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South Africa

Africa's McTipping Point?

Borko Handjiski's picture

Three quarters of a century since the opening of the first McDonald’s, the fast food chain operates around 34,000 outfits in around 120 countries and territories across all continents. In Sub-Saharan Africa (SSA), however, – a region of 48 countries and almost a billion people - only South Africa and Mauritius have been able to attract this global food chain.
 
This peculiarity cannot be explained only by the fact that the region is poor. The company has found a market in about 30 countries with GDP per capita of less than US$ 3,000 (in constant 2005 US$) at the time of their first McDonald’s opening. Hamburgers, Cheeseburgers, and Big Macs are also on offer in a dozen of low-income countries as well. When the first McDonald’s opened in Shenzhen in 1990, China’s GDP per capita was less than US$ 500 per person. Of course, Shenzhen’s per capita income was several times higher, but the company has also found a market in Moldova since 1998 when the GDP per capita of the 3 million person country was less than US$ 600 per capita. There are many cities in SSA today that have higher income, population concentration, and tourists than what Chisinau had in 1998; yet they do not have a McDonald’s. As a matter of fact, 22 SSA countries today have higher income per capita than what Moldova or Pakistan had when the first McDonald’s opened there, and 15 of them have higher income per capita even than what Indonesia or Egypt had at their McDonald’s openings (see chart).

What Does Piketty’s Capital Mean for Developing Countries?

Gabriel Demombynes's picture

The economics book that has launched a thousand blog posts, Thomas Piketty’s Capital in the Twenty-First Country, tells a grand story of inequality past and present. One would expect that a book on global inequality would have much to say about development. However, the book has limited relevance for the developing world, and the empirical data he marshals for developing countries is weak.

Piketty’s central story is that convergence in the developed world and slower population growth will leave us with a permanently modest economic growth rate (g). Coupled with a constant return to wealth (r), concentration of capital ownership, and high rates of savings among the wealthy, the low g leads to rising wealth inequality over a longish run—something like the second half of the 20th century.

A low-g future for the developed world is a mostly uncontroversial assumption. (He assumes future GDP per capita growth of 1.2 percent for the U.S.) But Piketty draws conclusions for the world as a whole, and we are a long way from global convergence. As Branko Milanovic noted in his review, catch-up growth could fend off Piketty’s inequality dystopia for some time.
 

A Tale of Two Impacts: Minimum Wage Outcomes in South Africa

Haroon Bhorat's picture

Worker pruning fruit trees Economist and Nobel Prize laureate James M. Buchanan remarked to the Wall Street Journal in 1996 that "Just as no physicist would claim that "water runs uphill”, no self-respecting economist would claim that increases in the minimum wage increase employment."  Of course this statement remains broadly true today, but the advent of better data, improved statistal techniques and the proliferation of country studies – have made economists far more careful about pre-judging the impact of minimum wages on employment and wages.  Indeed, in a now famous study of fast food restaurants in New Jersey and Pennsylvania, David Card and Alan Krueger showed how the imposition of a minimum wage had no significant disemployment effects, and in some cases increased employment, arising out of a large enough increase in demand for the firms’ products.
 
The evidence for South Africa, some twenty years after the demise of apartheid, is equally compelling.  In a two-part study, my co-authors and I find an intriguing set of contrasting economic outcomes, from the imposition of a series of sectoral minimum wage laws.  In South Africa, the minimum wage setting body, known as the Employment Conditions Commission (ECC), advises the Minister of Labour on appropriate and feasible minimum wages for different sectors or sub-sectors in the economy.  Currently, the economy has in place 11 such sectoral minimum wage laws in sectors ranging from Agriculture and Domestic Work, to Retail and Private Security.

Social Mobility and Education

Servaas van der Berg's picture

In his post on this blog, Augusto Lopez-Claros correctly identifies illiteracy as an important factor in global inequality, and places the blame for much of the illiteracy that exists squarely at the feet of government choices. A perspective from South Africa – a country with extreme inequality – confirms that education may be the key to reducing inequality.

TS36-12 World Bank Not surprisingly, given their history, South Africans are obsessed with inequality. Income distribution features prominently in all political debates, in government policies and in the National Development Plan. Yet there is little understanding that the roots of this inequality lie in the labour market, particularly in the wage distribution, and that changing this distribution requires a dramatic improvement in the weak quality of most of South Africa’s schools.