1.
INTRODUCTION
A growth rate of 7 per cent! The Commission for Africa, established under the auspices of the
British Prime Minister, envisages this target to be achieved in the African continent by the year
2010. Echoing these sentiments, our Finance Minister, Trevor Manual agreed that such a target
was not only realisable for Africa, but also expressed his desire that South Africa would also
achieve such unprecedented economic growth.
Whilst business leaders and trade unionists alike seemed optimistic about South Africa’s potential
to obtain such a rate of growth, economists (as they are probably prone) were much less positive.
Reasons cited for this pessimism were the ever-widening skills gap in the labour market, the
backlog of socio-economic infrastructure needs, the country’s cumbersome regulatory
environment and consistently poor household savings levels. All these arguments are of course
self-evident, based on sound economic reasoning, and the constraints they place on the South
African economy are unfortunately, very real. What this paper attempts, is to bring some
empirical rigour to this debate based on the previous research of one of its authors (Du Toit and
Moolman, 2003). Does South Africa have the potential and the capacity to grow at 7 per cent?
By growth, we of course, mean growth in economic output. Generally speaking, output is
determined by the quantity and quality of the various factors and their productivity employed in
its production. Potential output, is then an indication of the aggregate supply capabilities of the
economy and embodies information about developments in the stock of capital, the labour force
and technical change. The actual level of output on the other hand, is also influenced by the
demand for goods and services. Deviations between the potential and actual levels of output,
designated as the output gap, thus provide a measure of the capacity utilisation of the economy,
and to the extent that demand factors are incorporated, a measure of relative supply and demand
in the economy at a particular time. As such, it contains useful short-term information for the
formulation of economic policy, particularly policies aimed at controlling inflation. Over the