The National Development Plan and exports as a catalyst to generate employment growth: Can it work?

16th January 2013 By: Econ3x3

The National Development Plan (NDP) is an ambitious initiative to address a range of social and economic issues. Topping the list are high unemployment, poverty and low economic growth. The plan sets out a roadmap to 2030. How realistic and achievable is the plan?

With unemployment at roughly 25% in 2010, the NDP aims to put policies in place so that by 2030 unemployment will decrease to 6% while the labour force participation rate will increase from 54% to 65%. This means that employment needs to increase from 13 million to 24 million people – an 11 million, or roughly 85%, increase in employment over the eighteen year period.

The goal is for GDP to grow by 5.4% per annum, meaning that by 2030 the economy will be 2.7 times its size in 2010. This will imply a per capita GDP increase from R50 000 to R110 000, lifting most, if not all, out of poverty. The national saving rate is set to increase from 16% to 25%, while investment is set to increase from 17% to 30% of GDP. Therefore, by 2030 the saving-investment gap is projected to increase from roughly 1% per annum, to 5% per annum.

That gap needs to be financed from external sources. Exports are projected to increase by 6% per annum, which in turn is projected to increase income and thus saving out of income. However, a saving-investment gap of 5% of GDP means that, in order to finance that gap and balance the national accounts (given the sectoral balance identities), it will have to be matched by a current account deficit (imports increasing more than exports). That the plan will result in a rather large current account deficit is not recognised or mentioned in the NDP document, though.

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Written by Philippe Burger, Professor of Economics and Head of Department, University of the Free State

This article was first published on the Econ3x3 website – Accessible policy-relevant research and expert commentaries on unemployment and employment, income distribution and inclusive growth in South Africa.