There are two major economic and social security challenges facing South Africa: addressing large-scale unemployment and the AIDS pandemic. As of 2003, an estimated 14% of all South Africans were HIV-positive, with over a thousand people dying each day of AIDS. According to the government household and labour-force surveys conducted from the mid-1990s onwards, about a third of the labour force is without work (Nattrass, 2000a). This amounts to about 4.7 million people and it is, without question, a socio-economic crisis of major proportions. The life-chances and living-standards of entire households are compromised when working-age adults cannot find employment (Seekings, 2003b). Households burdened by AIDS are in an especially difficult position (Desmond et al 2000, Steinberg et al 2002a, 2002b; Booysen, 2002; Booysen et al, 2002).

Addressing AIDS and unemployment poses major challenges for social solidarity in South Africa. Over the past decade, the labour-market and industrial-policy environment has benefited relatively high-productivity firms and sectors (Nattrass, 2001). Business thus had strong incentives to reduce dependence on unskilled labour, and once the price of highly active antiretroviral therapy (HAART) started to fall from 2001 onwards, to supply it, either directly or indirectly through medical aids, to their increasingly skilled workforce (Nattrass, 2003). Those without jobs had neither access to earned income nor life-prolonging medication.

In August 2003, the government signalled its in-principle support for the provision of HAART in the public sector. Many unemployed people with AIDS will thus be able to access treatment, although this will depend on the scale and pace of the roll-out. A full-scale treatment intervention which reaches all who need it is feasible, but will require a substantial commitment of resources (Geffen et al, 2003). If resources are not to be directed from other priorities, the cost burden will fall on income-earners in the form of higher taxation. Given South Africa's high levels of unemployment, this means that the burden of providing treatment for all will fall on a relatively small pool of income-earners.

Under these conditions, employers and workers may calculate that they stand to benefit more from a more limited (and less expensive in terms of increased taxation) public sector treatment intervention, than a programme providing universal access. Two out of the three leading South African macroeconomic models predict that the pandemic will increase per capita income because the impact will be greater on the population than on growth (Nattrass, 2003). If the AIDS pandemic is perceived as being likely to result in an increase in per capita income, then the elite may regard it as in their best interests to do very little significant to halt the epidemic or alleviate its consequences. Those with the economic means to better protect themselves and their families against HIV infection (by providing access to education, condoms, healthy diets and safer life-style choices), and who have access to medical schemes to treat themselves and their loved ones if they become infected, may think their interests are better served by a 'do-very-little' scenario. They may privately calculate that they stand to benefit more as individuals from a set of policies which prioritises economic growth and minimises taxation, than they would from a social response that includes universal access to HAART and entails higher taxation and spending cuts in other areas. They would, of course, be wrong to think that they can entirely insulate themselves in this way from the AIDS pandemic. But if they believe they can, this course of action may seem preferable.

This has implications for social solidarity regarding AIDS treatment. For example, organised labour may well baulk at the tax implications of a full-scale tax-financed AIDS intervention. Many workers are already able to access HAART through their employers or medical aids and most live in urban areas (which are at the front of the queue in the treatment roll-out because the greatest capacity to deliver treatment is in the large urban hospitals). Employed workers may thus have an incentive to support a limited roll-out (with correspondingly less onerous tax implications for their pay packets) rather than a large-scale intervention aimed at reaching all those who need it.

The structural problem at the root of all this is South Africa's high unemployment rate - especially among the less skilled. Section 1 places South Africa in a comparative perspective and summarises the historical roots of the unemployment crisis. Section 2 discusses various ways of addressing the unemployment problem in the light of the AIDS pandemic, and Section 3 considers the question of how to combat AIDS and unemployment/poverty through a social accord process.

This paper will identify differences in sector development in countries that have proceeded along various paths for sector reform. International experience demonstrates that economies adopting a more ambitious path for liberalization and market- friendly forms of subsidization perform better after liberalization. Economies that adopt both a policy of liberalization and privatization are the best performers.

Our understanding of the concept of poverty has improved and deepened considerably in the last three decades or so following Amartya Sen's seminal work. We possess presently the analytical tools to identify and locate the poor, to describe their characteristics and to measure the extent of poverty at different levels of aggregation. Yet, in spite of spectacular methodological advances in the analysis of poverty a number of conceptual and measurement issues remains to be addressed or further clarified. Ravi Kanbur (2002) has argued that the research on distributional issues in economics and development economics in the last thirty years can be divided roughly into two periods the 1970's to the mid 1980's and the mid-1980's to the end of the last century. The first fifteen years were a period of great conceptual leaps and ferment while the second fifteen years were marked by consolidation, application and fierce policy debate. Very recent methodological contributions suggest that we are entering a period of resurgence in research attempting to sharpen and broaden our view of poverty.

The objective of this paper is to review a number of issues related to poverty, while taking stock of the ongoing research. Most of the remaining unresolved issues in poverty analysis are related directly or indirectly to the dynamics of poverty. Before the development community can become more successful in designing and implementing poverty-alleviation strategies, within the context of growth, we need to understand better the conditions under which some households remain permanently (chronically) poor and how others move in and out of poverty. In what follows we review the state of the art under a number of interrelated headings: 1) Chronic vs. transient poverty; 2) Poverty and vulnerability; 3) The determination of the poverty line across time and countries; 4) The quantitative vs. qualitative approach to poverty measurement; and 5) Growth, inequality and poverty.

Even though the approaches, assumptions and results may vary greatly in the macroeconomic models employed in estimating the impact of HIV/AIDS on the South African economy, the overriding message that these models convey remains the same: the cost of HIV/AIDS to South Africa will be significant in economic, social and human terms. However, the accuracy of the models and their results can be faulted for various reasons, not least the shortcomings of current demographic projections and the empirical evidence on the microeconomic impact of the epidemic, shortcomings that can be argued to translate into both under- and overestimation of the likely macroeconomic impacts of the epidemic. More work is also required to quantify the nature of the impact of the epidemic on specific sectors in the economy. In addition, more recent, alternative methodological approaches can also be explored in further investigating the macroeconomic impacts of the epidemic. Finally, models are also constrained by a lack of clarity regarding the key question of how treatment, care and support for HIV/AIDS-affected individuals and households are to be financed in South Africa, given that government at times are unclear as to what policies will be implemented to fights HIV/AIDS.

South Africa currently faces one of the highest HIV prevalence rates in the world. The estimated adult prevalence of HIV amongst 15-49 year olds in 2001 was 20.1% (UNAIDS, 2002), while the ASSA2000 model put adult prevalence amongst 20-65 year olds (in the unchanged scenario) at 24.1% (ASSA, 2003). A recent national household survey in turn has put the 2002 estimate of adult prevalence amongst those older than 25 years at 15.5% (HSRC, 2002) . Given that HIV/AIDS primarily effects the economically and sexually active population, the epidemic poses a serious threat to economic growth, development prospects and poverty alleviation. In fact, the predicted macroeconomic impacts of the HIV/AIDS epidemic make light of the macroeconomic targets of GEAR, given the projected decline in economic growth and employment.

The main aim of this paper is to review the current literature and evidence of the impact of HIV/AIDS on the South African economy. The paper is structured as follows. Section 1 provides a brief overview of the methodology of the four macroeconomic models employed in estimating the impacts of the epidemic that are reviewed in this paper. (It should be emphasized however that this is not a methodological review of macroeconomic modeling, which is outside the scope of this paper.) Given that these models project the macroeconomic impacts of the HIV/AIDS epidemic over a 10-15 year period that ranges from 2000 to 2015 and that the HIV epidemic is yet to evolve into a full-scale AIDS epidemic, the emphasis in this paper is therefore on the future challenges that HIV/AIDS poses to the South African economy, rather than the challenges during the first 10 years of democracy . Section 2 describes the main economic impact channels of the HIV/AIDS epidemic as described in these four macroeconomic models, whilst section 3 and 4 respectively focus on an overview of the assumptions (input) and projected impacts on economic growth, investment, employment, and poverty (outputs) of these four models. The assumptions and projections of these models are critically adjudged at the hand of currently available empirical evidence on the economics of HIV/AIDS in South Africa. In section 5, the implications to the macroeconomic modelling results of recent changes in the responses of government, business, communities and other role players in South Africa to the HIV/AIDS epidemic are discussed. Section 6 concludes, summarizing the main lessons to be learned from the review and the key questions that remain unanswered by current research on the economics of HIV/AIDS in South Africa.

This paper looks at social mobility in the context of a growing economy. The nature and extent of Black affluence in South Africa provides an indicator of the impact of efforts to eradicate the remnants of apartheid-era racial discrimination in the South African education system and labour market. Most studies examining social mobility and inequality in South Africa have looked at the bottom of the income distribution, investigating changes in the severity and also the racial incidence of poverty. This paper explores the same topic by studying the top of the income distribution. Focusing on the Black members of this group of affluent, this paper hopes to make some contribution towards an improved understanding of social mobility and inequality in South Africa

Firstly, we attempt to identify the features that distinguish the Black upwardly mobile from those parts of the Black population seemingly trapped in poverty, starting with a descriptive analysis of the affluent. Using the 2000 LFS/IES and the 1995 OHS/IES, the study examines the profile of the richest 15% of household in South Africa. In the second section of the paper logit and multinomial logit models are used to consider the impact of spatial features, household characteristics and the age, education and occupation of the household head on affluence. We also investigate how affluence predictors vary between different race groups. The third and last section is devoted to exploring the spending patterns of the Black affluent.

The analysis here confirms many of the traditional views of social mobility. The paper finds a strong association between geography, demographic profile and social mobility that is robust across population groups. The empirical evidence cited is consistent with convex returns to education and a substantial role for quality of education.

Also, we find that the Black affluent exhibit distinctive spending patterns. Compared to the affluent from other population groups, the Black affluent spend more on appliances and furniture and less on personal computers, telecommunications and domestic workers. This may be due to their relatively new status among the affluent.

The province of KwaZulu-Natal (henceforth KZN) is an important contributor to overall national economic performance in South Africa. In 1996, data from the Census of Manufacturing emphasised that KZN ranked second after Gauteng across a series of economic indicators (see for instance Annex Table 1 - part 1, p. 86). Although it is difficult to establish with accuracy how this position has evolved since 1996, WEFA estimates allows one to build on previous information from the 1996 Census of Manufacturing. WEFA data suggests that KZN manufacturing activities have grown but potentially not as rapidly as other South African provinces and thus that the rate of manufacturing expansion might be below the country average (see also Statistics South Africa, 2002, Figure 3, p. 2). Presently, KZN contributes to about 15.5% of South Africa's gross domestic product and, within KZN industries, manufacturing represents 23% of the Province own gross domestic product at market prices (see Annex Table 1 - parts 1 and 2, p. 86). Figure 1 below shows the distribution of South Africa's manufacturing gross domestic product across provinces; manufacturing in KZN contributes 22% of South Africa's manufacturing gross domestic product against 39% for Gauteng.

This paper uses the Johansen VECM estimation technique to examine the directions of association between savings and growth in South Africa over the period 1946- 1992. We examine the aggregate private saving rate and its interaction with investment and growth. The paper finds that the private saving rate has a direct as well as an indirect effect on growth. The indirect effect is through the private investment rate. In turn, we find that growth has a positive effect on the private saving rate. The extent of this effect is determined by liquidity constraints. Thus we have a virtuous cycle as growth enhances saving, which in turn further enhances growth.

The South African economy is unable to deliver employment for a growing number of would-be workers, especially among the unskilled. There is a need for state intervention to address this failure, and public works have been identified in the national policy discourse as a central policy response, to address both the problem of unemployment, and also a range of social development and economic objectives. This paper offers a critical review of the evidence base available to policy makers on public works, and an assessment of the performance of public works in South Africa since 1996, in response to the question of whether public works can offer a significant response to the South African employment crisis.

With the data currently available it is not possible to show that the anticipated broader benefits of public works programmes in terms of increased livelihoods, reduced poverty, the creation of sustainable employment, community empowerment, local multipliers, or growth as outlined in the policy rhetoric, have been achieved. It is only possible to assess performance in terms of the scale of employment created. By this criterion, success has been limited. The Community Based Public Works Programme, the major national employment creation instrument, created between 13,000 and 33,000 jobs per annum between 1996 and 2001, representing an estimated 1.5 million to 4.5 million workdays per annum, or 0.2 to 0.5% of total unemployed labour days. The scale of employment creation performance has been limited, due to i) the scale of budgetary allocations, (less than one percent of the annual social security and welfare budget), and ii) institutional constraints, relating to programme conceptualisation and design, and project management capacity, in both the public and private sectors. The multiplicity of programme objectives has also contributed to a lack of focus which has reduced the amount of employment generated.

In this paper simple models are used to estimate the impact and fiscal feasibility of 'expanded' public works programmes using the limited data available. The employment creation potential of a R1.2 billion investment in labour intensive construction over three years, is found to represent a maximum of 0.5% of unemployed workdays per annum. The cost to the fiscus of an expanded public works programme able to offer part time employment to a significant number of workers (3.2 million) is found be between R17 and R28 billion per annum.

Irrespective of the fiscal feasibility of this level of expenditure, such a programme is unlikely to meet the wider set of sustainable social development and economic objectives set out in the policy discourse, unless a series of institutional issues relating to project design and implementation are resolved. The limited duration of employment offered under public works may mean that the wage transfer functions as short term income shock, which is consumed, rather than leading to sustained benefits or livelihoods improvements for participants, a problem which is compounded by lack of access to microfinance. Targeting and rationing problems may be leading to a sub-optimal allocation of employment for the intended beneficiary groups, and the selection of appropriate assets for construction and rehabilitation is hindered by the lack of strategic development plans at local level. Limited project management and social development capacity in the public and private sectors is also serving to constrain performance.

In the light of this analysis it is concluded that while public works programmes are a valid component of a social protection policy, an expanded public works programme sui generis is unlikely to have a significant impact on the problems of poverty and labour market access, or their associate, growth, unless the proportion of government expenditure allocated to the programme is substantially increased, and the associated institutional constraints are addressed.

South Africa simultaneously lost more than 890,000 jobs and increased the number of skilled workers from 1989 to 1999. We argue this is the consequence of well-documented acute apartheidera distortions which led to a current coordination failure where (i) firms are locked into a mostly skill-intensive technology where they have very little demand for semi-skilled and unskilled labor, and (ii) there are too few semiskilled and skilled blacks. It follows that the average level of blacks' human capital is too low for firms to adopt a technology which makes intensive use of less skilled workers in the production process. A rm cannot unilaterally change technology because current skilled (mostly white) workers would lose and move to other firms. All this points to a missing market for semi-skilled workers. Wealth redistribution, public investments in both the quantityand quality of education are shown to be Pareto-improving.

Section 1 examines South Africa's comparative industrial performance over approximately the last two decades – manufacturing value added (MVA), manufactured exports in aggregate and exports of dynamic manufactured products, and industrial structure. Two “equity dimensions” of this performance that feature strongly in government's objectives for manufacturing are then outlined – namely manufacturing employment and remuneration and the geographical spread of manufacturing.

Section 2 examines the policies effected by the dti to promote the development of industry. These include the policies and supports that are available to all firms and the supports that are for selected sectors, namely autos and auto components and clothing and textiles.

Section 3 advances some broad proposals that could enhance the institutional and organisational capacity to support industrial and business growth and development.