUARY 2023 Content 1. Introduction 2. Learning from the history of research on population and sustainability 2.1 Biophysical constraints 2.2 Non-biophysical constraints 2.3 Learning from the past 3. Analytical approach 3.1 Modelling carrying capacity 3.2 Model structure, variables and real-world data 3.3 Scenarios to capture the influence of political economy 4. Model results and inference 5. Influences of fertility rates and policy implications 6. Conclusion References Appendix A: Variables and values of input data used Appendix B: Earth overshoot day for respective countries based on “biocapacity” models. Cover page picture source: https://journals.openedition.org/factsreports/5650 List of Tables Table 1: Variables and sources of data for the model Table 2: Scenario parameters Table 3: Carrying capacity over time across four modelled scenarios List of Figures Figure 1: Global population over time compared to trends of a selection of environmental indicators, showing strong correlations but not necessarily causality Figure 2: Number of studies by maximum human population threshold Figure 3: Logistic functions applied in this model to capture the idea of carrying capacity Figure 4: A stylised causal loop diagram illustrating a selection of the various system- wide interactions between the population, the economy and environment Figure 5: The land sub-modelFigure 6:The cereal production and water sub-models Figure 7: The GDP-waste and GDP-greenhouse gas sub-models Figure 8: Modelled global carrying capacity under different scenarios Figure 9: Carrying capacity (S0) over time, per region Figure 10: Modelled South Asia carrying capacity under different scenarios and unchecked population growth “The human question is not how many people can possibly survive […] but what kind of existence is possible for those that do" (Frank Herbert, 1965, Dune) 1. Introduction The past 150 years have been defined by a “Great Acceleration” – the period of rapid expansion of the “economic activity of the human enterprise” (Steffen et al., 2015). This period is associated with innovation, rapid industrial expansion, commodity extraction, unprecedented improvements in agricultural productivity with the help of inorganic fertilisers, pesticides and herbicides, and rapidly rising consumption. The same 150-year period saw the human population increase from 1.2 to 7.9 billion (World Bank Data, 2022) and a raft of environmental impacts, see Figure 1, leading in some instances to the breakdown of environmental systems (McNeil, 2000; MEA, 2005; Dasgupta et al. 2021; IPCC WG2, 2022). Earth system scientists describe this period as marking a fundamental shift from the natural variability of the Holocene (the preceding 11,700-year period) to the Anthropocene in which human activity is the dominant influence on Earth’s geology, ecosystems and climate (Stoermer and Crutzen, 2000; Pearce 2009; Smith and Zeder, 2013; McNeil and Engelke, 2016; Baskin 2020).[1] Figure 1: Global population over time compared to trends of a selection of environmental indicators, showing strong correlations but not necessarily causality Source: Smith et al. (2009) People have always relied on the natural environment for food and fibre and as a sink for the by-products of their economic endeavours, and this reliance has long been the source of concern about resource scarcity, environmental integrity and the implications of environmental collapse for humanity (McNeil, 2000; Crutzen, 2002; Pearce, 2009). As the human population breaches the 8 billion mark for the first time, and in the interests of adding a contemporary perspective to what is both a longstanding intellectual curiosity and concern, the Inclusive Society Institute (South Africa) together with the Global Challenges Foundation (Sweden) commissioned research that explores the interactions between human population, environmental sustainability and human well-being. More specifically, this study sought to answer two questions: i. What is a sustainable human population size on Earth? ii. What are the policy measures that influence population size and population growth rates? The study applied a combination of literature review and systems modelling to propose a range of estimates with respect to the Earth’s plausible “carrying capacity.”[2] Significantly, the research took place in the wake of a 2 years and 11 months drop in life expectancy in the United States between 2019 and 2022 (CDC, 2022). Covid-19 caused at least 6.5 million deaths globally and together with a spike in “unintentional injuries” – a term that is most commonly applied to drug-related deaths – accounted for the sharpest decline in United States’ life expectancy in nearly 100 years. For some, the interconnections between growing populations, habitat destruction and the outbreak of pandemics and societal stresses have created the spectre of checks on the human population (Jones et al., 2008; Dobson et al., 2020; Gibb et al., 2020; Tollefson, 2020). While the loss of life expectancy in the United States has not yet altered global population growth, the data does provide a caution against complacency on the population issue. More specifically, global events since 2019 have rocked the sanguine complacency that has characterised some policy circles that ‘everything will be OK’ or ‘technological fixes will solve our problems’ and instead highlighted the linkages between humans, other components of the natural world, conflict, political power and disease. The research engages this context in answering the research questions and draws the high-level conclusion that consumption, resource management and choices around economic models exert a more powerful influence on sustainability and carrying capacity than population growth. 2. Learning from the history of research on population and sustainability From the outset, much of the research into sustainable population size has been “politically loaded”, often harnessing very human fears about well-being and longevity (Sciubba, 2022). Proponents of this research have drawn from a combination of macro-demographic and Earth system models and micro-scale biological experiments involving pin mould in a petri dish and rabbits in a hutch, to speculate about what happens when the Earth is no longer able to supply the needs of humans. Cohen (1995) observed that the debate about sustainable population size, economic well-being and cultural values has been most fierce when scientific evidence is least available. In reality, there is no shortage of “evidence” but the idea of a “sustainable human population” comprises an “essentially contested concept” that is not well-served by dogmatic, sceptic or even eclectic framings (Garver, 1978, p.168). Contestation has not prevented assumptions regarding the relationship between population size, environmental sustainability and human well-being, being embedded in many aspects of policy, often in ways that are influential but not particularly transparent: macro-economic models rely on population growth to drive economic growth; Intergovernmental Panel on Climate Change’s (IPCC’s) Shared Socioeconomic Pathways include assumptions on population growth and emissions; migration policies are often predicated on the population that a country or its economy is assumed to be able to sustain; local and regional infrastructure planning strategies are based on future levels of population, environmental integrity and economic well-being; and personal and actuarial financial plans make assumptions about future population, economic progress and environmental integrity (Pearce, 2009; Samir and Lutz, 2014). Some of the same assumptions feature in contemporary discourses and popular culture. In the movie Infinity Wars and Avengers: Endgame, the genocidal villain, Thanos, seeks (satirically) to halve the population to cure the world of the ills of overpopulation and resource depletion and bring stability to the remaining half of the population. 2.1 Biophysical constraints One way of understanding different studies of the Earth’s carrying capacity involves examining the assumptions they make regarding what constrains human population. Van Leeuwenhoek, famous for having invented the microscope, relied on an estimate of ‘inhabitable land’ in the world to make one of the first documented estimates of the Earth’s human carrying capacity in 1679. Extrapolating from the population of Holland (then one million people) and applying his estimate of inhabitable land, Van Leeuwenhoek concluded that the Earth could support 13 billion people. Over a century later, Thomas Malthus focused on food availability. Based on his famous model of the differential growth rates in food and population, respectively, Malthus predicted large-scale food shortages and population checks (Malthus, 1798). While Malthus’ model did include events such as war and famine, his focus on food availability failed to anticipate the influence of agricultural innovation and birth control.[3] Paul and Anne Ehrlich focused, similarly, on food supply. In their book The Population Bomb, they forecast large-scale starvation in the 1970s and 1980s (Ehrlich and Ehrlich, 1968). Paul Ehrlich’s subsequent work included a range of commodities, and in 1980 he engaged economist Julian Simon in a bet that the price of five commodity metals would go up in the following decade due to their scarcity. Ehrlich unambiguously lost the bet but retains that he is right about the impact of population, technology and affluence in determining environmental impact. Ehrlich’s I (impact) = P (population) * A (affluence) * T (technology) model was developed with John Holdren and is still widely cited in environmental literature, despite its lack of explanatory power (Ehrlich and Holdren, 1971; Gaffney and Steffen, 2017). Research subsequent to the Population Bomb has considered the interaction between several constraining factors in estimating the Earth’s carrying capacity for humans. The Limits to Growth remains one of the most purchased environmental books of all time and modelled the interaction between ‘population’, ‘agricultural production’, ‘natural resources’, ‘industrial production’ and ‘pollution’ (Meadows et al., 1972). The authors concluded, "The most probable result will be a rather sudden and uncontrollable decline in both population and industrial capacity" and proceeded to argue that while technological innovation and population control could delay a collapse, only a "carefully chosen set of world policies designed to stop population growth and stabilize material consumption could avoid collapse" (Meadows et al., 1972). Other studies have drawn on different combinations of water availability, energy, carbon, forest products, non-renewable resources, heat removal, photosynthetic capacity, and the availability of land for food production. The same studies adopt a range of techniques in estimating actual maximum population size, including spatial extrapolation, modelling of multiple regions, temporal extrapolation, actual supply of a resource, hypothetical modelling, and dynamic systems modelling (see summaries in Cohen, 1995; Jeroen et al., 2004; UNEP, 2012). Population biologist Joel Cohen posited that the nitrogen cycle, available quantities of phosphorus and climate change were most likely to provide the first binding constraints on population, but conceded that, “no one knows when or at what level peak population will be reached” (Cohen, 1995). Phosphorous, a key ingredient in plant proteins, has long been considered a potentially constraining resource, but this fear has led to the discovery of new phosphate deposits on the ocean floor (Van Vuuren et al., 2010; Edixhoven et al., 2013). Applying the Food and Agriculture Organization’s assumption that there is 1.4 billion hectares of arable land available in the world, ecologist EO Wilson estimated the maximum possible human population to be 10 billion, but contingent upon the significant rider that everyone followed a vegetarian diet and humanity adopted a “generally shared long-term environmental ethic” (Wilson, 2002). Proponents of “planetary boundaries” define a “safe operating space” for humanity based on their assessment of the thresholds of a perturbed climate, stratospheric ozone depletion, ocean acidification, biochemical flows (phosphorous and nitrogen), land system change, atmospheric aerosol loading and biosphere integrity (Rockstrom et al., 2009). Whilst the idea of a safe operating space has been useful in highlighting choices and the interaction between social and biophysical systems, proponents of this idea have struggled with the interaction between their boundaries and the data that has emerged since 2009 (Steffen et al., 2015; Raworth, 2018). 2.2 Non-biophysical constraints The limited predictive power of past studies linking population growth and environmental integrity has led some researchers to question the significance of the relationship (Hickel and Hallegatte, 2021). Given that per capita incomes have risen much faster than the growth in population, it has been suggested that consumption growth (and associated extraction and pollution) might be more of a threat to environmental sustainability than changes in population size (Pearce, 2009; Drupp et al., 2021). This idea is broadly supported by the “Earth Overshoot Day” evidence (Appendix B), the observation that the richest 7% of people were responsible for half the greenhouse gas emissions driving climate change in 2020, and the assessment that OECD countries have contributed 92% of the historical emissions causing climate change (Pearce, 2009; Hickel, 2020). Hickel argues: "The crisis is not being caused by human beings as such, but rather by an economic system that is organized around, and dependent on, ever-increasing levels of commodity production and consumption" (Hickel and Hallegatte, 2021:2). The same focus on extraction, consumption and pollution as the primary threat to the Earth’s carrying capacity is supported by research suggesting that a child born in the United States in the early 2000s would, under the prevailing technologies, produce a lifetime carbon footprint seven times greater than a Chinese child, 46 times that of a Pakistani child, 55 times that of an Indian child, and 86 times that of a Nigerian child (Murtaugh and Schlax, 2009). Others have questioned the very idea of natural resource constraints, given human ingenuity and innovation. Paul Romer won a Nobel Prize for Economics, drawing on empirical evidence to show non-diminishing returns to human and institutional capital in his Endogenous Growth Theory (Romer, 1986). Where Romer’s thinking is extended to include the possibility of non-diminishing returns to ecological capital (i.e., regenerating natural systems), most biophysical constraints on carrying capacity disappear (Van den Bergh, 2011; Smulders et al., 2014; Atkinson, 2015; Hickel and Hallegatte, 2021). Interestingly, while human population continues to grow, fertility rates are falling everywhere, leading to the suggestion that either environmental or social population checks are already in effect (UNDESA, 2017). In 2021 the growth rate was 1.1%, much lower than its peak in 1968 when it grew at 2.1%. The average number of children per woman peaked in 1950 at 5.05 and had more than halved to 2.4 by 2021 (World Bank Data, 2022). More than half the women born in 1990 in the United Kingdom and Wales, had not had children, the first generation to record this statistic (Office of National Statistics, 2021). 2.3 Learning from past research The past 300 years of research and literature on population and sustainability reveals little certainty on global carrying capacity. It does, however, highlight the emotive nature of this research question, the importance of what is measured and the timeframes over which it is measured. Rather than converge, estimates of the human population limits have diverged as the number of studies has increased. The range of published research suggests that populations between 0.5 billion and 1 trillion could live sustainably (Figure 2). Most of the research estimates that sustainable populations would be less than 16 billion, but there is no probabilistic relationship that can be applied between the frequency of estimates and actual carrying capacity of Earth. Figure 2: Number of studies by maximum human population threshold Source: UNEP (2012) Reviewing past research on this topic highlights two potential research pitfalls: difficulties in imputing the contribution of innovation and adaptive human behaviour and whether it is enhancing or undermining carrying capacity (as with Malthus), and the difficulty in making accurate assumptions regarding the ecological, social and economic thresholds that should not be breached if human populations are to be sustained. It is equally clear that most theories of demography and the impact of human populations on sustainability involve a degree of political bias and agenda (Baskin, 2020; Sciubba, 2022). In an extreme example, Garret Hardin author of the gloomy Tragedy of the Commons, called on the equally polemical and provocative need for "lifeboat ethics" in confronting a resource-constrained world (Hardin, 1974). In Hardin’s metaphor, "Each rich nation can be seen as a lifeboat full of comparatively rich people. In the ocean outside each lifeboat swim the poor of the world, who would like to get in." If any were allowed on board, Hardin argued, everyone would drown and accordingly people in the lifeboat had a duty to their species to be selfish. What Hardin’s metaphor failed to impute was that each of the people in the lifeboat was occupying the ecological equivalent of ten places. Gender politics forms a further deep-seated bias in a number of population studies. Not only are fertility rates directly related to women’s rights and agency within societies, but the impacts of environmental degradation are born disproportionately by women (Gifford and Comeau, 2011; Schofield and Gubbels, 2019; Walk, 2021). Understanding the options and decisions available to women is largely missing from studies of population and sustainability, an oversight that undermines the body of research. 3. Analytical approach This study sought to learn from the history of work on this topic before applying assumptions on the relationship between population and environmental sustainability. The overarching assumptions applied are listed below in the interest of transparency, and to locate this research on the wide spectrum of thinking on this topic: i. For the purposes of this study, the Earth is assumed to be the only planet capable of supporting human life. ii. Planet Earth is assumed to be an open system with abundant resources many of which have regenerative capacity, due to incoming radiative energy from the sun. In this the human population on Earth is unlike ‘pin mould in a petri dish’ or ‘rabbits in a hutch’ in the experiments mentioned above. iii. It is recognised that there are many social and ecological factors, known and unknown, that affect the maximum possible human population size on Earth. These factors interact with each other in ways that are difficult to observe or predict. This assumption does not preclude sensible policy responses, but does render any population sustainability model limited in its explanatory power. iv. It is acknowledged that Earth’s ability to sustain human life is already under extreme pressure. Resource extraction and consumption exceeds the regenerative capacity of most planetary systems and numerous ecological systems are in danger of collapse. v. Humanity is assumed to be unequivocally responsible for the prevailing environmental crises, but human impact varies greatly depending on individual income and location. vi. Humans have a remarkable capacity to innovate and adapt their operating systems to meet and sustain their needs. As a result, the inclusion of different human responses to social and environmental pressures becomes critical to estimates of sustainable population. vii. Population is not assumed to be the only parameter impacting on sustainability. Consumption, governance, toxicity of industrial processes and concentrations of both political and economic power appear to influence the environmental pressures experienced today. viii. If something is unsustainable, then it will stop. The working assumption of this study is that Earth systems will continue with or without people, but that population growth will either be curtailed within a sustainable threshold by human decisions, or checked (and possibly decline) where a collapse of ecosystem services causes food shortages, disease, conflict, or environmentally induced declines in fertility.[4] 3.1 Modelling carrying capacity Systems science teaches us that problematic “overshooting” occurs when periods of rapid change confront some form of barrier or threshold and the feedback loops or corrective measures are delayed or impaired (Meadows et al., 2002). Barriers or thresholds can be comprised of time, space or constraints in resources or social capacity, and they can be absolute or relative to rates of regeneration (Meadows et al., 2010). Knowing where barriers or thresholds lie, or whether feedback loops are likely to be positive or negative, can be tricky. The book Collapse – How Societies Choose to Fail or Succeed famously documents the catastrophic consequences for civilisations in which the elite believed they could insulate themselves from the impacts of ecological degradations (Diamond, 2005). In contrast, in rural villages in Kenya, the soil erosion caused by rapid population growth catalysed the social solidarity and environmental responses that led to soil protection and higher crop yields (Tiffen et al., 1993). In this study, the notion of ‘carrying capacity’ is used as the system threshold that should not be overshot (McGuigan, 2022). Carrying capacity refers to the maximum population size of a biological species that can be sustained by that specific environment. This study considers the Earth’s carrying capacity of humans, while recognising that the maximum size of the human population is a function of the environmental systems that interact with and support that population. The modelling of carrying capacity, denotated as “K”, involves estimating the point at which the number of births is equal to the number of deaths and (once migration has been accounted for) population is stable. In the model developed for this study, carrying capacity is assumed to be a function of: Food calorie and nutrient production: As a basic need for all humans calories and nutrients are fundamental to life; two thirds of food calories consumed globally come from just four staple crops: wheat, maize, rice and soybean (Elbehri, 2015; Rozenberg and Hallegatte, 2015; Villarroel Walker et al., 2014; Kim et al., 2019; Queiroz et al., 2021). Demand for food doubled between 1950 and 2000 (Tilman et al., 2002) and the world must produce more food in the 40 years following 2010 than in the previous 8,000 years. Agricultural innovation has driven levels of food production not imaginable by Thomas Malthus, but this has imposed an environmental burden and has its own limits. Between 1950 and 2000, agricultural yields plateaued in Europe and the United States despite a 700-fold increase in fertilisers (Foley et al., 2005; Godfray et al., 2010), and 30-35 billion tons of topsoil is lost every year (Clay, 2011). Water provisioning: Access to freshwater is a requirement for life and economic activity (Gleick et al., 2002). Mining, agriculture, industry and urban waste have polluted and caused salinization of the 35 million km3 of freshwater systems around the world, of which only 50% are currently used by people (Gleick and Palaniappan, 2010). Any notion of freshwater limits must factor in the rates of recharge of surface water and groundwater, respectively. There is an additional 1.4 billion km2 of sea water available. As a minimum, the World Health Organisation estimates that people require access to 50 litres of water per day to live a productive and healthy life. Energy: Access to energy varies greatly across the world, and the model described below did not use an energy parameter, per se, but did capture CO2 as a by-product of energy, as something that has to be processed by “regulating services”. Energy availability and access are a prerequisite for livelihoods, comfort, economic development and health (IEA, IRENA, UNSD, World Bank, 2021). There are strong correlations between access to energy and well-being and the ability to cope with, and respond to, disruptions. How energy is generated, by utilities and households, holds important implications for health and environmental stability both through the pathway of indoor air pollution and the linked between energy and climate change (International Energy Agency (IEA), 2014; Castan-Broto, 2017). Resource extraction and ecosystem destruction: The extent to which societies poison or destroy the ecological integrity that supports life, affects carrying capacity (Hallegatte et al., 2019; Rockström et al., 2017). The accumulation of harmful chemicals in the ocean, freshwater systems, soil and atmosphere, or through accelerated erosion or deforestation, all undermine carrying capacity. This parameter, itself a function of what is sometimes called an extractive economy (as opposed to a circular economy) has a negative impact on carrying capacity. Historically, the presence of these environmental “bads” (extraction and destruction) has been closely correlated with human population (Lenton et al., 2019). Foremost among the risks to ecological integrity is the risk of climate change. To have a 50% chance of limiting warming to 1.5oC, the world can emit 460 billion tCO2e from January 2021 (IPCC, 2021). There are many linkages between climate change and carrying capacity. Among the most obvious are climate-induced crop failures and droughts in China, India and North America (Caparas et al., 2021). There is further evidence, but not yet sufficiently robust to have been included in the model, that persistent environmental pollutants affect carrying capacity in direct and indirect ways. The World Health Organisation notes that increased mortality results from PM2.5 above 10 micrograms per cubic metre of air, that is urban air in many of the world’s cities. There is also growing evidence that a range of phthalates, polychlorinated dibenzo-p-dioxins (PCDDs), polychlorinated dibenzofurans (PCDFs) and, specifically, polychlorinated biphenyls (PCBs) contained in pesticides or released from badly managed landfill sites or the indiscriminate burning of plastics and industrial materials, impact male and female fertility directly. Land: As both a source (food and ecosystem services) and a sink (for the built environment and for waste processing), land is a fundamental component of carrying capacity. While some vertical farming or cellular agriculture technologies may decouple food production from land, these technologies are not available to the majority of the world, and land for ecosystem goods and services remains essential. Land is further required as a place for cities and to accommodate the urbanisation mega-trend. Suitable or optimal urban densities depend heavily on infrastructure and governance, but some high-density cities such as Medellín are associated with high levels of sustainability (Newton et al., 2022). It is not the case that nobody dies of hunger, disease or environmental pollution at carrying capacity, but only that these deaths together with natural deaths equate over the short term to the number of births. Equally, breaching K does not necessarily lead to a population collapse. On the contrary, the model developed for this study applies a logistic function (the Verhulst-Pearl equation[5]) to reflect a population that grows exponentially, but then stabilises around a maximum threshold (an asymptote) at the carrying capacity (Figure 3) (Cohen, 1995; Bacaër, 2011). This is in contrast to an exponential function that does not accommodate a maximum, and as such is not useful in establishing the equilibrium level of K. Figure 3: Logistic functions applied in this model to capture the idea of carrying capacity Source: BioNinja[6] To quantify the Earth’s carrying capacity, this study built and ran a model using Vensim[7] software. The model adopted a ‘systems’ approach recognising that it is functional ecosystem services – rather than a single resource – that sustain human life, and which are under critical threat. In this modelling approach, human populations are either checked or decline when ecosystems stop providing critical services. In this way, the model sought to capture the human population’s dependence on the “living fabric of ecosystems and biodiversity” (MEA, 2005; Sukhdev et al., 2014). This “fabric” is represented by four categories of critical services provided by nature, as popularised by the Millennium Ecosystem Assessment (MEA) and applied by The Economics of Ecosystems and Biodiversity (TEEB) working group, namely: Provisioning services: such as food, freshwater, raw materials, medicinal resources Regulating services: such as local climate and air quality, carbon sequestration and storage, extreme events, soil erosion and fertility, wastewater treatment, pollination, biological control Cultural services: such as recreation, tourism, spiritual experiences and aesthetic appreciation Habitat or supporting services: such as species, genetic diversity. 3.2 Model structure, variables and real-world data No model can fully represent the extent of environmental complexity, but the idea of interacting parameters in an ecological system and interconnectedness between humans, human decisions (as shaped by both agency and culture) and environmental change, remains important to any study of carrying capacity (Sukhdev et al., 2014). The ability to capture the linkages between multiple parameters produces a very different analysis to that which would be applied if parameters were considered independently – for example, if the focus was only on food or phosphates. This is the key advantage offered by a systems model. Selecting suitable proxies for functional ecosystem services and linking these proxies together in a manner that reflects their current real-world interdependency generates the system illustrated in Figure 4 below, complete with positive and negative feedbacks. Figure 4: A stylised causal loop diagram illustrating a selection of the various system-wide interactions between the population, the economy and environment The model relies on existing production modalities to establish the “direction” of the linkages between parameters, based on their positive or negative causalities. The illustration of the model in Figure 4 integrates six ‘loops’: Loop 1 (purple): The mutual relationship between GDP and the size of the population is ambiguous, it can either be positive (reinforcing) or negative (balancing), and thus the relationship is indicated by a “?”; Loop 2 (green): The larger the population the more land conversion takes place and the more fertilizer is used; the more that land is converted and fertiliser is used, the more extraction, solid waste, air pollution and GHG emissions as well as biodiversity impact is experienced; Loop 3 (blue): Higher food production is linked to higher water demand, and higher water demand is positively correlated with higher environmental impact; Loop 4 (red): Higher GDP drives higher resource and energy use, and higher resource and energy use is linked to more extraction, solid waste dumping, air pollution and GHG emissions, which are all linked to increases in the environmental impact; Loop 5 (orange): The environmental impact is negatively correlated with population growth and GDP; Loop 6 (black): The higher the population, the greater the land requirement, and thus the higher the environmental impact. The model’s ‘loops’ are the product of three interlinked sub-models that describe i) land use, ii) cereal production and water use, iii) GDP-waste, GDP-greenhouse gas generation intensities, and greenhouse gas emissions. Real-world data for land, freshwater availability, cereal production, population size and growth, and other variables, drawn from the World Bank’s World Development Indicators dataset, were used to run the sub-models (see Appendix A). The sub-models were run for each of the seven regions for which the World Bank reports data.[8] The regional disaggregation allowed the study to reflect different rates of growth, extraction and degradation, and different relationships between (for example) land and cereal production in different regions. By way of illustration, the ‘land’, ‘climate’ and ‘cereal’ sub-models are described in more detail below. Land sub-model: While Figure 5 shows the land sub-model for East Asia and the Pacific (EAP), all sub-models were run for all seven regions. In the land sub-model, the actual land area is subdivided into five sub-categories or land-use options, namely conservation land, arable land, urban land, land for waste management, and sundry or residual land. The total available land area for each geographic area is fixed and represented by the variable “EAP area” below, but the model allows for the allocation of land across the five land-use categories to vary until the optimum at which “EAP sundry” reaches zero, at which point all other land uses are fixed for that region. The red components of the sub-models reflect relationships between model parameters that can be adjusted by the modeller, whilst the black parameters are endogenous based on underlying formulas. The land sub-model interacts with the cereal production and water sub-models. Figure 5: The land model Cereal-water sub-model: The cereal production sub-model (Figure 6) interacts closely with water parameters and the land sub-model (Figure 5). Cereal production is used as a proxy for the availability of calories and nutrition. The cereal sub-model is populated with actual data for growth in cereal production in each region, but this is constrained by the water availability in that region (as determined by the water sub-model), soil erosion and climatic influences, where climate influences are determined by the emissions level in the GDP-waste and GDP-greenhouse gas sub-model (Figure 7). Figure 6: The cereal production and water sub-models Climate sub-model: The “GDP-waste and GDP-greenhouse gas” sub-model is also constructed for each region, using actual data for waste and emission intensities of a region, projected based on the expected economic growth of that region. Greenhouse gas emissions are linked to temperature, based on the relationship between CO2 concentrations and temperature increases.[9] Temperature is, in turn, linked to agriculture production in the cereal sub-model, to reflect the understanding that crop production is temperature dependent. Figure 7: The GDP-waste and GDP-greenhouse gas sub-models In each region either land, water or food becomes the binding constraint on carrying capacity, depending on whichever becomes the constraining factor first. The carrying capacity of Earth is estimated as the sum of the respective carrying capacities of the seven respective regions. This model structure includes the possibility of trade but not for migration between the regions in establishing K – given that carrying capacity is a hypothetical population number, it is independent of migration. The list of model parameters populated by the modeller (red parameters) is provided in Table 1 with the sources of data listed. The actual values used in the base case scenario for the seven geographic regions are provided in Appendix A. Table 1: Variables and sources of data for the model 3.3 Scenarios to capture the influence of political economy The baseline scenario and first model run (S0) aimed to capture the biophysical concept of carrying capacity in which the existing levels of “technically feasible” crop production efficiency, water use efficiency and land use are attained in all regions, without significant feedbacks that disturb these existing relationships. S0 relies on an indefinite continuation of the data trends between 2010–2020. There is no major climate change disruption, ecosystem collapse or outbreak of famine or disease beyond what has already been experienced in the respective regions. S0 is important in indicating what is hypothetically possible, but does not include real-world political economy distortions that result in market failure and resource use inefficiency. Neither does it factor in disruptions to steady, linear progress. In this sense, S0 is somewhat idealistic. In reality, politics and power matters. Typically, famines are not the result of absolute food shortages, but of asymmetric power relations that block access to the available food (Sen, 1983). To reflect the influence of institutional and political-economy decisions, the model was run for three additional scenarios. The scenarios can be thought of as stories of possible future states, but they are not forecasts or predictions of the future (Rogelj, 2022). The scenarios do not reveal the likelihood of any particular future becoming reality, and it is not the case that the absence of a particular scenario means that this scenario is not possible (Huppmann et al., 2018). The three additional scenarios applied to the running of the model are described below and the assumptions behind all four scenarios are presented in Table 2: Scenario 1 (S1) – A resource constrained, toxic and institutionally dysfunctional world: Under this scenario dependence on natural resources continues and greenhouse gas emissions and waste per unit of productivity increase relative to S0. Negative environmental feedbacks accumulate and relative to S0, and 50% more water is required per unit of food. There is no innovation in food production per unit of land due to increasing toxicity and a lack of technology transfer to low-income countries. Energy production remains carbon intensive, as are sprawling, dysfunctional cities. To capture this plausible future, we limit the sustainable number of urban dwellers to 50 people per hectare. Scenario 2 (S2) – A resource optimised but institutionally constrained and toxic future: The assumptions in S0 apply and food and water production efficiency improve in line with existing trends. However, under continued urbanisation and weak urban governance cities continue to sprawl, taking up valuable land and undermining technology gains. This increase is plausible in many middle-income and low-income countries, and so, implicitly, this scenario involves growing exports of food from these countries. Scenario 3 (S3) – A resource efficient, circular economy, clean energy and institutionally functional future: In this scenario the world benefits from sustainability improvements. Greenhouse gas emissions per unit of economic productivity are 20% lower than S0, despite new sources of emissions from the oceans and permafrost. Technology gains continue to drive resource use efficiency in terms of land, water and food production, and urban governance ensures cities can accommodate 120 people per hectare in healthy, productive and long lives. The model reflects the four scenarios by adjusting the coefficients (the red parameters) in the model. For example, while “resource use” measured by greenhouse gas emissions is always positively correlated with “waste” in the model, the extent of this correlation is higher in S1. Similarly, while food production tends to be positively correlated with fertiliser use, the extent of this correlation is much weaker in S3 than in S1. In general terms the successive scenarios S1-S3, reflect growing degrees of social and ecological sustainability in the global economic model, relative to S0. Table 2: Scenario parameters The study contemplated a fourth scenario (S4) involving structural (non-linear) rates of improvement in resource use efficiency and production. Under this scenario the causal relationships in Figure 4 above do not necessarily apply. It might be possible, for example, for a larger population to require less land to sustain itself or for more food to be produced while water demand goes down. This scenario is plausible if technologies such as precision fermentation and cellular agriculture – which enable food production without land – become mainstream, thereby freeing up land for the sequestration of greenhouse gases and the provision of ecosystem goods and services. Similarly, circular economies (and urban economies in particular) that produce no waste and rely almost exclusively on renewable sources, could see rising levels of GDP everywhere, with simultaneous absolute decreases in greenhouse gas emissions and other pollution. The work of ReThinkX (2021) has referenced some of the existing technologies that could support this scenario, which remains both possible and optimistic. There are, however, few reference points or data for this scenario and it is not yet possible to say how these technologies would cohere and influence societies and economies. As such, an S4 world proved difficult to capture in the model created for this study. 4. Model results and inference Aggregating the model results from the seven regions indicates that the human population was within the Earth’s carrying capacity of 8.79 billion in 2010. Earth’s carrying capacity for humans increases under all modelled scenarios until 2050 as the benefits of existing technology manifest on food production in particular. By the end of the 21st century, global carrying capacity under the normative baseline scenario (S0) is 17,99 billion, well above the expected human population. The results are highlighted in Table 3 and Figure 8. Under S1, negative feedback resulting from pollution, the loss of ecosystem services and diminishing returns to investment in resource extraction, begin to undermine carrying capacity from 2050 onwards, resulting in a 2100 carrying capacity of just 5.77 billion. Under S2, in which resources accessed are used efficiently, but governance remains problematic, carrying capacity peaks in 2075 at 12.25 billion before declining to 11.63 billion by the end of the century. Under S3, which accommodates high levels of technology innovation, well governed and compact cities and managed pollution, carrying capacity is 18.04 billion, marginally higher than in S0 due to fewer greenhouse gas emissions and climate change impacts on food production. S4 was not modelled, for the reasons cited above, but would have produced an estimate of carrying capacity far in excess of 20 billion people. Table 3: Carrying capacity over time across four modelled scenarios Figure 8: Modelled global carrying capacity under different scenarios The disaggregation of the study into regions accommodates differences in ‘start points’ in different geographies in terms of population size and growth rates, income, water-use efficiency and agricultural productivity. The regional differentiation also makes it possible to draw broad inference on the influence of inequality. It does not, however, address inequality within regions or within countries, both of which are understood to be important to the ability to forge and apply policies relating to sustainability. Figure 9: Carrying capacity (S0) over time, per region The model findings in the seven regions reveal that populations already exceed carrying capacity in Sub-Saharan Africa (on account of food production), South Asia (on account of food production) and MENA (on account of water scarcity). The carrying capacity of the regions under the different scenarios is shown in Figures 10-12, which also show the actual population if existing population growth were to continue. The comparison between modelled carrying capacity and actual population allow some inference on when populations have (or will) approach their carrying capacity in the respective regions. Figure 10: Modelled South Asia carrying capacity under different scenarios and unchecked population growth In the MENA region water constraints already exert a profound influence on carrying capacity as is indicated in Figure 9. Figure 11: Modelled Middle East and North Africa carrying capacity under different scenarios and unchecked population growth In Sub-Saharan Africa, food production is a constraint on the modelled growth of population and population has exceeded the region’s modelled carrying capacity since 2010. To a cursory analysis, this finding concurs with the region being a net food importer; Sub-Saharan Africa imported $43 billion worth of food in 2019. Twenty-eight (over half) of the countries in Africa received some form of food aid from the FAO in 2017 and 20% of the population experience hunger daily (Fox and Jayne, 2020). Hunger, however, is much more closely linked to food access and food distribution than food production, and links between food aid and carrying capacity are, at best, indirect. Four countries – Nigeria, Angola, Democratic Republic of Congo and Somalia – are the reason for SSA being a net food importer. Most of the other countries are food exporters, and while the value of food imports rose between 2005 and 2011, so did the value of exports as prices rose. Figure 12: Modelled Sub-Saharan Africa carrying capacity under different scenarios and unchecked population growth What is clear is that SSA countries have not been able to produce food at anything near their productive potential, given their land resources. The 2020 average yield in cereal production in SSA was 1.4 tons per hectare compared to the 7.2 tons per hectare averaged in North America. Considerable scope exists for innovation, investment and technology transfers in the efforts to make the human population more sustainable. In terms of enabling countries and regions to live within their carrying capacity, it is arguably easier to address SSA’s reasons for living above its carrying capacity by increasing the region’s food production than it is to create more land for waste disposal in Europe, for example, or to decouple North America’s livelihoods from greenhouse gas emissions. In terms of carrying capacity and the social and economic stability that living within carrying capacity brings, reconfiguring the relationship between all regions’ quest for survival and the natural world that supports them, is in everyone’s interests (Robins, 2018). Underlying the study results is the importance of how individual views on human nature influence the estimate of carrying capacity. The assumption that people are always competitive, always on a growth quest, always self-interested and acquisitive is baked into many economic and corporate cultures and strategies. Literature, from Descartes to William Golding, juxtaposes individuals against nature and against each other. It need not be this way, however. Notions of eco-civilisation and biomimicry are increasingly looking to human agency to align the direction and type of innovation and progress with nature’s systems. There are many examples in which Hardin’s notion of the tragedy of the commons has not been borne out in real life; in which environmental pressures have yielded higher levels of social cohesion and innovation (Ostrom, 1990). The potential to align with nature’s regenerative capacity holds true regardless of how the relationship between people and nature is understood – and even if you believe that ‘Nature no longer runs the Earth. We do’ (Lynas, 2011: 8) or are sceptical of technology (Baskin, 2020). Crucially, the ability to align economic endeavour with nature’s regenerative capacity – that is, move from S1 to S3 in the model – is available across a range of population sizes, suggesting that how people arrange their livelihoods and interact with the natural world is more important than population size in determining carrying capacity. The fourth scenario (S4) involving structural (non-linear) rates of improvement in resource use efficiency and production was not modelled, for a lack of reliable reference points and data. Although the technologies required for S4 exist, it is not yet possible to say how they will be mainstreamed and influence societies and economies. What emerged in the course of the analysis, however, is that there are combinations of technology, economic activity and resource use that would see the Earth’s carrying capacity exceed 20 billion by a considerable margin. Based on existing fertility trends that suggest human population will stabilise at a maximum of 11.2 billion by 2100, humans will in no way test this carrying capacity threshold, but the thought experiment around S4 highlighted the potential for socio-technical-ecological configurations that would allow for very high living standards at high or low population levels. 5. Influences of fertility rates and policy implications The high-level conclusion from this study argues that consumption and choices around economic and political models exert a more powerful influence (both threat and opportunity) on sustainability and carrying capacity than population growth. The scope of this work, however, included the question: What are the policy measures that influence population size and population growth rates? Given the interest in fertility across society and politics, it is no surprise that countries have sought to intervene in population growth. The focus for sustainable population policies has previously been categorised into those that (i) “make the pie bigger” through technological innovation, (ii) “limit the number of forks” through population control and (iii) oversee “better table manners” through internalising environmental externalities and ensuring inclusive and respective “terms of interaction” (Cohen, 1995). Rationales for population control have differed, and in some instances have been fuelled by neo-colonial and racist ideologies, including the preservation of white power and access to resources in colonised countries (Kuumba, 1993; Hartmann, 1997; Folbre, 2020). After World War II the Draper Committee Report (1958) identified world population growth as a security issue for the United States and private agencies and foundations played an important role in legitimizing population control under the guise of “family planning” (Hartman, 1997). Public resistance, most famously at the World Population Conference in Bucharest (1974), questionable impact, and the growing realisation that economic models and consumption habits exert the greatest influence on fertility rates, has not deterred the pursuit of population control measures in subsequent years. In 2019, nearly three quarters of governments that report to UNDESA had policies related to fertility: 69 had policies to lower fertility, 19 focused on maintaining current levels of fertility, and 55 aimed to raise fertility (UNDESA, 2021). Measures focussing directly on fertility rates have historically had quite poor results. A study in the early-1990s showed that 90% of the difference in fertility rates could be attributed not to population control measures, but to women’s reported desire to have children (Pritchett et al., 1994). More specifically, contraceptive availability did not explain all changes in fertility rates, but could accelerate the declines in fertility rates once women have decided to have fewer children. This finding is supported by the fact that “wanted fertility” among women in Sub-Saharan Africa (4.2 children per women in 2017) and South-East Asia (2 children per women in 2017) has tracked actual fertility closely (World Bank Data, 2022). Accordingly, most national population policies now focus on promoting a desire for smaller families with fewer, healthier and more educated children, and delaying the age at which women have their first child through the provision of education and employment alternatives (UNDESA, 2021). The combination of these policies and social, cultural and economic conditions increasing the livelihood options available to women, has seen fertility fall in all regions and most countries. While Sub-Saharan Africa lags other regions in the world, most countries are near the end of their demographic transitions with fertility (Schoumaker, 2019) (Figure 5). Figure 13: Fertility trends by region 2000-2020 Source: World Bank Data (accessed March 2022) To be consistent with human rights and gender equality, population control measures need to recognise women’s right to reproductive self-determination, physical integrity and privacy, which includes the right to decide the number of children they wish to have, and the right to a full range of information and contraceptive methods. It is critical that women are able to make decisions about their fertility without fear of coercion or violence and that reproductive rights are underpinned by access to health care for women (Centre for Reproductive Rights, 2018). Top-down one-child policies or punishment for early pregnancies are not consistent with these rights and are not considered durable responses. To argue that environmental pressures alter these rights or make for an unavoidable trade-off between reproductive rights and biophysical population checks, is to miss the point that it is resource consumption and pollution in affluent countries in which fertility rates are low that is driving global environmental degradation. It is difficult to parse the impact of population policies on reducing fertility rates relative to the impact of a country’s wider economic, social and cultural context. There is, however, some consensus on five key influences on fertility rates: 1) Investment in women’s education – There is extensive evidence that girls’/women’s education is a critical driver of fertility decline (see Bongaarts, 2020, for a summary of the literature). Murtin (2013) shows that “...average years of primary schooling among the adult population, rather than income standards, child mortality, or total mortality rates, drive fertility down by about 40% to 80% when those years grow from zero (no illiteracy) to 6 years (full literacy)” (Murtin, 2013). The causal forces for this decline are many, including a rise in the age of first marriage (Hurtich, 2017), “greater autonomy in decision making, more knowledge about the reproductive process and contraception, higher potential for earnings, and opportunity costs of childbearing” (Bongaarts, 2020). 2) Improving health systems and family planning services – Fewer deaths in childhood is a key driver of the demographic transition. An overall improvement in health systems is positively correlated with reduced child mortality, which lowers the desire for large families (World Population Review, 2019). Infant mortality has been steadily declining across the world and further declines are expected in all regions, which can be realistically expected to continue driving fertility rates down. Family planning programs on their own tend to have a limited impact on fertility rates (Pritchett et al., 1994). However, once women want to have fewer children, family planning programs can address the unmet need for contraception and are effective in driving down wanted and unwanted fertility. While most governments have had family planning programs for several decades at this stage, the success of these programs has not been uniform (Quak and Tull, 2020). Success has been dependent on the design and implementation of programs, the availability of quality services, the flexibility of programs in adapting to local conditions, adequate monitoring and information systems, and the funding resources available (Quak and Tull, 2020). In SSA, high-quality programs in Ethiopia, Malawi and Rwanda have been associated with declines in wanted fertility, indicating that “a demographic transition can be initiated before achieving economic growth” (Bongaarts, 2020). Although family planning services are provided for free or subsidised in public sector clinics in many countries, women continue to confront barriers to access. These include: A lack of information on the benefits of family planning and healthy birth spacing, a lack of access to services, and a lack of method choice of contraception Long waiting times at public facilities, high transport costs to facilities, and fears of contraceptive-related side effects Specific barriers related to culture and family traditions faced by women and adolescents. 3) Supporting indirect policies that improve socio-economic conditions for women – The literature shows that fertility declines as poverty rates decline. Improved economic prospects tend to delay the age at which women have their first child and reduce the total number of children that women have over their lifetime. Raising women’s income, promoting policies that favour female participation in the labour force, improving land tenure for women, and social protection schemes are critical ways to achieve the reduction in fertility (Pritchett, 1994). Recent declines in fertility rates can be traced to the expansion of women’s access to paid employment. This progress has yet to be matched, however, by women’s rights to remuneration for family care from their children’s fathers and from the state (Noddings, 2002; Folbre, 2020). Historically these policies have targeted women and there is a greater recognition that policies that improve the conditions of women need to target men and boys. 4) Ensuring adequate legal frameworks to protect reproductive rights (e.g., child marriage and abortion laws) – Asymmetries in human rights lead to asymmetric economic equality, and laws and policies that codify the commitment of countries to respect and protect the rights of women are critical enablers of reduced fertility (USAID, 2013; Folbre, 2020). Legal access to abortion can reduce unwanted pregnancies in a safe manner (providing it is accompanied by quality care), yet at present, 41% of women live in countries with restrictive abortion laws.[10] Similarly, laws that increase the age of marriage or prevent child marriage can drive down fertility rates. In SSA, women who experience child marriage are eight times as likely to have more than three children, relative to women who marry after the age of 18 (Yaya, 2019). While legal frameworks are critical to protect reproductive rights, structures of patriarchal power are reinforced by their intersections and overlaps with race, citizenship and class. In this sense, improving intra-household power dynamics and reducing gender-based economy inequality has long been shown as necessary for the effective implementation of legal frameworks (De Beauvoir, 1949; Folbre, 2009). 5) Family planning campaigns – Mass media campaigns can be effective in driving demand for family planning, overcoming knowledge gaps about fertility and contraception, addressing concerns about side effects of contraception, changing norms, and increasing women’s confidence to act (USAID, 2017). Studies have shown that mass media campaigns are most effective when combined with interpersonal communication, community group engagements, and/or social marketing interventions (Quak and Tull, 2020). 6. Conclusion This study explored the interaction between population size, environmental stability and human well-being, to establish the Earth’s human carrying capacity over the course of the 21st century and what can be done to influence it. Estimates of maximum sustainable population size are unavoidably political, and many past studies have been used to drive religious, economic and environmental agendas that have little to do with concern for the survival of humanity. This study sought to avoid ideological biases by building and running a model that captured dynamic interactions between multiple parameters, and by not assuming ex ante that any one constraint or trend would render the human population unsustainable. Earth’s carrying capacity for humans in 2100 ranged from 5.76 billion to 18.05 billion under the four scenarios that were modelled. To place these estimates in context, existing fertility trends make it unlikely that human population will exceed 11.2 billion by 2100, even as longevity increases significantly (UNDESA, 2017). The wide range of possible carrying capacities imply that the unambiguous answer to the research question is, ‘it depends’. Being clear on what carrying capacity depends on is critical for policy and for the harnessing of human agency in pursuit of survival and well-being. The message from this study is that while ecological degradation presents a risk to humanity, this risk is not being driven by population growth directly. Instead, the manner in which resources are extracted, used and disposed of is more influential than absolute population size on carrying capacity and sustainability of human well-being. In this way the study challenges the assumption that current sustainability crises can be blamed on high growth populations, instead pointing to the impact of high extraction, consumption and waste populations. The model findings further suggest that the 2010 human population appeared to be living within the planet’s carrying capacity on aggregate, but not in Sub-Saharan Africa, MENA or South Asia. This is not directly due to populations in these regions causing ecological degradation, but the distribution of technology and investment capital across the world, which ensures they do not have the agricultural productivity (or water in the case of MENA) to produce food at the levels that support their existing population. In formulating policy responses a distinction needs to be drawn between human populations that exceed their modelled carrying capacity for that region but are not necessarily responsible for global ecological degradation, and those that are living within their region’s modelled carrying capacity but driving global environmental change through their consumption and associated extraction and pollution. This finding does not detract from the importance of technology, cultural, gender, investment and migration policies required to align economic progress with the regenerative cycles of nature (Van den Bergh, 2011; Kubiszewski et al., 2017; Schröder et al., 2020). Among other things, this requires discarding the idea of an economic ‘externality’ and adopting systems-based economies with new hybrids of indigenous knowledge and clean technology in all regions of the world to enhance the “decoupling” that appears to have commenced in some sectors and regions (Jiborn et al., 2020; Meyer and Newman, 2020; Dasgupta, 2021[11]). Indigenous populations comprise less than 5% of the world's population and live on less than 22% of the world’s land area, but are home to 80% of the world’s biodiversity. While their level of conventional income and consumption might be below the average of populations in Europe and North America, their well-being is often slightly higher and their relationships with nature provide insights into more sustainable economic models (Reyes-Garcia et al., 2020; Abbi, 2021). Understanding how these communities co-exist with nature is one of the tasks of the Post-2020 Global Biodiversity Framework. 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Prevalence of child marriage and its impact on fertility outcomes in 34 sub-Saharan African countries, BMC International Health and Human Rights, 19(1): 33. Appendix A: Variables and values of input data used Appendix B: Earth overshoot day for respective countries based on “biocapacity” models. The analysis suggests that extraction and consumption currently pose a greater threat to humanity living beyond the Earth’s biocapacity than population - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - [1] The Anthropocene is a contested concept. Some scientists fear that humans are the first species in the history of the planet to comprise a geo-physical source (Wilson, 2002). However, cyanobacteria and fungi have long brought about geological changes including those that gave rise to the plant kingdom (Sheldrake, 2020). Equally, notions of the Anthropocene are void of political context, and suggesting that every human is equally responsible for the environmental disruption and sustainability threat being experienced, is wrong. [2] The notion of carrying capacity was first used by engineers to describe how much cargo a ship could hold, but in the 19th century it was adopted by wildlife managers and later by ecologists (McGuigan, 2022). [3] Exponential population growth would require the growth rate to remain fixed. Instead, we have seen a rapid decline in this rate of growth over the past 70 years. For some people the jury remains out on whether Malthus was an early prophet of the broader environmental and resource crisis, and perhaps merely ‘out’ by a few hundred years with his predictions. [4] This notion of sustainability is consistent with the more common definition of sustainable development that draws from the Brundtland Commission’s 1987 report and describes, “Development that meets the needs of the present without compromising the ability of future generations to meet their own needs” (United Nations General Assembly, 1987:43). [5] https://www.toppr.com/ask/question/verhulst-pearl-is-associated-with-the-equation/ [6] https://ib.bioninja.com.au/options/option-c-ecology-and-conser/c5-population-ecology/sigmoid-growth-curve.html [7] https://vensim.com/ [8] East Asia and Pacific (EAP), Europe and Central Asia (ECA), Latin America and the Caribbean (LAC), Middle East and Northern Africa (MENA), North America (NA), South Asia (SA) and Sub-Saharan Africa (SSA). [9] https://osf.io/preprints/socarxiv/m4fdu/ https://svs.gsfc.nasa.gov/4110 [10] https://reproductiverights.org/maps/worlds-abortion-laws/ [11] The Dasgupta Review (2021, p. 119) makes the point that, “Well-functioning markets do not harbour externalities”. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - This report has been published by the Inclusive Society Institute The Inclusive Society Institute (ISI) is an autonomous and independent institution that functions independently from any other entity. It is founded for the purpose of supporting and further deepening multi-party democracy. The ISI’s work is motivated by its desire to achieve non-racialism, non-sexism, social justice and cohesion, economic development and equality in South Africa, through a value system that embodies the social and national democratic principles associated with a developmental state. It recognises that a well-functioning democracy requires well-functioning political formations that are suitably equipped and capacitated. It further acknowledges that South Africa is inextricably linked to the ever transforming and interdependent global world, which necessitates international and multilateral cooperation. As such, the ISI also seeks to achieve its ideals at a global level through cooperation with like-minded parties and organs of civil society who share its basic values. In South Africa, ISI’s ideological positioning is aligned with that of the current ruling party and others in broader society with similar ideals. Email: info@inclusivesociety.org.za Phone: +27 (0) 21 201 1589 Web: www.inclusivesociety.org.za

Copyright © 2021 Inclusive Society Institute 50 Long Street Cape Town, 8001 South Africa All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without the permission in writing from the Inclusive Society Institute. DISCLAIMER Views expressed in this report do not necessarily represent the views of the Inclusive Society Institute or those of the their respective Board or Council members. Do government debt growth threshold and inflation regimes mater for inflation in South Africa By Nombulelo Gumata BA, BComs (Hons); MCom, PhD Abstract Do government debt growth thresholds matter for inflation expectations? Yes, they do. It is found that inflation expectations increase across the spectrum in response to positive government debt growth shocks. Using the government debt growth thresholds above and below 10 per cent as the demarcation for low and high government debt growth regimes, it is established that low and high government debt growth regimes exert different effects on inflation expectations across the spectrum. All inflation expectations measures increase in the high government debt growth regime compared to the low government debt growth regime. Furthermore, when the 4.5 per cent inflation rate threshold is used to delineate the high and low inflation regimes, evidence shows that the inflation regimes matter for the propagation of positive government debt growth shocks to inflation expectations. Evidence shows that high inflation regimes amplify the responses of inflation expectations to positive government debt growth shocks in the high debt growth regime. In the absence of the high inflation regime channel, inflation expectations across the spectrum increase less, as shown by the counterfactual responses. The low inflation regime channel lowers or dampens the response of inflation expectations to positive government debt growth shocks in the low debt regime. The policy implications of these results are that government debt growth thresholds and inflation regimes matter for the achievement of the price stability mandate. In addition, the results indicate the importance of co-ordination between monetary policy and fiscal policy, as the conduct of these policies interacts and have spill-over effects on each other’s policy objectives. Introduction Do government debt growth thresholds matter for inflation expectations? If so, what are the implications for the price stability mandate? This paper explores these questions because well-anchored inflation expectations matter for the inflation outlook and the conduct of monetary policy. Why do well-anchored inflation expectations matter for inflation and the conduct of monetary policy? Bernanke (2007) states that the state of inflation expectations greatly influences actual inflation and in turn, the central bank’s ability to achieve price stability. Moreover, Cœuré (2019) asserts that stable inflation expectations at levels consistent with the price stability mandate provide an important nominal anchor for the economy, reduce inflation persistence and curb harmful macroeconomic volatility. As a nominal anchor, well-anchored inflation expectations assist policy makers in dealing with some of the adverse effects of inflation. For instance, it is a well-established fact that inflation (i) injects noise into the price system; (ii) makes long-term financial planning more complex; (iii) introduces a pattern of stop-go monetary policies that are a source of much instability in output and employment; and (iv) interacts in perverse ways with imperfectly indexed tax and accounting rules. Furthermore, high and persistent inflation undermines the public confidence in the economy and the management of economic policy generally (Bernanke, 2007). Friedman (1977) shows that the level of inflation and inflation volatility are strongly and positively correlated and is costly. Higher rates of inflation may cause the reallocation of scarce resources to unproductive activities and thus distort economic efficiency and reduce output growth. In addition, Friedman (1977) argued that inflation may have negative effects on output growth by increasing inflation uncertainty. Ball (1992) showed that the positive correlation also applied to moderate or even low inflation rates and that higher inflation rate increases inflation uncertainty. Georgios (2017) shows that the United States inflation and its volatility have been positively correlated for the period 1800 to 2016 when inflation exceeds 3 per cent. The results of this study indicate a positive relationship between inflation and its volatility when inflation exceeds 3 per cent and a negative correlation when inflation is below this threshold. Pindyck (1991) and Devereux (1989) presented evidence that inflation uncertainty, may lead to real uncertainty which affects output growth and the inflation rate. For emerging market economies, Gillman and Nakov (2004) found that inflation affected growth negatively in Hungary and Poland. Mladenovic (2007) established that in Serbia, high inflation leads to high uncertainty, which in turn, negatively affects the average level of inflation in the long run. Ndou and Gumata (2017) found that in South Africa, periods of elevated exchange rate and inflation volatility are likely to induce more inflation volatility, particularly when inflation is close to the upper band of the inflation target. Furthermore, they establish a negative long-run relationship between economic growth and inflation when using five-year averages for the sample period 1966–2012. The inflation threshold that exerts negative effects in the finance–growth nexus lies within a threshold range of 4–5 per cent. When inflation is above this threshold range, it exerts a negative effect on the finance–growth nexus. What is the link between inflation and fiscal policy? The Keynesian theory suggests that fiscal policy changes have an impact on aggregate demand which results in changes in output and the price level. In turn, the price level can be affected by changes in public wages that can spill over into the private sector wages. In addition, changes in fiscal policy via the tax rates can also affect the marginal costs and consumption expenditure growth. In relation to the adverse effects of headline inflation on inflation expectations, Figure 1 (a and b) shows that inflation and all measures of inflation expectations have been largely within the 3 to 6 per cent inflation target band and trending lower towards the mid-point (4.5 per cent) of the target range post-2009 in South Africa. In addition, Figure 1(c, d and e) show that headline inflation is positively correlated with all the measurements of inflation expectations. On a bilateral basis, the stylised facts show that headline inflation explains more than 50 per cent of the variability in the current and one-year ahead inflation expectations. The correlation is weaker for the two-year ahead inflation expectations. The results of the correlations, therefore, suggests that the immediate inflation outcomes matter more for how agents form inflation expectations. These trends are consistent with extensive literature, such as Sharma and Bicchal (2018), Vargas et al (2009), Mankiw et al (2003) and Fraga et al (2003), which shows that inflation expectations tend to be adaptive and backward-looking. Lastly, the cross correlations in Figure 1(f) show that all inflation expectations measures increase during the first nine quarters, when preceded by high headline inflation. Figure 1: Headline inflation and inflation expectations in South Africa for the period 2000M1 to 2019M12 Source: South African Reserve Bank and authors’ calculations The paper contributes to literature on the subject by establishing the link between inflation expectations and the conduct of fiscal policy via the government debt growth channel. In particular, the paper explores the impact of government debt growth regimes on inflation expectations and whether inflation regimes propagate these effects on inflation expectations. Inflation expectations and inflation regimes are important in the conduct of monetary policy and the achievement of the financial stability mandate. The author is unaware of any papers that conduct this kind of research in South Africa, and especially in terms of the use of government debt growth and inflation thresholds to demarcate high and low government debt growth and inflation regimes. Furthermore, no study in South Africa has, to date, explored the interaction of government debt growth regimes and inflation regimes relative to the mid-point (4.5 per cent) of the inflation target range, on inflation expectations. In addition, the paper fills academic, policy research and methodological gaps by using the threshold vector autoregression (VAR) approach to assess the role of asymmetries introduced by different government debt growth and inflation regimes on inflation expectations. The paper also uses the counterfactual VAR approach (Cafiso, 2019; Elbourne, 2008; Giuliodori, 2005; Ludvigson, Steindel & Lettau, 2002) to establish whether the high and low inflation regimes propagate or dampen the effects of high and low government debt growth regimes on inflation expectations. The results, set out in the paper, show that inflation expectations increase across the forecasting horizons or spectrum in response to positive government debt growth shocks. In addition, using the government debt growth thresholds above and below 10 per cent as the demarcation for low and high debt regimes, the results show that low and high government debt growth regimes exert different effects on inflation expectations across the spectrum. All inflation expectations measures increase in the high government debt growth regime compared to the low government debt growth regime. Furthermore, when using the 4.5 per cent inflation rate threshold to delineate high and low inflation regimes, the evidence shows that the inflation regimes matter for the propagation of positive government debt growth shocks to inflation expectations. High inflation regimes amplify the responses of inflation expectations to positive government debt growth shocks in the high debt regime. In the absence of the high inflation regime channel, inflation expectations across the spectrum increase less as shown by the counterfactual responses. The low inflation regime channel lowers the response of inflation expectations to positive government debt growth shocks in the low debt regime. The results imply that government debt growth thresholds and inflation regimes matter for the achievement of the price stability mandate. The paper is structured as follows: section two presents a brief literature review of the link between fiscal policy and inflation. This is followed, in section three, by a summary of the methodology used in the paper and the data. Section four discusses the empirical analysis of how inflation expectations respond to government debt shocks. Section five explores whether the South African government debt growth thresholds matter for inflation expectations and section six assesses whether inflation regimes matter for the propagation of government debt growth thresholds to inflation expectations. Section seven concludes and provides some policy implications of the findings. Theory and literature on the link between inflation and fiscal policy Theory and literature link fiscal policy and inflation mainly through (i) the long-term effects of persistent fiscal deficits and government debt on inflation; (ii) the impact of changes in various components of fiscal policies (fiscal shocks) on inflation; and (iii) the fiscal theory of the price level, which states that fiscal policy plays an important role in price determination, through the budget constraint associated with the debt policy, spending, and taxation (Christiano & Fitzgerald, 2000; Bassetto & Wei, 2017. The fiscal theory of the price level considers the price level as the crucial adjustment variable that ensures the fulfilment of the government’s intertemporal budget constraint (Kocherlakota & Phelan,1999; Buiter, 1999). The government’s intertemporal budget constraint equates the government’s current liabilities to the net present value of government revenues. The theory assumes that under the condition that the Ricardian equivalence (Bernheim, 1987) does not hold, and with a strongly committed and independent central bank, the imbalances in the intertemporal budget constraint need to be adjusted through shifts in the price level. With the assumption of absent Ricardian behaviour, individuals perceive government deficits as increases in wealth and this induces them to raise spending, thus driving up the price level. By contrast, if the Ricardian equivalence is assumed to be present, the wealth effect of the deficits would be neutral and thus leaving the central bank in control of the price level. The Ricardian equivalence states that the fiscal stimulus in the form of an increase in deficit-financed public spending or tax cuts will lead to a crowding out of private consumption, thus decreasing the effectiveness of fiscal policy in boosting economic activity. This is because economic agents’ consumption is determined by the lifetime present value of their after-tax income and they assume that whatever is gained in the present, will be offset by higher taxes due in the future. Thus, whether government choses to increase spending by debt financing or tax financing, the outcome is the same and demand remains unchanged (Hayo & Neumeier, 2017). With the assumption of absent Ricardian behaviour, individuals perceive government deficits as increases in wealth and this induces them to raise spending, thus driving up the price level. By contrast, if the Ricardian equivalence is assumed to be present, the wealth effect of the deficits would be neutral, thus leaving the central bank in control of the price level. Fischer et al (2002) find that fiscal imbalances (fiscal deficits) tend to explain high inflation in a broad country sample. Catao and Terrones (2001) establish a strong and statistically significant long-term relationship between fiscal deficits and inflation for a panel of 23 emerging market countries. Arratibel et al. (2002) find that headline inflation in central and Eastern Europe is impacted by nominal wage growth; lagged inflation due to a relatively large impact of inflation inertia; oil price; and fiscal policy. Methodology and data The paper uses a Cholesky vector autoregression (VAR) and a counterfactual VAR approach to estimate the impact of positive government debt growth shocks on inflation expectations and to assess whether inflation regimes matter for the propagation of government debt growth thresholds to inflation expectations. The VAR is defined as given in equation (1), where the N x 1 vector yt denotes the set of variables that is of interest in the analysis. The assumption that yt follows a pth-order VAR means that it can be expressed as shown in equation (1). (See Sims (1980a and 1980b), and Christiano (2012) for further reading). yt = B0 + b1 yt-1 + … + Bp yt-p + ut, Eutu ‘t = V, (1) where ut is not correlated with yt-1 ,…, yt-p. It is assumed that p is assigned a large enough value so that ut is not autocorrelated over time. The VAR disturbances, ut ,are assumed to be a linear transformation of the economically fundamentals shock, et : yt = Cet , CC’ = V (2) The economic shocks et are assumed to be independent origins, and therefore to be uncorrelated with each other. Many objects in equations (1) and (2) are econometrically identified, meaning that they can be estimated using data without any further (credible or incredible) assumptions. In particular, Bi and V are econometrically identified. To estimate Bi and V, we simply run a series of regressions and compute the variances and covariances among the regression disturbances. However, C is not identified because the symmetric matrix V has only N(N + 1) /2 indepentent elements while C has 𝑁2 > 𝑁 (𝑁 + 1) /2 unknowns. For most forecating purposes, it is enought to have just Bi and V in this case, no identification assumptions are required. We also use the counterfactual VAR model to assess whether high inflation regimes amplify the responses of inflation expectations to positive government debt growth shocks in the high debt growth regime. The counterfactual VAR model assesses what happens to inflation expectations responses to high government debt growth regimes shocks, in the presence and absence of the high inflation regimes channel given by the gap between the impulse responses as shown in equation (3). ∆Y = (Actual impulse response – counter factual impulse response) (3) Where, ∆Y is the response of inflation expectations. The data used in the study are quarterly (Q) and are sourced from the South African Reserve Bank database. The estimations use current inflation expectations, one-year ahead inflation expectations, two-year ahead inflation expectations, government debt and headline consumer price inflation. The growth rates are at an annual rate. The VAR model in section 4 includes the government debt growth, headline consumer price inflation, current inflation expectations, one-year ahead inflation expectations and two-year ahead inflation expectations as endogenous variables. The recession dummy variable that takes on the values of one during recessions and zero otherwise enters the VAR model as an exogenous variable. The data used in the estimations is on quarterly (Q) basis and start in 2000Q3 to 2019Q4. This is because inflation expectations are only available for this sample period. The growth rates are at an annual rate. The shock is a unit shock to government debt growth. The VAR model is estimated using two lags and 10 000 Monte Carlo draws. Section 7 of this paper concludes the analysis, by conducting a robustness analysis of the results of the responses of inflation and inflation expectations to fiscal policy variables. For robustness analysis, a VAR model with the same variables as estimated in the sections 4 and 5, namely, current inflation expectations, one-year ahead inflation expectations and two-year ahead inflation expectations is used. Headline inflation is added to assess the robustness of the results to changes in the model size. Also government debt growth is replaced with the budget deficit (budget balance as a ratio of nominal GDP) as the shock of interest to assess whether the results are robust to changes in the definitions of the variables in the model. The model includes the recession dummy as defined in the earlier sections as an exogenous variable. The VAR is estimated using two lags and 10 000 Monte Carlo draws. The shock is a unit to the budget deficit. How do inflation expectations respond to government debt shocks? This section starts to answer this question by estimating a VAR model as explained in the methodology section. The results in Figure 2 show that inflation expectations tend to increase across the forecasting horizons or spectrum in response to positive government debt growth shocks. Current inflation expectations increase more than the one-year and two-year ahead inflation expectations at peak response as shown in Figure 2(d and e). In addition, the government debt growth shock explains a higher variation in current inflation expectations compared to the one-year and two-year ahead inflation expectations. The results are robust to the reverse ordering of the variables. Figure 2: Responses to positive government debt growth shocks Source: Authors’ calculations Note: The grey shaded areas denote the 16th and 84th percentile confidence bands. Govt. in (f) = government. Do the government debt growth threshold matter for inflation expectations in South Africa? To answer this question, we use the government debt growth of 10 per cent as a threshold to delineate between the high and low government debt regimes. The government debt growth threshold is taken from Gumata and Ndou (2017).The authors estimate the debt growth thresholds for net debt and gross debt using the sample period 1990Q1 to 2015Q4 based on data obtained from the South African Reserve Bank. They use the Balke (2000) approach in a model that includes gross or net government debt growth, output growth, investment growth, inflation and the ten-year yield on government debt. They established a growth threshold level of 9.62458 per cent for gross debt and 9.50513 per cent for net debt. For ease of reference, the estimated gross government debt growth threshold is presented in Figure 3. Figure 3: Estimated thresholds for net and gross debt growth Source: South African Reserve Bank and authors’ calculations Note: The shaded area denotes the period 2000Q1 to 2008Q3 when GDP growth averaged 4.1 per cent. It is also important to note that in Figure 3, during the period 2000Q1 to 2008Q3 when GDP growth averaged 4.2 per cent (the grey shaded area), government debt growth was below 10 per cent. This contrast with the period post-2009 where government debt growth was generally above 10 per cent and GDP growth averaged 1.47 per cent during 2009Q1 to 2019Q4. Investment growth (gross fixed capital formation) averaged 9.2 per cent between 2000Q1 and 2008Q3 compared to 0.25 per cent between 2009Q1 and 2019Q4. We create two dummy variables that capture these regimes: (i) the high government debt growth threshold which takes on all the values of government debt growth above 10 per cent and zero otherwise; and (ii) the low government debt growth threshold which takes on all the values of government debt growth below 10 per cent and zero otherwise. We estimate two VAR models which include the high or low government debt growth regime dummy, headline inflation, current inflation expectations, one-year ahead inflation expectations and two-year ahead inflation expectations as endogenous variables. The recession dummy that takes on the values of one during recessions, and zero otherwise, enters the VAR model as an exogenous variable. The government debt growth regime dummy variables enter the VAR models separately. The shock is a unit shock to the high or low government debt growth regime dummy. The VAR model is estimated using two lags and 10 000 Monte Carlo draws. Figure 4: Responses to positive government debt growth shocks in the high debt growth regime Source: Authors’ calculations Note: The grey shaded areas denote the 16th and 84th percentile confidence bands The results in Figures 4 and 5 show that low and high government debt growth regimes exert different effects on inflation expectations across the spectrum. For instance, in Figure 4 the results show that all inflation expectations measures increase in the high government debt growth regime, compared to the low government debt growth regime in Figure 5. It is also evident that the two-year inflation expectations increase with a delay of about three quarters, whereas the current and one-year ahead inflation expectations increase on impact. In the low government debt growth regime, all inflation expectations decline. Thus, we conclude that the government debt growth regimes exert different effects on inflation expectations. Figure 5: Responses to positive government debt growth shocks in the low debt growth regime Source: Authors’ calculations Note: The grey shaded areas denote the 16th and 84th percentile confidence bands Do inflation regimes matter for the propagation of government debt growth threshold to inflation expectations? This section estimates a counterfactual VAR model to assess the role of inflation regimes in the transmission of positive shocks to government debt growth regimes to inflation expectations. We assess the role of high and low inflation regimes in transmitting positive government debt growth shocks in the high and low government debt regimes, as defined in the earlier sections. We define the high (low) inflation regime as that in which inflation is above (below) 4.5 per cent. As such, we create two dummy variables defined as (i) the high inflation regime dummy which takes on all the values of headline consumer price inflation above 4.5 per cent, and zero otherwise; and (ii) the low inflation regime dummy which takes on all the values of headline consumer price inflation below 4.5 per cent, and zero otherwise. The counterfactual VAR model includes the high or low government debt growth dummy variable, current inflation expectations, one-year ahead inflation expectations, two-year ahead inflation expectations and the high or low inflation regime dummy variable. The high or low government debt growth dummy and high or low inflation regime dummy variables enter the models separately. The VAR models are estimated using two lags and 10 000 Monte Carlo draws. The actual responses are those derived from the model when the high or low inflation regime dummy is active in the model. The counterfactual responses are those derived in the model when the high or low inflation regime dummy is inactive in the model. The dampening or amplification effects of the high or low inflation regime dummies is the difference between the actual and the counterfactual responses. Figure 6: Responses to high government debt growth regimes and amplification by the high inflation regime Source: Authors’ calculations The results in Figure 6 show that high inflation regimes amplify the responses of inflation expectations to positive government debt growth shocks in the thigh debt regime. In the absence of the high inflation regime channel, inflation expectations across the spectrum increase less, as shown by the counterfactual responses. On the other hand, the results in Figure 7 show that the low inflation regime channel lowers the response of inflation expectations to positive government debt growth shocks in the low debt regime. The actual responses of inflation expectations are lower than the counterfactual responses when the role of the low inflation regime channel is closed in the model. Hence, the low inflation regime dampens the effects of positive government debt growth shocks in the low debt regime. Figure 7: Responses to low government debt growth regimes and amplification by the low inflation regime Source: Authors’ calculations Robustness analysis This section concludes the analysis in this paper by conducting the robustness analysis of the results of the responses of inflation and inflation expectations to fiscal policy variables. The results in Figure 8 show that the results are robust to changes to the model size and parameters or specification. Headline inflation increases in response to positive budget deficit shocks, and this is followed by an increase in inflation across the spectrum. Similar to the results in the previous section, current inflation expectations increase more than the one-year and two-year ahead inflation expectations in Figure 8(d). Inflation and inflation expectations are sensitive to fiscal policy shocks. Thus, it is concluded that the conduct of fiscal policy matters for the price stability mandate Figure 8: Responses to positive budget deficit shocks Source: Authors’ calculations Note: The grey shaded areas denote the 16th and 84th percentile confidence bands Conclusions and policy implications Do government debt growth thresholds matter for inflation expectations in South Africa? We find that inflation expectations increase across the spectrum in response to positive government debt growth shocks. Using the government debt growth above and below 10 per cent as the demarcation for low and high debt growth regimes, we establish that low and high government debt growth regimes exert different effects on inflation expectations across the spectrum. All inflation expectations measures increase in the high government debt growth regime compared to the low government debt growth regime. Furthermore, when we use the 4.5 per cent inflation threshold to delineate high and low inflation regimes, the evidence shows the inflation regimes matter for the propagation of positive government debt growth shocks to inflation expectations. The evidence shows that high inflation regimes amplify the responses of inflation expectations to positive government debt growth shocks in the high debt regime. In the absence of the high inflation regime channel, inflation expectations across the spectrum increase less as shown by the counterfactual responses. 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