Professor Johan Fedderke, a University of Cape Town Economist and second speaker in the Department of Political Studies’ Annual Teach-in lecture series, argued today that growth is a necessary condition for poverty alleviation. He pointed out however, that attaining and maintaining growth has not been easy for countries in Africa.

With the exception of Afghanistan and Venezuela, all countries that experienced negative per capita growth between 1960 and 1988 were in Africa. Although South Africa is among the top ten countries in the world in terms of social assistance expenditures as a percentage of GDP, this has not necessarily had the desired impact on poverty alleviation or on reducing inequality.

Addressing the three main areas of an economy that drive growth, that is, capital, employment and technological progress, Fedderke argued that these ultimately play less of role in determining whether or not a country is successful in achieving economic growth than other factors such as the institutional and policy environment.

For instance, as far as investment in capital stock is concerned, investors make the decision to invest based not only on the expected return on investment but also based on how much risk or uncertainty they experience in relation to their investment.

Capital investment decisions are long term decisions requiring the investor to think about the stability and predictability of the investment environment in the long term. The creation of this predictability and stability is a function of political decision-making rather than being narrowly related to economic concerns such as interest rates.

If there is great uncertainty in the system this will mean that the usual economic incentives and drivers for growth will have less effect on actual investment decisions. Good governance and the credibility of the policy environment are crucial for economic growth.