South Africa - ECONOMY

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South Africa - The Economy

TRADING ON JOHANNESBURG'S financial markets reached a new all-time high on April 26, 1994, reflecting the buoyant mood of voters of all races who were about to participate in the country's first democratic elections. As South Africa emerged from the economic stagnation and international isolation of the apartheid era, the new government and its theme of economic reconstruction received international acclaim and encouragement. At the same time, however, it faced conflicting pressures to speed economic growth, to strengthen South Africa's standing among international investors and donors, and, at the same time, to improve living conditions for the majority of citizens.

South Africa's economy had been shaped over several centuries by its abundant natural resources and by the attempts of immigrant populations to dominate and to exploit those who had arrived before them. For most of the twentieth century, its mineral wealth had surpassed that of almost any other country in the world, except the Soviet Union. South Africa produced nearly half of the world's gold and ranked among the top ten producers of a dozen other valuable minerals, including diamonds and copper. The mining industries provided the foundation for the strongest economy on the continent, which, by the mid-twentieth century, included a comprehensive transportation system, an extensive electric power grid, and a significant manufacturing sector. South Africa's main resource deficiency is oil, and as a result, many industries rely on coal rather than on imported fuels.

By the mid-1980s, the economy was distorted by government policies designed to bolster the economic and political power of a small minority and to exclude many of South Africa's citizens, selected by race, from significant participation in the nation's wealth. Basic needs were unmet, resulting in hunger, malnutrition, and undereducation, especially in rural areas. Industrial development could not be sustained through domestic resources, and there was stagnation in some areas when foreign capital was reduced in the face of strong international pressures for political reform. Because the mining industry continued to dominate the economy, wide fluctuations--especially in the price of gold--eroded currency values and reduced the country's ability to import goods. At the same time, keeping black wages low, which was crucial to profits in all areas of the economy, perpetuated the discrimination that provoked widespread protests and condemnation.

By the early 1990s, the weaknesses in the economy were increasingly evident despite the country's dazzling mineral wealth. Some segments of the population were poorer, and living in more difficult circumstances, than many people in far less developed African countries. Moreover, a poorly educated, impoverished majority of the population could not provide the skills and the resources that the country's infrastructure and labor market required. The government cast off the constraints of apartheid (see Glossary) in the early 1990s, in part to confront the serious economic problems caused by that system. The new government in the mid-1990s faces the enormous challenges of improving living standards and managing the country's resources profitably.

<>Historical Development
<>Postapartheid Reconstruction
<>Structure of the Economy
<>Role of the Government
<>Foreign Trade and Investment
<>Employment and Labor
<>Gold and Diamonds
<>Agriculture, Forestry, and Fishing
<>Manufacturing
<> Tourism
<> Banking

South Africa

South Africa - The Economy - Historical Development

Before South Africa's vast mineral wealth was discovered in the late nineteenth century, there was a general belief that southern Africa was almost devoid of the riches that had drawn Europeans to the rest of the continent. South Africa had no known gold deposits such as those the Portuguese had sought in West Africa in the fifteenth century. The region did not attract many slave traders, in part because local populations were sparsely settled. Valuable crops such as palm oil, rubber, and cocoa, which were found elsewhere on the continent, were absent. Although the local economy was rich in some areas--based on mixed farming and herding--only ivory was traded to any extent. Most local products were not sought for large-scale consumption in Europe.

Instead, Europeans first settled southern Africa to resupply their trading expeditions bound for other parts of the world (see Origins of Settlement, ch. 1). In 1652 the Dutch East India Company settled a few employees at a small fort at present-day Cape Town and ordered them to provide fresh food for the company's ships that rounded the Cape on their way to East Africa and Asia. This nucleus of European settlement quickly spread outward from the fort, first to trade with the local Khoikhoi hunting populations and later to seize their land for European farmers. Smallpox epidemics swept the area in the late eighteenth century, and Europeans who had come to rely on Khoikhoi labor enslaved many of the survivors of the epidemics.

By the early nineteenth century, when the Cape settlement came under British rule, 26,000 Dutch farmers had settled the area from Stellenbosch to the Great Fish River (see fig. 7). In 1820 the British government sponsored 5,000 more settlers who also established large cattle ranches, relying on African labor. But the European immigrants, like earlier arrivals in the area, engaged primarily in subsistence farming and produced little for export.

The discovery of diamonds in 1869 and of gold in 1886 revolutionized the economy. European investment flowed in; by the end of the nineteenth century, it was equivalent to all European investment in the rest of Africa. International banks and private lenders increased cash and credit available to local farmers, miners, and prospectors, and they, in turn, placed growing demands for land and labor on the local African populations. The Europeans resorted to violence to defend their economic interests, sometimes clashing with those who refused to relinquish their freedom or their land. Eventually, as the best land became scarce, groups of settlers clashed with one another, and rival Dutch and British populations fought for control over the land (see Industrialization and Imperialism, 1870-1910, ch. 1).

South Africa was drawn into the international economy through its exports, primarily diamonds and gold, and through its own increasing demand for a variety of agricultural imports. The cycle of economic growth was stimulated by the continual expansion of the mining industry, and with newfound wealth, consumer demand fueled higher levels of trade.

In the first half of the twentieth century, government economic policies were designed to meet local consumer demand and to reduce the nation's reliance on its mining sector by providing incentives for farming and for establishing manufacturing enterprises. But the government also saw its role as helping to defend white farmers and businessmen from African competition. In 1913 the Natives Land Act reserved most of the land for white ownership, forcing many black farmers to work as wage laborers on land they had previously owned. When the act was amended in 1936, black land ownership was restricted to 13 percent of the country, much of it heavily eroded.

White farmers received other privileges, such as loans from a government Land Bank (created in 1912), labor law protection, and crop subsidies. Marketing boards, which were established to stabilize production of many crops, paid more for produce from white farmers than for produce from black farmers. All farm activity suffered from the cyclical droughts that swept the subcontinent, but white farmers received greater government protection against economic losses.

During the 1920s, to encourage the fledgling manufacturing industries, the government established state corporations to provide inexpensive electricity and steel for industrial use, and it imposed import tariffs to protect local manufacturers. Again black entrepreneurs were discouraged, and new laws limited the rights of black workers, creating a large pool of low-cost industrial labor. By the end of the 1930s, the growing number of state-owned enterprises dominated the manufacturing sector, and black entrepreneurs continued to be pressured to remain outside the formal economy.

Manufacturing experienced new growth during and after World War II. Many of the conditions necessary for economic expansion had been present before the war--cities were growing, agriculture was being consolidated into large farms with greater emphasis on commercial production, and mine owners and shareholders had begun to diversify their investments into other sectors. As the war ended, local consumer demand rose to new highs, and with strong government support--and international competitors at bay--local agriculture and manufacturing began to expand.

The government increased its role in the economy, especially in manufacturing, during the 1950s and the 1960s. It also initiated large-scale programs to promote the commercial cultivation of corn and wheat. Government investments through the state-owned Industrial Development Corporation (IDC) helped to establish local textile and pulp and paper industries, as well as state corporations to produce fertilizers, chemicals, oil, and armaments. Both manufacturing and agricultural production expanded rapidly, and by 1970 manufacturing output exceeded that of mining.

Despite the appearance of self-sustaining economic growth during the postwar period, the country's economy continued to be susceptible to its historical limitations: recurrent drought, overreliance on gold exports, and the costs and consequences of the use of disenfranchised labor. While commercial agriculture developed into an important source of export revenue, production plummeted during two major droughts, from 1960 to 1966 and from 1981 to 1985. Gold continued to be the most important export and revenue earner; yet, as the price of gold fluctuated, especially during the 1980s, South Africa's exchange rate and ability to import goods suffered.

Manufacturing, in particular, was seriously affected by downswings in the price of gold, in part because it relied on imported machinery and capital. Some capital-intensive industries were able to expand, but only with massive foreign loans. As a result, many industries were insulated from the rising labor militancy, especially among black workers, which sparked disputes and slowed productivity in the late 1980s. As black labor increasingly voiced its frustrations, and foreign banks cut short their loans because of mounting instability, even capital-intensive industries felt the impact of apartheid on profits.

The economy was in recession from March 1989 through most of 1993, largely in response to worldwide economic conditions and the long-term effects of apartheid. It registered only negligible, or negative, growth in most quarters. High inflation had become chronic, driving up costs in all sectors. Living standards of the majority of black citizens either fell or remained dangerously low, while those of many whites also began to decline. Economic growth continued to depend on decent world prices for gold and on the availability of foreign loans. Even as some sectors of the economy began to recover in late 1993, intense violence and political uncertainty in the face of reform slowed overall growth through 1994.

South Africa

South Africa - Postapartheid Reconstruction

As the African National Congress (ANC) shifted away from its liberation agenda toward a leadership role in government in the early 1990s, ANC economists, together with government and private-sector consultants, developed a blueprint for development in the late 1990s. This Reconstruction and Development Programme (RDP) analyzed nationwide living standards and proposed ways to improve government services and basic living conditions for the poor. The RDP detailed the extreme poverty of at least 17 million citizens who were living below internationally accepted minimum standards. The report estimated that 4.3 million families were without adequate housing, and some 12 million people lacked access to clean drinking water. Most homes, and many schools and hospitals, lacked electricity. An estimated 4.6 million adults were illiterate.

In May 1994, the new government adopted the RDP as the centerpiece of its economic policy, although President Nelson (Rolihlahla) Mandela was quick to reassure potential investors and donors that his government's social programs would be financed largely through cuts in existing government spending. He pledged that his government would avoid both dramatic increases in taxes and large-scale deficit spending to implement the much-needed welfare improvements.

The RDP envisioned sweeping government programs to raise living standards--to build houses and roads, to provide services, to upgrade education, and to create jobs to narrow the gap between rich and poor. By late 1994, the government had begun to implement its highest RDP priorities: a US$135 million school lunch program; a US$14 million program of free medical care for children and pregnant women; providing water and electricity to rural communities; and phasing in free, compulsory primary education for children of all races.

Government officials and ANC economists in the National Institute for Economic Policy estimated that RDP expenditures in fiscal year (FY--see Glossary) 1994-95 would amount to 2.5 billion rands (R; for value of the rand--see Glossary), or about 7 percent of government spending. They also estimated that RDP expenditures would double in FY 1995-96 and would increase by about R2.5 billion each year after that, to R12.5 billion--probably more than 25 percent of government spending--in FY 1998-99. The Development Bank of Southern Africa estimated costs approaching US$30 billion--US$19 billion in capital expenditures and US$11 billion in recurrent expenditures--by 1999. Government officials insisted that they would rely on increased trade and overall economic growth, as well as on international assistance and private-sector donations, for most of the additional revenue, and that reconstruction would be aided by a one-time, 5 percent levy on individuals and companies with taxable incomes of more than R50,000. They also predicted that the government would save money by increasing efficiency (in particular by eliminating the redundancy that had been necessary to provide services to separate racial groups under apartheid) and by reducing military expenditures.

To help finance the RDP, the government also undertook negotiations to sell some national assets to private citizens, despite the ANC's earlier opposition to privatization. Senior government officials, including the president, accepted salary cuts of between 10 percent and 20 percent to contribute to social reconstruction. President Mandela also asked for concrete proposals and contributions from the business community--such as on-the-job training and employer subsidies of housing, transportation, and education--to meet the urgent needs defined in the RDP.

The new government launched worldwide appeals for new trade and investment packages for South Africa, as it tried to overcome more than a decade of international isolation. South Africa began reentering world financial markets, establishing new trading partners, and expanding formerly clandestine trade ties that had long existed with many countries. International donors and investors responded cautiously at first, in part because of the continuing high levels of urban and township violence.

After mid-1994 immigrants from other African countries arrived in large numbers--a total of perhaps a million in that year alone, according to some estimates--seeking jobs in postapartheid South Africa. Poorer neighboring states also intensified their requests for assistance from Pretoria, hoping South Africa's economic revival would increase output and trade throughout the region and that South Africa would become the region's new "engine of development."

South Africa

South Africa - Structure of the Economy

Gross Domestic Product

Historically, mining and agriculture contributed the most to national output. With government assistance during and after World War II, manufacturing grew to become the greatest contributor to overall gross domestic product (GDP--see Glossary), and overall economic growth in the 1960s rivaled that of Japan--averaging 5.9 percent per year in real terms (compared with the 4 percent annual average growth of the 1950s). During the 1970s, however, growth in both manufacturing and agriculture stagnated, and the services sector--especially the insurance industry, financial facilities, and transport services--became the fastest-growing economic sector (see table 5, Appendix).

The price of gold was allowed to float (relative to the rand) in the early 1970s, and by the end of the decade, high prices for gold and other export commodities sparked a brief economic recovery. Mining continued to be vital to the nation's economic future, because minerals, especially gold, dominated exports and influenced the growth of other major economic sectors, which relied on gold exports to bring in much-needed foreign exchange. Thus, even as the importance of gold in the GDP declined, it continued to affect the country's balance of payments. When gold prices (and export revenues) declined, local industries often were unable to obtain imports, such as machinery and other inputs necessary to maintain production; as a result, other exports also declined.

Economic growth slowed in the late 1970s and the early 1980s, not only because of declining gold revenues, but also because of rising prices for oil imports and increased international competition in other traditional export commodities. The first recession of this period occurred in 1976, following dramatic oil price hikes. Strong export growth based on higher gold prices helped the recovery from this recession, but the country was hit by a series of droughts in the 1980s, which seriously affected agricultural output. Further erratic changes in gold prices led to a series of booms and busts, reducing average annual GDP growth for the 1980s to only 1.5 percent.

Negligible growth in the 1980s led to an overall decline in living standards, as population growth far outpaced economic expansion. Per capita GDP declined by more than 10 percent during the decade, and for the average individual, real wealth in 1990 was no higher than it had been in 1970.

National economic stagnation continued in the early 1990s. GDP declined in 1991 and 1992, and registered only weak positive growth in 1993, according to the government's Central Statistical Service. Private consumption accounted for 57 percent of GDP in 1993, representing a minimal (0.4 percent) increase over 1992. Private consumption was constrained by high consumer indebtedness, however, and by concerns over violence and job security.

The recovery strengthened in 1994. In that year, GDP amounted to R432.8 billion (US$121.9 billion) representing 2.6 percent real growth over 1993 (see table 6, Appendix). Per capita GDP averaged about US$3,010, placing South Africa among the World Bank's (see Glossary) upper-middle-income developing countries. The recovery continued in 1995, and officials predicted GDP growth would exceed 4 percent in 1996 (see fig. 13; fig. 14).

National accounting procedures were adjusted in 1994 to incorporate the economies of the four former "independent" African homelands--Bophuthatswana, Ciskei, Transkei, and Venda. In addition, GDP measurements were adjusted upward by 5.6 percent to include a modest estimate of output in the informal sector, which had been omitted from national accounts until 1994. The informal sector constitutes a "parallel" economy, consisting primarily of unrecorded and untaxed wages, barter trade, and other unofficial receipts. For many rural families in South Africa, as in the rest of Africa, informal economic activity accounts for most of the household income.

South Africa's advanced industrial sector made it the twenty-fifth largest economy in the world, a giant among African countries in the 1990s. Per capita GDP, in 1994, compared with the rest of Africa, was topped only by the Seychelles, R�union, and Gabon. With only about 7 percent of the population and 4 percent of the total land area of Africa, South Africa produced more than one-third of Africa's goods and services, and nearly 40 percent of its manufacturing output.

External Debt

Loan capital was readily available during the 1970s, and both the public and the private sectors borrowed heavily, often in the form of trade credits. Then in the early 1980s, foreign investments declined relative to the value of foreign loans needed to finance economic growth. As a result, equity capital dropped as a percentage of foreign debt from 60 percent in 1970 to less than 30 percent in 1984, while South Africa's loans grew from 40 percent to 70 percent of foreign debt. The government encouraged this trend by stepping in whenever foreign bankers hesitated to increase lending and stabilized indebtedness through gold swaps or by borrowing from the International Monetary Fund (IMF--see Glossary). As a result of these policies, South Africa's net indebtedness to the international banks increased sharply, and about two-thirds of its outstanding loans in 1984 had a maturity of one year or less. The banking sector was responsible for 44 percent of South Africa's foreign liabilities, and a further 16 percent had been incurred by the public sector. Only about 40 percent were private liabilities. Britain dominated foreign capital loans and investments, accounting for about 40 percent of foreign investment in 1985.

South Africa was hit with a major foreign debt crisis in 1985, when a group of banks, led by Chase Manhattan, withdrew substantial credit lines. The banks refused to roll over existing loans and called in many of the short-term loans. As a result, the value of the rand dropped precipitously, and the government temporarily closed its financial and foreign-exchange markets. Unable to meet debt obligations so suddenly, the government declared a standstill on repayments of approximately US$14 billion of South Africa's US$24 billion total external debt. Liabilities not included in the standstill were trade credits, loans from the IMF and central banks, and credits guaranteed by Paris Club (see Glossary) member governments. Publicly quoted issues of South African parastatals (state corporations) were also left out.

During the standstill, government officials met with representatives of creditor banks and drew up a rescheduling plan, which proposed extending the 1985 debt freeze until June 1987 and repaying 5 percent of the total outstanding by April 1987. An initial payment of US$420 million was made in mid-April 1986, but additional rescheduling agreements in 1987 and 1989 extended many of these loans. The 1989 agreement stipulated that the amount of debt remaining in those categories affected by the standstill, originally amounting to US$14 billion, would be reduced to roughly US$6 billion in four years.

A key problem in repaying its loans was the large, but undisclosed, portion of South Africa's debt that was denominated in hard nondollar currencies, but appreciated in dollar terms as the dollar weakened. South Africa nonetheless repaid between US$1.7 billion and US$1.9 billion of debt by 1990, and some foreign bankers were increasingly willing to refinance maturing South African credits. For example, US$300 million of US$900 million bearer bonds in deutsche marks and Swiss francs were rolled over or replaced in 1990.

There was almost no external borrowing by South Africa from 1985 to 1990, so even its slowed schedule of debt repayment made South Africa a net capital exporter during the late 1980s. South Africa reduced its total disclosed foreign debt to less than US$20 billion in early 1992, down from nearly US$24 billion in 1985, according to the South African Reserve Bank. Currency fluctuations brought South Africa's international debt back to US$25.8 billion at the end of 1993, including rand-denominated foreign debt, and that figure continued to increase in 1994.

The government repaid about US$500 million in foreign debt in February 1994. At that time, South Africa was considered an under-borrower by conventional financial criteria, with a foreign debt/export ratio of about 60 percent and a foreign debt/GDP ratio of 15.1 percent, according to South African Reserve Bank figures. Overall, South Africa posted a net capital inflow of more than R8 billion in the second half of 1994. Foreign borrowing increased in 1995, when gross foreign debt rose to nearly 22 percent of GDP.

Inflation

Historically, South Africa's inflation rate was tied closely to that of its major trading partners. In the 1960s, annual inflation averaged about 3 percent. In line with world trends, it rose above 10 percent in 1974 and fluctuated between 11 and 14 percent through the early 1980s. During the late 1980s, however, South Africa's inflation rates did not decline along with those of its Western trading partners. Inflation reached a high of 18.6 percent in 1986, forcing a depreciation of the rand, and it continued in double-digit amounts after that. The erratic price of oil--a crucial import bought on the black market because of Organization of the Petroleum Exporting Countries (OPEC) sanctions--provided a consistent inflationary pressure.

Inflation continued to erode economic strength in the early 1990s, but declined to 9.1 percent in 1994. Inflation increased in early 1995 under pressure from new social spending, but declined to 8.7 percent by the end of the year. The lower rate of inflation resulted in part from a decline in food prices, the relative stability of the rand, and the lowering of import tariffs. Inflationary pressures persisted in the increase in credit purchases and strong labor demands.

Economic Distortions and Apartheid

National accounts in 1994 showed a sharp break with the past, as economic and legal data were reorganized to include citizens of all races and all jurisdictions, including former homelands. The interim constitution implemented in 1994 ended the use of racial categories to determine social and economic opportunity, but the economic system of the mid-1990s nonetheless continued to reflect some of the economic patterns that had developed during more than forty years of apartheid.

Creating the homelands and resettling people in them had drastically changed the country's population distribution and regional economic patterns in the 1970s and 1980s. Accounting for these anomalies caused confusion and obfuscation in economic data and analyses. Many homeland residents were barely able to support themselves, owing in part to the homelands' arid land, inferior roads and transportation, and overcrowding; some were therefore forced to travel great distances to work in "white" South Africa. Many of these workers were excluded from national accounts because they were not legal residents of South Africa.

It became increasingly clear in the 1980s that apartheid could not be implemented as decreed by law, and eventually many official and unofficial policies allowed some flexibility in its application. In 1986 the government called for "orderly urbanization," under which a limited numbers of blacks could live in officially "white" urban areas, as long as housing was available. Few black workers could afford to take advantage of this policy, however, and demographic trends did not change noticeably.

By the late 1980s, black poverty was so serious that the government began to take steps to alleviate some of the most dire impacts of apartheid. Government statistics then indicated that more than 16 million people were living below internationally determined minimum-subsistence levels. Using nutritional standards as an alternative measure, an estimated 2.3 million people were at severe risk from hunger and malnutrition. In 1988 the minister of national health and population development characterized the crisis as "worse than the Great Depression," and in response, the government initiated food programs and other social welfare initiatives (see Health and Welfare, ch. 2).

South Africa

South Africa - Role of the Government in the Economy

South African economists in the 1980s described the national economy as a free-enterprise system in which the market, not the government, set most wages and prices. The reality was that the government played a major role in almost every facet of the economy, including production, consumption, and regulation. In fact, Soviet economists in the late 1980s noted that the state-owned portion of South Africa's industrial sector was greater than that in any country outside the communist bloc. The South African government owned and managed almost 40 percent of all wealth-producing assets, including iron and steel works, weapons manufacturing facilities, and energy-producing resources. Government-owned corporations and parastatals were also vital to the services sector. Marketing boards and tariff regulations intervened to influence consumer prices. Finally, a wide variety of laws governed economic activities at all levels based on race.

The government's main concern since the discovery of gold in 1886 had been balancing the growth of the mining industry against the need to diversify, in order to create sustained development and self-sufficiency. Successive governments had tried to encourage and to support local industries that could reduce imports, provide jobs, and create a multiplier effect by encouraging further industrial growth. Paul Kruger, who had led the Transvaal in the late nineteenth century, had granted monopoly concessions to industrialists; the 1920s governments of Jan C. Smuts and J.B.M. Hertzog had initiated state corporations, and the post-1948 National Party government had tried industrial decentralization (see Industrialization and Imperialism, 1870-1910; Segregation, 1910-48; and Apartheid, 1948-76, ch. 1).

Even after decades of policy shifts designed to spur development and diversification, however, South Africa's export economy in the 1980s still relied primarily on the gold-mining industry, and the government still protected import-substitution industries in order to keep them in operation. Furthermore, agriculture continued to be an uneven producer and therefore received substantial subsidies and other forms of government assistance. In the late 1980s, the government presented a blueprint for economic policy consistent with this history of economic struggle. Its central economic strategy advocated a shift toward strongly market-oriented policies, but left room for government intervention in response to social and political demands. The strategy increased the emphasis on local industrialization in order to cut imports and to create jobs. The only component of the central economic strategy that was really new was the effort to strengthen export industries, especially to increase value added through local processing of raw materials for export.

In 1994 the new Government of National Unity continued the economic policies of its predecessors, emphasizing a market orientation overall, but allowing government intervention when necessary, and maintaining import-substitution industries while trying to spur industrial development toward exports. International markets increasingly opened to South Africa, and trade flourished, especially with the new industrial giants of Asia. Senior government officials tried to downplay the ANC's longstanding commitment to nationalization of key industries in order to gain much-needed foreign investment. It was nonetheless clear that the debate over privatization would continue at least through the rest of the decade.

Legal Restrictions

Two legislative pillars of apartheid--the Natives Land Act (No. 27) of 1913 (and its amendment in 1936) and the Group Areas Act (No. 41) of 1950--limited African economic and business activities in both rural and urban areas (see The Legislative Implementation of Apartheid, ch. 1). These acts were repealed in 1991, but few blacks could yet afford to move into formerly white areas without financial assistance. Numerous other laws and regulations had restricted black economic activities and employment, especially the Mines and Works Act (No. 12) of 1911, the Native Labour Regulation Act (No. 15) of 1911, the Industrial Conciliation Act of 1924 and its amendments in 1937 and 1956, the Mines and Works Amendment Act of 1926, the Factories, Machinery, and Building Works Act (No. 22) of 1941, and the Bantu Labour Act (No. 67) of 1964. Public services and education opportunities were limited by the Bantu Education Act (No. 47) of 1953, the Reservation of Separate Amenities Act (No. 49) of 1953, and the National Policy for General Affairs Act (No. 76) of 1984.

In contrast to the government's control over domestic economic activity of South Africans, few legal restrictions were imposed on the economic activities of foreign nationals in South Africa, aside from stringent exchange controls on the repatriation of capital funds. Foreigners were welcome, even encouraged, to establish businesses in South Africa, and they could qualify for numerous government concessions and subsidies. During most of the apartheid era, those who wished to sell their South African assets, however, could do so only in financial rands (a currency control device), rather than the more commonly used commercial rands (see Currency, this ch.).

Financial rands could be sold only to a foreign buyer for capital investment inside the country, and the financial rand traded at a discount (15 percent in late 1994) compared with the commercial rand. Exchange restrictions did not apply to current earnings, however, and investors could transfer those funds, subject to taxation. In March 1995, as the financial rand strengthened, and under strong pressure from the business community, the government abolished the financial rand.

The new government in 1994 began to implement legislation intended to compensate some of the roughly 3.5 million black citizens who had been dispossessed of their land under apartheid. The Restitution of Land Act (No. 22) of 1994 provided for the creation of a Land Claims Court and a Commission on Restitution of Land Rights to arbitrate demands for restitution. Petitioners under the law were given three years to lodge their claims. White landowners who feared the loss of their land lobbied hard through the South African Agricultural Union, which represented 60,000 white farmers, and succeeded in weakening provisions in the new law that would have given land rights to many sharecroppers and labor tenants. The white landowners also won the right to appeal land-claim decisions and to receive legal aid services under the new legislation. By mid-1996, only a small number of land claims had been adjudicated.

Parastatals

The government's strong role in shaping the economy was especially evident in the large number of parastatals, or state corporations, that it established beginning in the 1920s. Its primary goal was to strengthen import-substitution industries, which had started to grow during World War I, by providing infrastructure improvements and basic materials. Among the first such enterprises were the Electricity Supply Commission (Eskom) and the South African Iron and Steel Corporation (Iscor), both founded in the 1920s, and the Industrial Development Corporation (IDC), established in 1940 to support other new industries. The IDC helped to establish many other state corporations, including the Phosphate Development Corporation (Foskor); the South African Coal, Oil, and Gas Corporation (SASOL); and the Southern Oil Exploration Corporation (Soekor). In addition, many state corporations also founded subsidiary companies in partnership with private firms, and many held controlling shares of stock in private firms.

Private individuals were allowed to purchase shares in many state-owned corporations. The government generally appointed a majority of corporate directors, but senior management made most personnel decisions independent of government control. The government's primary avenue of control over state corporations was by granting or withholding loans of state money. The electricity parastatal, Eskom, was always allowed to raise money publicly, but most other state corporations relied on government funds for capital financing.

The anticipated private-sector participation in these parastatals did not materialize, however. Investors showed little interest in purchasing parastatals' stock. Iscor suffered the embarrassment of an almost total public refusal of its stocks when they were offered for sale in 1929. In fact, most state corporation ventures were viewed as unprofitable and were funded by the government because of a lack of private interest. In 1979, however, after oil sales from Iran had been cut off, the synthetic fuel corporation, SASOL, offered shares to the public; investors eagerly bought all that were available and fully supported two more such issues.

In February 1988, President P. W. Botha announced plans to privatize several state-controlled industries, including Eskom, Foskor, and Iscor, as well as state-operated transport, postal, and telecommunications services. The reasons given for the privatization effort were that it would reduce public criticism of the government role in these enterprises and that these parastatals themselves were no longer profitable for the government. State corporations had been the major recipients of large foreign loans that were called in and cut off in 1985, leaving them with serious capital shortages. Sale of the corporations' assets could both ease the debt burden and provide the government with new revenue for much-needed social programs for the poor.

Iscor was the first major parastatal to be sold, in November 1989. Its sale raised R3 billion for the treasury. The government then scaled down its plans, and in the early 1990s the future of privatization was unclear. Officials estimated that the roughly R250 billion needed to finance the purchase of the largest state corporations probably could not be found inside the country. The argument for privatization was also weakened by the worsening investment climate as political negotiations stalled and violence increased. Government opponents, especially the ANC, vigorously opposed privatization--viewing it as a ploy to maintain white control in preparation for majority rule.

In 1995 the Government of National Unity began to develop its own privatization program. Late that year, Deputy President Thabo Mbeki announced that the government would seek equity partners in Telkom and in South African Airways and that it would sell several smaller parastatals outright. The announcement provoked strong protests from labor unions over the threat of job losses and over labor's exclusion from the policy decision-making process.

Budgets

The government enjoyed surplus budgets in most years during the 1970s and the early 1980s, until chronic high inflation and gold price fluctuations combined to diminish the business tax base in the mid-1980s. The severe decline in real gold prices reduced tax revenues to less than 2 percent of total revenues in FY 1990-91, compared with 25 percent of total revenues in the boom year a decade earlier (see table 7, Appendix).

The personal tax base had always been relatively narrow because of the limited income of the large black population (about 76 percent of the total population) and the relative affluence of most whites (about 13 percent of the population). Searching for additional revenue during the late 1980s, the government tried to avoid higher taxes on businesses and instead relied on deficit financing. For example, in FY 1987-88, the deficit was 5.8 percent of GDP as part of a deliberate fiscal stimulation of the economy. This pattern of spending continued, and the budget deficit rose to 9 percent of GDP in 1993.

The erratic price of gold during the 1980s led to other budget problems, fueling the cycle of reduced industrial revenue, currency devaluation, and high inflation. The government attempted to encourage business development through lenient tax policies, but average incomes continued to be low so this strategy failed to bring in the needed government revenues. The government tried to increase its revenues by "widening the net" of goods and services taxed in 1991, when it introduced a 10 percent value-added tax (VAT) to replace the former 13 percent general sales tax. Then, in an effort to encourage capital spending, businesses were exempted from paying the VAT on capital inputs. And to encourage investment, other forms of tax, such as corporate taxes, taxes on gold mines and gold companies, and import surcharges on capital goods, were reduced. By 1995 the VAT had been increased to 14 percent.

The FY 1994-95 budget projected revenues of R105.8 billion and expenditures of R135.1 billion, leaving a deficit of R29.3 billion, or about 6.2 percent of projected GDP (see table 8, Appendix). To raise revenues, the government planned to sell domestic stocks, increase foreign borrowing, and increase excise taxes on alcohol and tobacco products--expected to bring in an estimated R525 million. The government also levied a one-time, 5 percent "transition levy" on individuals and businesses with taxable incomes of more than R50,000, expecting to enhance its revenues by about R2.25 billion through this measure.

In March 1995, the ANC-led government's budget for FY 1995-96 estimated total revenues at roughly R123 billion and expenditures at R153.3 billion, with a budget deficit of R29.7 billion and a gross borrowing requirement (including interest on previous debt) of R38 billion. Government revenues were to be enhanced by higher taxes on alcohol, tobacco, and gasoline (and a higher, 43 percent maximum rate on individual incomes). The budget was well received overall, and the Johannesburg Stock Exchange generally held steady after it was presented.

The proposed government budget for FY 1996-97 projected revenues of roughly R145 billion and expenditures of R174 billion, with a projected deficit equivalent to 5.1 percent of GDP. Principal projected new revenues included taxes on monthly retirement income, while revenues from import tariffs would be reduced or eliminated. Proposed budget allocations included roughly R7.5 billion for salary increases and pay adjustments for government workers, intended to reduce the inequities of the apartheid era. The budget also envisioned expenditures of roughly R5.5 billion for education, R10.2 billion for military spending, and R9.8 billion for the police.

South Africa

South Africa - Foreign Trade and Investment

South Africa's foreign trade and investment were affected by sanctions and boycotts, especially during the 1980s and early 1990s. These measures included a voluntary arms embargo instituted by the United Nations (UN) in 1963, which was declared mandatory in 1977; the 1978 prohibition of loans from the United States Export-Import Bank; an oil embargo first instituted by OPEC in 1973 and strengthened in a similar move by Iran in 1979; a 1983 prohibition on IMF loans; a 1985 cutoff of most foreign loans by private banks; the United States 1986 Comprehensive Antiapartheid Act, which limited trade and discouraged United States investors; and the 1986 European Economic Community (EEC) ban on trade and investment. The Organization of African Unity (OAU) also discouraged trade with South Africa, although observers estimated that Africa's officially unreported trade with South Africa exceeded R10 billion per year in the late 1980s.

The most effective sanctions measure was the withdrawal of short-term credits in 1985 by a group of international banks. Immediate loan repayments took a heavy toll on the economy (see External Debt, this ch.). More than 350 foreign corporations, at least 200 of which were United States owned, sold off their South African investments. In 1991 both the EEC and the United States lifted many official sanctions in view of measures taken by Pretoria to begin dismantling apartheid. Foreign investors were slow to return to South Africa, however; most banking institutions considered the country too unstable, and foreign corporations faced high labor costs and unrest if they tried to operate there.

In 1994 and 1995, many of the United States companies that had sold off shares or operations in South Africa in the past decade returned to do business there. By early 1996, at least 225 United States companies employed more than 45,000 South African workers.

Foreign Trade

Throughout the twentieth century, South Africa's economy has depended heavily on foreign trade--a trend that continued even under pressure from international sanctions and recession. Gold dominated its exports to the point that the government occasionally intervened to promote nongold exports. During the 1970s and the 1980s, the price of gold directly affected the value of the rand and, therefore, the prices at which exports were sold overseas. As the gold price fluctuated, the exchange rate of the rand rose and fell, and export revenues responded accordingly. Under these uncertain conditions, few manufacturers were willing to risk large investments to increase their export capacity.

One of the 1970s programs that promoted nongold mineral exports was the development of new harbor facilities, railway lines, and mines, which helped to increase revenues from the export of metal ores at the impressive rate of nearly 18 percent per year, on average, during the 1980s. Also during the 1980s, the Board of Trade and Industry implemented structural adjustment programs for various industries and a General Export Incentive Scheme, which reduced import tariffs on raw materials to be used to manufacture goods for export, in proportion to their value and local content. One effect of these programs was to reduce the importance of gold in South African exports from 56 percent of revenues in 1980 to 36 percent in 1992, according to government statistics. Gold exports increased slightly in 1993 and 1994, as a fraction of export revenues, but remained below 40 percent of the total.

The government also took direct action to limit imports, in part to protect local industries. The government has the power to do so through tariffs, surcharges, and import licenses. Import tariffs provided some protection against dumping by foreign manufacturers. Import surcharges helped reduce import demand and raise government revenues. In August 1988, the surcharge on some items was raised as high as 60 percent in a bid to hold down imports, but in May 1989 the surcharge on capital goods was eased from 20 percent to 15 percent, and most import tariffs were being phased out in the 1990s.

Government pressures in the 1970s and the 1980s succeeded in reducing South Africa's import levels but did not succeed in changing the pattern of imports. By 1987, when total imports were down about 30 percent from their peak 1974 volume, industrial inputs continued to dominate imports. Machinery was the most important among these, followed by vehicles and transportation equipment, a variety of chemicals, and oil. After the OPEC boycott of 1973 and Iran's cutoff of oil to South Africa in 1979, however, official figures on oil trade were not available. Observers estimated that 1987 oil import costs reached US$1.75 billion.

The pattern of trade dominated by gold exports and industrial imports continued in the early 1990s (see table 9; table 10, Appendix). The government continued to promote exports and to limit imports in an effort to create the trade surplus (and foreign exchange reserve surplus) necessary for debt repayment. In 1993 exports were valued at roughly R79.5 billion (almost 35 percent of GDP) according to official estimates, and imports were valued at approximately R59 billion. In 1994 exports were valued at an estimated R89.1 billion, and imports, at R75.9 billion. In early 1995, imports began to outstrip exports, and South Africa's trade surplus declined at an uneven pace for the rest of the year. South African Reserve Bank estimates in early 1996 placed the value of exports in the previous year at R81 billion in merchandise and R20.2 billion in gold. Merchandise imports were about R98.5 billion, leading officials to predict that the trade balance could lapse into deficit. In early 1996, however, exporters took advantage of the sharp depreciation of the rand, and the trade surplus rose sharply. In dollar values, however, the trade balance remained almost flat as the benefits of the lower rand were offset by lower commodity prices

Foreign trade delegations began arriving in South Africa as international sanctions were being lifted in the early 1990s. Among its most dramatic turnabouts, South Africa sent a delegation to Moscow in mid-1991 to discuss strengthening trade ties, and for the first time, South African companies participated in a trade fair there.

South Africa's main trading partners in the mid-1990s are West European countries, the United States, and Japan. Members of the European Union (EU--see Glossary) receive roughly 40 percent of South African exports and provide one-third of South Africa's imports. In 1994 Switzerland, an important destination of South African diamonds, purchased the largest share of South African exports. Other markets for South African goods are the <"http://worldfacts.us/UK.htm"> United Kingdom, the United States, Japan, and Germany, in that order. Leading sources of South African imports are Germany, the United States, the United Kingdom, Japan, and Italy.

The EU accorded South Africa duty-free entry on most of its industrial exports in early 1995, and the two were negotiating terms for the purchase of South Africa's agricultural products. In 1996 the EU granted South Africa a qualified membership in the Lom� Convention, to take effect in 1997. The Lom� Convention gives African, Pacific, and Caribbean countries preferential access to European markets.

South Africa's trade with the United States increased rapidly after 1994. In 1995 South Africa imported roughly US$2.75 billion worth of United States exports, mostly manufactured goods. This represented more than half of all United States exports to Africa. South Africa exported roughly US$2.21 billion worth of metals, alloys, and precious stones to the United States in that year, representing the only significant source of African products other than petroleum.

South Africa's trade with the rest of Africa, the natural market for its manufactured goods and agricultural products, was carried on both openly and clandestinely until the early 1990s, because of the OAU's long-standing trade ban. As commercial ties expanded in the 1990s, African countries purchased about 10 percent of South Africa's exports; Zimbabwe, Zambia, and Mozambique were the largest African markets. Only Zimbabwe supplied significant exports (primarily tobacco) to South Africa.

Official South African trade statistics include all members of the Southern African Customs Union (SACU). SACU arose out of a customs agreement between South Africa and the territories that became Botswana, Lesotho, and Swaziland, dating back even before the Union of South Africa was formed in 1910. SACU was formally established when the agreement was renegotiated in 1969, and Namibia joined the customs union when it became independent in 1990. Goods move freely among SACU member states, which share a common accounting procedure and impose a common tariff structure. Each country contributes to a shared fund and receives a fixed portion of revenues based on its approximate share of production and consumption. In the mid-1990s, South Africa was considering either dismantling SACU or restructuring its participation in the alliance.

Investment

During the 1960s, foreign investment in mining and manufacturing grew steadily, reaching over 60 percent of total foreign investment by 1970. After that, foreign investment in South Africa stagnated and in some cases declined, increasing the government's reliance on loans rather than on equity capital to finance development. In 1984 loans constituted over 70 percent of South Africa's foreign liabilities, as compared with only 27 percent from direct investments. As a result, when most loans were cut off in 1985, available investment capital dropped sharply, and the economy suffered. In 1989 a substantial proportion of gross investment--R39 billion out of R49 billion--represented depreciation.

Although international opposition to South Africa eased in the early 1990s and bans on investment were lifted, investment as registered on the Johannesburg Stock Exchange (JSE) continued to decline and South African share prices on the JSE and on the London Stock Exchange were low. Industrial shares fared better than other sectors, but even the industrial index showed only sluggish growth through 1991. The overall JSE index improved slightly in 1992, and this trend continued after that. In 1993 the index rose by nearly 50 percent, although the volume of trade continued to be low by international standards. By late 1995, foreign purchases on the JSE had risen to more than R4.5 billion.

Foreign purchases were primarily in portfolio investment rather than direct investment through the mid-1990s. Most foreign direct investment was in the form of joint ventures or buying into existing enterprises. There was very little foreign direct investment in new enterprises, a trend that hit hardest in the struggling black business sector in South Africa. United States direct investment in South Africa rose during this time, from about US$871 million in 1992 to more than US$1.34 billion in 1995.

South Africans invested heavily in other African countries, even during the years of declining investments in South Africa. Tourist facilities were a favorite target for South African investments during the sanctions era. South Africans invested in tourist parks in Madagascar, for example, and in hotel development in the Comoro Islands and in Mozambique in the early 1990s. South African tourists, banned from many other tourist locales at the time, then shared in the benefits of these developments.

Balance of Payments

Before the debt crisis of 1985, South Africa's current-account position traditionally mirrored its business cycle, showing alternate surpluses and deficits. Whenever the economy grew faster than about 3 percent a year, local demand for imports increased, and when the economy slowed, imports decreased. In times of growth, when current-account deficits became too large, the government implemented restrictive monetary and fiscal policies in order to slow demand. After the 1985 debt crisis, however, South Africa had no choice but to run continuous current-account surpluses to meet repayment commitments. By the early 1990s, South Africa had become a capital-exporting nation because creditors wanted repayment on loans, and almost no new capital inflows other than replacement or rollover trade credits were available.

South Africa's current-account surplus, which had averaged about 3 percent of GDP in the late 1980s, increased sharply to exceed R6 billion in 1991, before declining slightly in 1993, according to the Central Statistical Service. In 1994 and 1995, import growth forced the current account into a deficit for the first time in more than a decade and officials estimated that the current-account deficit could reach R10 billion by 1997.

South Africa's gold and foreign currency reserves were hit hard by the need to repay the nation's loans in 1985 and 1986. At that time, gold holdings were sufficient to cover only about ten weeks of imports, and by the end of 1988 the reserve position had deteriorated to little more than six weeks of import cover. Although the capital account started to improve in 1990, and total gold and other foreign reserves rose to US$2.39 billion, this amount was still equivalent to the cost of only about six weeks of imports of goods and services. Net foreign currency reserves were still very low in the mid-1990s, at about R15.7 billion (about two months of import cover) in late 1995, and R10 billion (only about one month's import cover) in mid-1996.

South Africa

South Africa - Employment and Labor

Labor Force

Agricultural employment in the formal economy declined beginning in the 1970s, reflecting the trends toward mechanization in agriculture and increasing urbanization. During that time, the government also changed its definition of agricultural employment to exclude many farmers who owned small plots of land and produced primarily for subsistence or for local markets. Impressive growth in the services sector--including trade, finance, insurance, restaurants, hotels, and other business and social services--accounted for most of the jobs created during the 1980s and the early 1990s. The services sector also included the country's large domestic work force, estimated at more than 800,000 in the early 1990s.

The distribution of labor continued to change in the 1990s, in response to global and regional market factors and political change in South Africa. For example, despite the importance of mining revenues throughout the twentieth century, the mining industry employed a dwindling share of the work force--only about 7 percent in 1995, down from nearly 10 percent a decade earlier. More than 200,000 mineworkers had been laid off between 1987 and 1993, according to the industrial umbrella organization, the South African Chamber of Mines (see table 11, Appendix).

In 1994 and 1995, officials revised employment statistics to incorporate into national accounts employment in the former black homelands--which were home to almost one-half of the black South African population. With these revisions, the government estimated the national work force in mid-1995 at 14.3 million people. Unemployment statistics also were being revised to incorporate workers outside the formal economy. In 1995 the government estimated unemployment at 32.6 percent. Unofficial estimates ranged to 40 percent or higher, and officials acknowledged that the rate was as high as 47 percent in some rural areas.

Labor and Politics

Even before apartheid restrictions were imposed during the 1950s, government policies, rather than market principles, determined many aspects of labor-management relations. From the 1950s until the early 1990s, black workers suffered systematic discrimination. Apartheid legislation authorized the "reservation" of many skilled jobs and managerial positions for whites; qualified blacks were legally excluded from most senior-level jobs, but black education standards were so inferior to those for whites that few blacks were qualified for well-paid jobs. Even in equivalent job categories, blacks received lower wages than whites. Although white workers were divided in their racial attitudes throughout the apartheid era, they often opposed benefits for black workers that could threaten their own economic standing.

Throughout South Africa's industrial history, workers of all races organized to demand better wages and working conditions, but through the early 1980s, almost all union leaders were white. This was true in part because some employers refused to negotiate with black representatives and because of legal restrictions on black labor organizations. The Industrial Conciliation Act of 1924, which governed many aspects of labor relations, redefined the term, employee , to exclude most blacks; the definition was amended by the Native Labour (Settlement of Disputes) Act (No. 48) of 1953 to exclude all blacks, thereby depriving them of any labor law protection.

A century of South African industrial development had relied on an abundance of low-wage labor in order to ensure profits. But as the economic and social problems associated with implementing apartheid emerged, and as new technologies were developed during the 1960s and the 1970s, many industries chose to increase their capital stock--investing in sophisticated machinery and employing a few skilled technicians--rather than adopt labor-intensive methods that would require training and managing a large work force. This trend toward capital-intensive operations probably resulted in lower labor costs and increased productivity. At the same time, it contributed to the country's soaring unemployment and spreading poverty, which fueled resentment and raised the costs to the government of preserving apartheid.

Increasing poverty among blacks, along with entrenched workplace discrimination and the marginalization of blacks from national politics, caused black workers' organizations to become increasingly politicized in the 1960s and the 1970s. They provided a legal arena in which political grievances could be aired. By the early 1970s, there were twenty-four African workers' organizations with a combined membership of nearly 60,000. Their increasing militance and a series of strikes that began in <"http://worldfacts.us/South-Africa-Durban.htm"> Durban in 1973 finally persuaded the government to begin reassessing its restrictions on black labor.

The government-appointed Commission of Inquiry into Labour Legislation (Wiehahn Commission) recommended the legal recognition of these fledgling unions, in part to exercise stronger control over black workers. As a result, Parliament enacted the Industrial Conciliation Amendment Act of 1979, recognizing black unions and extending labor law protection to them for the first time.

Under this legislation, many black workers had the legal right to bargain collectively with their employers in the 1980s, and, when legally required mediation procedures failed, they had the right to strike. They exercised these rights aggressively, using both legal and illegal labor actions to press their workplace demands and to protest against apartheid. Black union membership of about 500,000 in 1980 grew to more than 2.5 million in 1990. By the early 1990s, almost 70 percent of all union members in South Africa were black, and more than one-third of all employees in mining, industry, and commerce were union members.

The largest organizing effort among black workers resulted in the establishment of the Congress of South African Trade Unions (COSATU) in 1985. An umbrella organization of more than a dozen unions, COSATU had a total of 1.3 million members by 1990. COSATU affiliated with the African National Congress (ANC) and the South African Communist Party (SACP), both of which were banned. In addition to winning major financial concessions for its members, COSATU became the effective mobilizing arm of the ANC and the SACP. COSATU's two largest labor rivals were the National Council of Trade Unions (Nactu), a blacks-only confederation that rejected multiracial membership, and the United Workers' Union of South Africa (UWUSA), which was affiliated with the Zulu-based Inkatha Freedom Party (IFP).

Union militancy contributed to labor successes. Real wages for black manufacturing workers rose an average of 29 percent between 1985 and 1990. Overall wage increases, outside agriculture, rose by 11 percent during 1985 alone, and this annual rate of increase accelerated to 17 percent in 1990.

By the early 1990s, however, both labor and government leaders were alarmed over the violence that had erupted during some labor actions. Violence had been part of labor's history of confrontation; some employers used force to suppress labor militancy, and strikers often used violence against nonstriking workers. But the scale of labor violence increased sharply, and the often-repressive police response also contributed to the destruction. In one of South Africa's most violent strikes--at a gold mine near Welkom, in the Orange Free State--more than eighty miners died in clashes between strikers and nonstrikers in 1991. Like many other violent strikes, this clash initially concerned economic issues, but it escalated because of political, ethnic, and racial grievances.

In the early 1990s, COSATU's largest and most militant unions were the National Union of Metalworkers of South Africa (NUMSA) and the National Union of Mineworkers (NUM), each with more than 300,000 members. NUMSA's actions cost automobile manufacturers and related industries more workdays than any other union in 1993 and 1994. NUMSA threatened even more costly labor actions in the future if auto workers' wage increases did not accelerate.

Three other large unions led the labor movement in the number of strikes called during the early 1990s. These were the National Education, Health, and Allied Workers' Union; the Transport and General Workers' Union; and the Food and Allied Workers' Union. Even workers in small companies were becoming more militant; during the early 1990s, more than 40 percent of all strikes involved 200 or fewer employees.

In 1994, with 194 legally recognized labor unions in the country, the government extended labor law protection to domestic workers for the first time. Initially, this meant recognizing their 70,000-member domestic workers' organization as a union and granting its members rights such as sick leave and on-the-job lunch breaks for the first time. Several COSATU-affiliated unions launched membership drives among domestic workers in 1995 and 1996, and they promised to work for the introduction of a legal minimum wage and access to literacy classes and other forms of vocational training for the large domestic work force.

Business and labor leaders agreed that confrontations with labor contributed to rising business costs during the 1980s and the early 1990s. The number of workdays lost to work stoppages rose from 175,000 in 1980 to 5.8 million in 1987. Lost workdays per year declined in the late 1980s, but labor actions still extracted high costs from business by slowing operations, by intimidating investors, and by destroying property. Among the most costly actions were those by transport workers, whose services were vital to all sectors of the economy. South Africa's ability to compete globally was also affected by labor militancy, in part because, officials estimated, a worker's cost to employers in 1994--including wages and benefits--averaged US$5 an hour in South Africa, or double the average labor costs in Mexico or Brazil and more than five times the average labor cost in China.

Education and Employment

The Bantu Education Act (No. 47) of 1953 helped pave the way for labor strife in the 1980s and the 1990s by institutionalizing a plan to restrict black workers to low-paid jobs through deliberately inferior education (see Education, ch. 2). During the 1960s and 1970s, per capita spending on white pupils was about ten times greater than educational spending on black pupils. By the early 1990s, the gap had been reduced by half, but in general, standards for teacher qualifications and facilities in black schools continued to be inferior to those in white schools.

The economic costs of implementing and enforcing apartheid sky-rocketed in the 1980s. Black poverty deprived South African businesses and manufacturers of a sizable domestic market. Even more ominous for the future, it became clear that South Africa lacked the necessary skilled personnel to maintain growth in its manufacturing enterprises, and millions of South African workers were unqualified for anything but the lowest-paid jobs.

South Africa's Education Foundation, a respected private research organization, estimated in 1991 that unemployment among unskilled and uneducated workers would increase during the 1990s, and that at least 500,000 skilled jobs and managerial positions were likely to remain unfilled, unless foreign workers were hired to fill them. The government's National Manpower Commission confirmed these bleak estimates in 1992, adding to the political pressure to end apartheid, especially in education.

The interlinked challenges of economic recovery and educational reorganization presented the new government with an intractable dilemma in 1994. Educational reform would require significant increased spending in an expanding economy, but, at the same time, economic growth would require a more highly skilled work force and educational reforms. The government approach to these challenges was deliberate and careful, and attempted with foreign donor assistance to convince those who were uneducated and unemployed that some of the benefits of ending apartheid would be seen during their lifetime. Officials sought international assistance in providing on-the-job training for workers in many industries and in speeding the pace of reforms, but by late 1995, only a few new programs were being implemented.

Women constituted only about 36 percent of the labor force in the formal economy in the mid-1990s, according to official estimates. Women of all races generally held lower-paid jobs than men, and they were paid less in comparable jobs. During the apartheid era, white women most often worked in service industries and clerical positions; a few white women held supervisory jobs or government offices. Black women dominated the large domestic work force; some worked in clerical positions or in temporary jobs, often in agriculture. Women managed most agricultural production in the former homelands and rural areas where men frequently left home to work in cities or in the mines.

Foreign workers have been an important segment of the industrial work force. In 1994 the government estimated that between 1 million and 1.2 million workers from Botswana, Lesotho, Malawi, Mozambique, and Swaziland were legally employed in South Africa--most on temporary contracts in the mines or urban industries. In addition, as many as 2 million foreign workers were believed to be self-employed or working illegally in South Africa in 1995, according to minister of home affairs Gatsha Buthelezi. Foreign workers were sometimes subject to immediate layoffs or discriminatory treatment at the hands of management or fellow employees, and in 1996, they faced the threat of new restrictions on their being hired.

South Africa

South Africa - Gold and Diamonds

South Africa's modern history has often been dated from the first commercial mining of diamonds and gold in the 1870s and the 1880s, when the region became a magnet for European investment. Mining in the region predated European arrivals by several centuries, however, as the new government recalled in its minerals policy statements in 1994 and 1995. Iron mining and smelting sites in the northeast were used as much as 1,700 years ago; copper was mined south of the Limpopo River more than 1,000 years ago; and historians describe early mining activities in the Witwatersrand (literally, "Ridge of White Waters" in Afrikaans, commonly shortened to Rand) area, which attracted miners from elsewhere in Africa as early as the thirteenth century.

Soon after the European rush for gold and diamonds in the late nineteenth century, mining operations expanded to include more than two dozen other minerals. By the mid-twentieth century, South Africa was the world's largest producer or second largest producer of gold, diamonds, platinum, chromium, manganese, and vanadium; and it ranked high among producers of coal, iron ore, uranium, copper, silver, fluorspar, asbestos, and limestone.

Clusters of minerals occur in five major mineral complexes--the Bushveld, Transvaal, Witwatersrand, Northern Cape, and Western Cape complexes. Whereas most mines were originally funded and managed from European centers, by the 1970s most were managed by South Africa's large diversified corporations, which controlled assets around the world.

Despite its importance in export revenues, the mining industry contributes only about 9.6 percent of GDP in the mid-1990s, down from an average of nearly 15 percent during the 1980s. The mining sector had been gradually surpassed by manufacturing and financial services both in terms of national output and labor force participation. The mines still account for a greater share of export revenues than any other single economic activity in the 1990s.

The mineowners' association, the South African Chamber of Mines, was formed in 1889 to represent the industry in dealings with the government. In the 1990s, the Chamber of Mines includes six major mining finance houses, with thirty-six gold mines, twenty-two coal mines, and sixteen diamond, platinum, antimony, asbestos, manganese, lead, and copper mines. Together they account for 85 percent of South Africa's mineral output. The Chamber of Mines negotiates labor concerns on behalf of mineowners, administers training programs for mineworkers, trains mineworkers in rescue and safety procedures, oversees pension and benefit funds, coordinates research programs, and refines and processes some minerals before sale.

Gold, first mined by Europeans in 1886 near Johannesburg, soon became the most important sector in the mining industry. South Africa has almost one-half of the world's known gold reserves, located primarily in the Rand in what was once a prehistoric lake. Gold is also mined in the Free State. Industry analysts estimated in the early 1990s that South Africa had produced more than 43,000 tons of gold in the past century, and that at least that amount remained in reserves.

Gold occurs in seams embedded in rock strata, sometimes more than a mile below the surface. Deep shafts must be sunk, large amounts of rock must be blasted and brought to the surface, and the rock must be crushed and chemically separated from the gold. Some gold mines then pump processed mine tailings underground to serve as backfill. Mining and processing are costly, especially in deposits where the gold seam is extremely thin compared with the surrounding rock. For example, in the early 1990s industry analysts estimated that only 5.6 grams of gold were extracted from each ton of ore excavated. Nevertheless, the industry has consistently earned high profits and has accounted for one-third to one-half of the world's gold production in the 1980s and 1990s. The country's fifty-seven operating gold mines produce between 600 and 620 tons of gold per year, representing almost 30 percent of the world production. Gold production in 1994 and 1995 fell below 600 tons for the first time since the 1960s.

Gold mining companies traditionally kept expenses to a minimum by paying low wages. Gold mines became known for their often exploitative labor policies, including the use of migrant workers on limited contracts, strict worker control in company compounds, and difficult working conditions. Labor costs were especially important in determining profits, because the price of gold was set at US$35 per ounce through the 1960s. After the price of gold was allowed to float in 1968, it gradually rose in response to market demand, and companies could afford to produce less and still earn even greater profits. They then began to expand operations into so-called low-grade-ore mines. The volume of South African gold production fell, and gold prices skyrocketed to an all-time high of US$613 per ounce in 1980.

During the 1980s, the dollar price of gold fluctuated widely, but because of devaluations of the rand, the rand price of gold generally advanced. When gold prices fell in 1989, the industry found that many of the low-grade-ore mines were no longer profitable. As the average value of the rand increased against the dollar, overall industry profits declined, and nearly half of the gold mines in operation were running at a loss. At least 40,000 gold mine workers were laid off in 1990, according to government estimates, and layoffs continued through 1993.

During 1994 all major gold mining houses except Johannesburg Consolidated Investments (JCI) were reporting lower profits as output fell in response to labor unrest and other factors. Randgold closed its Durban gold mine in mid-1994, owing primarily to poor grades of available ore, and other mines were threatening to close within the next few years unless profits improved.

In 1994 JCI began to "unbundle" its corporate structure by dividing into three separate companies. Anglo American, JCI's largest shareholder (with 48 percent), retained its platinum and some diamond interests in one company, Anglo American Platinum. JCI's gold mining and other industrial interests were separated into two companies, JCI Limited and Johnnies Industrial Corporation. Shares for these companies are being offered to the public, primarily as a vehicle for black investment and broadening participation in this sector of the economy.

Diamonds and Platinum

South Africa's diamond mining industry dates back to 1867, when diamonds were discovered near Kimberley, now in the Northern Cape. The Kimberley diamond fields, and later discoveries in Gauteng, the Free State, and along the Atlantic coast, emerged as major sources of gem-quality diamonds, securing South Africa's position as the world's leading producer in the mid-twentieth century. (Rough diamonds were produced in larger quantities in Australia, Zaire, Botswana, and Russia.) Through 1991 most of South Africa's diamonds were mined at only five locations, but a sixth mine, Venetia--in the Northern Cape--opened in 1992 and was expected to become a major diamond producer later in the decade.

The De Beers Consolidated Mines Company controlled most diamond mining in South Africa and influenced international trade through a diamond-producers' alliance, or cartel--the Central Selling Organisation. The cartel enabled diamond producers to control the number of gems put on the market and thereby to maintain high prices for gem-quality diamonds. The cartel was able to react to marketing efforts outside its control by temporarily flooding the market, and thereby driving down the price paid for an outsider's product.

Diamond prices fluctuated in the early 1980s, but the industry continued to expand even in the face of international recession and the discovery of the diamond-like cubic zirconia. Dollar prices for diamonds improved in 1985 but dropped again in 1987, requiring De Beers to support the market by withholding diamonds from dealers. Thus, annual production of more than 10 million carats in 1985 and in 1986 dropped to 9.1 million in the late 1980s. Gem and industrial diamond output in 1994 was 10.8 million carats, or roughly 11 percent of world production.

In 1990 the Soviet Union signed and openly acknowledged a contract to sell its diamonds (estimated at a value of about R13 billion over a five-year period) exclusively through De Beers. The action marked the first time in nearly thirty years that the Soviet Union had openly associated itself in commodity dealings with South Africa. Later that year, De Beers announced a loan of R2.63 million to the Soviet Union, against the security of an equivalent amount in diamonds.

Platinum group metals (platinum, palladium, ruthenium, rhodium, iridium, and osmium), which occur together in ore seams and are mined in one operation, were discovered in South Africa in 1924. Most of the estimated 59,000 tons of reserves are in the Bushveld complex of minerals; some concentrations are also found in the Transvaal and the Witwatersrand complexes. Platinum is used in automobile catalytic converters to reduce fuel emissions, as a catalyst in industrial processes, and in making jewelry.

South Africa is the world's leading producer of platinum. Its output of about ninety tons in 1993 accounted for almost 49 percent of world production. South Africa's platinum mines have profited, in particular, from the sale of rhodium, which sold for almost US$6,000 an ounce in the early 1990s, but world market prices fell after that.

South Africa

South Africa - Ferrous and Nonferrous Metals

South Africa has the world's largest known deposits of chromium, manganese, and vanadium, as well as significant deposits of iron ore, antimony, copper, nickel, lead, titanium, fluorspar, zinc, and zirconium. Most of these metals are exported unprocessed, with the exception of iron ore, which is also used in the local steel industry.

South Africa's chromium deposits contain about 72 percent of the world's reserves, most of it in the Bushveld complex of minerals. In 1993 its mines produced 2.8 million tons of chromium, or about 32 percent of world output--down from 4 million tons in 1989; production recovered, to roughly 3.6 million tons in 1994. Used primarily to produce stainless steel, chromium was one of South Africa's export successes in the 1980s; prices reached US$0.70 per pound but dropped sharply when producers tried to undercut each other in 1990. The government used various incentives, including export subsidies and power rebates to those who produced alloys for export, to encourage production. About one-third of chromium produced in 1993 was exported, much of it to the United States and Japan.

South Africa contains the largest known deposits of manganese ore in the world. Its reserves of at least 12.5 billion tons, mostly in the Northern Cape mineral complex, constitute 75 percent of the world total. Manganese is essential in the manufacture of iron and steel, and more than 90 percent of South Africa's manganese is used for this purpose. During the late 1980s, production fluctuated slightly, but it remained between 3 and 4 million tons per year, while prices generally rose, nearly doubling in 1989. By the end of 1991, however, South African producers were forced to reduce prices in response to a weak international market. In 1994 more than 2.8 million tons of manganese ore were produced, roughly 17 percent of world output.

South Africa produced between 25,000 tons and 30,000 tons of vanadium a year in the early 1990s, almost 45 percent of the world's supply. Its estimated 5.4 million tons constitute one-third of world reserves. The world's largest producer is a South African firm, Highveld Steel and Vanadium. The year 1989 set a record in terms of both production and exports for South Africa, but when world steel production declined, demand for vanadium dropped and prices plummeted, forcing one vanadium producer in South Africa to close down. Prices again surged in early 1995, and Highveld Steel and Vanadium expected earnings to more than double in 1995, compared with 1994. Vanadium is used in manufacturing steel, to provide tensile and torsional strength and resistance to abrasion.

South Africa is the largest producer of iron ore on the continent, with reserves estimated at more than 9.4 billion tons. Iron is mined in the Northern Cape, the Bushveld, and the Transvaal complexes, and in KwaZulu-Natal. More than 29.3 million tons of iron ore, roughly 3 percent of world output, were produced in 1993. Almost half of that amount was used in the steel industry. A record 19.6 million tons were exported in 1994, much of it to Japan.

Although small by world standards, South Africa's steel manufacturing industry is the largest on the continent. Steel production increased dramatically in the 1970s following the development of port facilities at Saldanha Bay and the associated rail line connecting it to the high-grade Sishen ore deposits in the Northern Cape. Projections for the use of steel in local construction were increasing as the government began to implement its Reconstruction and Development Programme in 1994. Government plans to implement stricter automobile emission standards promised another boost to the steel manufacturers, who produce stainless steel for use in catalytic converters.

South Africa has only about 2 percent of the world's known copper reserves, with the largest deposits in the Transvaal complex in the northeast. Copper is also mined in the Northern Cape and the Western Cape. Mining costs are high, because of the high concentration of other minerals in copper ore. At the country's largest copper mine, at Phalaborwa, production decreased in early 1993, in part because of flooding that brought work in the mine to a standstill. Later that year, the mine owners received government permission to institute a seven-day workweek, and the mine increased its work force to extend operations. Nationwide copper production, nonetheless, fell from more than 176,000 tons in 1992 to about 165,000 tons in 1994, and copper exports decreased steadily, to roughly 82,000 tons in 1994.

South Africa

South Africa - Energy Resources

Fortunately for South Africa, it is well endowed with coal and uranium for energy production, because the country apparently has no significant petroleum reserves and was officially cut off from oil imports from 1979 to 1993. Oil accounted for about 20 percent of primary energy until the early 1970s, and the government had stockpiled an estimated 18 million tons of imported oil by 1979. Although unreported oil shipments continued during the sanctions era, many industries switched to the use of coal to power generators.

Imported crude oil is processed at four refineries--two in Durban, one near Cape Town, and one in Sasolburg, southwest of Johannesburg--with a combined distillation capacity of about 401,000 barrels per day, or 21.5 million tons per year. In 1994 the government invited international investment in oil and gas exploration for the first time since the 1960s. Minister of Mines and Energy Roelof "Pik" Botha announced the plan, saying that the government needed domestic energy sources for reconstruction and development. The state-owned Southern Oil Exploration Corporation (Soekor) also needed the investment capital to develop nine recently discovered small oilfields off the western Cape coast, and several other small wells near Mossel Bay.

South Africa's coal reserves, most located in the Witwatersrand and in northern KwaZulu-Natal, were estimated to be between 60 billion and 100 billion tons, enough to maintain early-1990s levels of domestic use and exports through much of the twenty-first century, according to industry analysts. The coal occurs in seams, often less than one hundred meters below the surface, and hence it is relatively easy and inexpensive to mine. Most coal used locally is burned in generators at electricity plants; it is also used for coking in the steel industry.

During the 1980s, Eskom, the government's electric power utility, was the coal industry's major customer. Eskom purchased about two-thirds of coal output, which fluctuated between 159 million and 176 million tons from 1984 to 1989. In the early 1990s, the coal industry produced more than 180 million tons of coal each year, of which at least 47 million tons were exported. The industry employed more than 76,000 people. Eskom helped to finance coal mining operations and guaranteed coal prices to ensure the mining companies' return on investment.

International sanctions in the 1980s affected the coal industry in two ways. United States and European importers reduced their demand for South African coal exports, and South African homes and industries increased their use of coal in place of oil and other imported fuels. But in 1991 and 1992, as most sanctions were being lifted, the South African coal industry found itself facing stiff competition from emerging low-cost producers, such as Indonesia, Colombia, and Venezuela.

South Africa is ranked fifth in world uranium reserves in the 1990s with recoverable reserves estimated at nearly 180,000 tons. Uranium is produced as a by-product of gold in some mines of the Witwatersrand, and as a by-product of copper in the Phalaborwa mines of the far northeast of the country. Since 1968 all uranium produced in South Africa has been processed and marketed by the Nuclear Fuels Corporation of South Africa, a private company owned by the gold mines that produce uranium. Output declined in the late 1980s, as operating costs increased and uranium prices hit a thirteen-year low. Uranium output averaged nearly 2,000 tons a year in the early 1990s. Exports of uranium declined from roughly 1.3 percent of total export revenues in the 1980s to roughly 0.2 percent in the early 1990s.

South Africa produced substantial, but undisclosed, amounts of highly enriched uranium (HEU) in its nuclear weapons program, until that program was dismantled in the early 1990s. In 1994 the government, although a signatory to the Nuclear Nonproliferation Treaty (NPT), maintained stockpiles of HEU to produce industrial and medical isotopes, or to downgrade for use in power reactors.

The government has sponsored extensive research and development in the production of synthetic fuels, and South Africa became a pioneer in extracting oil and gas from coal in the 1960s and the 1970s. The South African Coal, Oil, and Gas Corporation (SASOL) established three facilities between 1950 and 1982 and is considering building a fourth plant in the late 1990s. After 1979, when SASOL shares were offered to the public, most of the corporation was run as a private company, with government assistance in constructing new facilities. Officials did not release production figures to the public, but the SASOL plants were believed to be supplying about 40 percent of South Africa's liquid fuel needs in the early 1990s. The corporation received tariff protection when the price of oil dropped below US$23 per barrel and paid into a fuel equalization fund when prices exceeded US$28.70 per barrel. In addition to liquid fuels, the company produces chemicals, fertilizers, and explosives.

South Africa

South Africa - Agriculture, Forestry, and Fishing

South Africa has a broad and well-developed agricultural sector and is a net food exporter in most years. Agricultural production, reflecting the sector's increased mechanization and commercialization, increased throughout the twentieth century. As mining and manufacturing industries expanded at a faster rate, however, agriculture's share of GDP declined from about 20 percent in the 1930s to about 12 percent in the 1960s and to less than 7 percent in the 1990s. The impressive range of crops--including almost every kind of food crop, as well as fibers, medicinal herbs, and components of cosmetic fragrances--reflects the country's diverse terrain, climate, and ecology. The agriculture sector provides for most domestic needs, and South Africa exports corn (maize), wool, sugar, peanuts (groundnuts), tobacco, and other farm products (see table 13, Appendix).

About 15 million hectares, or 12 percent of the land area, is under cultivation, and about 10 percent of this is under intensive irrigation. Agricultural production has suffered from cyclical droughts since the seventeenth century, and probably even earlier. Generally, the best rainfall is in the Western Cape and along the coast of KwaZulu-Natal. The rest of the country is relatively dry, and much of the arid Northern Cape is suitable only for grazing sheep (see fig. 16).

Under apartheid-era legislation until 1994, white farmers, who owned only 2 percent of the farms, controlled more than 80 percent of the arable land. White-owned farms averaged 1,300 hectares in size, whereas black farms averaged 5.2 hectares. Because nearly 80 percent of the population was restricted to less than 20 percent of the land, most black farmland was severely overused, leading to soil erosion and low productivity. As a result, many black farm families were supported by at least one person engaged in nonagricultural employment. The need for agrarian reform--broadening land ownership and increasing overall productivity--was one of the most serious issues facing the government in the mid-1990s as the inequities of apartheid were being reduced.

The government regulated both the production and the marketing phases of commercial agriculture through the early 1990s. Government-appointed marketing boards purchased important consumer crops--such as milk, corn, and most cereals--at fixed prices and sometimes subsidized consumer prices as well. Crops destined for further commercial processing--such as tobacco, wool, oilseeds, and dried fruit for export--also had to be sold through a marketing board, although producers generally received market value for these crops after the board sold the pooled national output. The only crops freely traded were fruits and vegetables sold at local markets. The government began to reduce the role of the marketing boards in the mid-1990s, and officials hoped to eliminate them entirely by the end of the decade.

Agriculture suffered serious effects from the chronic high inflation and debt that eroded other sectors of the economy in the early 1990s. Input costs (fertilizers, machinery, etc.) rose by 10 to 20 percent in some years; farm debt had reached R17 billion in 1992, more than four times the amount owed in 1980. Farmers also had witnessed deterioration in the terms of trade in farm products; for example, the amount of corn that had to be sold to buy a farm tractor increased from about 191 tons in 1984 to 347 tons in 1990. Moreover, South Africa faced reduced harvests as a result of severe drought in the early 1990s, forcing the government to spend vital foreign exchange on food imports.

Crops

Cereals and grains are South Africa's most important crops, occupying more than 60 percent of hectarage under cultivation in the 1990s. Corn, the country's most important crop, is a dietary staple, a source of livestock feed, and an export crop. Government programs, including generous loans and extension services, have been crucial to the country's self-sufficiency in this enterprise. Corn is grown commercially on large farms, and on more than 12,000 small farms, primarily in North-West, Mpumalanga (formerly, Eastern Transvaal), Free State (formerly, the Orange Free State), and KwaZulu-Natal provinces. Corn production generates at least 150,000 jobs in years with good rainfall and uses almost one-half of the inputs of the modern agricultural sector.

Corn production exceeds 10 million tons in good years; owing to regional drought in the early 1990s, however, production fell to just over 3 million tons in 1992, and roughly 5 million tons of corn were imported, at a cost of at least US$700 million. Both domestic and imported corn was shipped to neighboring countries to help ease the regional impacts of the drought. The drought eased in 1993, and officials estimated the 1994 harvest at approximately 12 million tons. Below-average rainfall in late 1994 again threatened to reduce corn output in 1995, and officials expected to import some 600,000 tons of corn in that year. Plentiful rain in late 1995 provided for a bumper crop in 1996.

Wheat production, which is concentrated in large, highly mechanized farms, also increased after World War II. Wheat cultivation spread from the western Cape where rainfall is fairly reliable, to the Orange Free State and the eastern Transvaal, primarily in response to rising consumer demand. But wheat harvest volumes vary widely; for example, roughly 2.1 million tons were produced in 1991 and only 1.3 million tons in 1992. Production in the early 1990s failed to meet local demand for about 2.2 million tons per year. Wheat imports in 1992, for example, cost more than US$5 million.

Other small grains are grown in localized areas of South Africa. For example, sorghum--which is native to southern Africa--is grown in parts of the Free State, as well as in the North-West and the Northern provinces, with yields often exceeding 200,000 tons. Sorghum has been used since prehistoric times for food and brewing purposes. Barley is also grown, primarily in the Western Cape. Nearly 300,000 tons of barley were produced in 1995.

South Africa produces peanuts, sunflower seeds, beans, and soybeans. Annual production of these crops varies significantly from year to year, although South Africa is usually able to meet domestic vegetable-oil needs and generate some exports. Plentiful rains in late 1995 meant increased harvests of these crops in 1996, compared to 1994 and 1995.

Fruits, including grapes for wine, earn as much as 40 percent of agricultural export earnings in some years. (Fresh fruit finds a good market in Europe because it matures during the northern hemisphere's winter.) Deciduous fruits, including apples, pears, and peaches, are grown primarily in areas of the Western Cape and the Eastern Cape, where cold winters and dry summers provide ideal conditions for these crops. Almost 1 million tons of deciduous fruits were sold fresh locally or were exported each year in the early 1990s.

Pineapples are grown, primarily in the Eastern Cape and KwaZulu-Natal. Tropical fruits--especially bananas, avocados, and mangoes--are also grown, especially in the northeast and some coastal areas. More than half of citrus production is exported in most years. South Africa exported 40 million cartons of citrus fruit in 1994, earning roughly R1.34 billion, according to industry sources.

More than 1.5 million tons of grapes are used domestically in South Africa's renowned wine industry, which dates back to the seventeenth-century vineyards introduced by French Huguenot immigrants. More than 100,000 hectares of land are planted in vineyards, centered primarily in the Western Cape. Smaller vineyards are also found in the Northern Cape, Free State, and Northern Province. One of the noticeable signs of the end of international sanctions against South Africa was a dramatic increase in worldwide demand for South African wines in 1994 and 1995.

Sugarcane is also an important export crop, and South Africa is the world's tenth largest sugar producer. Sugarcane was first cultivated in mid-nineteenth-century Natal. Production is still centered there, but sugar is also grown in Mpumalanga, where irrigation is used when rainfall is inadequate. Land under sugar cultivation has steadily increased, and the industry estimated that it produced more than 16 million tons of sugarcane in 1994.

Livestock

From the earliest times, livestock raising has been the backbone of South African agriculture. The large sheep herds of the Khoikhoi peoples on the Cape peninsula were admired and later appropriated by European settlers in the seventeenth century. The early Xhosa and Zulu societies were well known for the value they placed on cattle even before Europeans began cattle farming in the region in the seventeenth and the eighteenth centuries. The Europeans brought new breeds of sheep and cattle to southern Africa, and from these various stocks emerged a thriving commercial livestock sector. Cattle, estimated at more than 8 million head, are found in areas throughout the country; sheep (nearly 26 million) graze primarily in pastures stretching across the Northern Cape, Eastern Cape, western Free State, and Mpumalanga.

The livestock sector produces an estimated 900,000 tons of red meat each year. For example, the industry reported that nearly 2 million head of cattle were slaughtered in 1994. Poultry and pig farms are also found across the country, although most large commercial farms are near metropolitan areas. The industry estimates that farmers own roughly 1.2 million pigs. The poultry industry, with at least 11 million chickens, reportedly produced more than 500,000 tons of meat in 1994. In addition, a small but growing ostrich-raising industry produces plumes, skins, and meat.

Wool is an important agricultural export. South Africa became the world's fourth-largest exporter of wool by the late 1940s, and is consistently among the world's top ten wool producers, with an output of about 100,000 tons in most years. Approximately 60 percent of South African sheep are Merino, which produce high yields of fine wool. The newer, locally developed Afrino breed is a wool-mutton breed adapted to arid conditions. Most wool is exported, but the domestic wool-processing industry includes wool washing, combing, spinning, and weaving.

Dairy farming is found throughout the country, especially in the eastern half, and is sufficient to meet domestic needs, barring periods of extreme drought. The predominant dairy breeds are Holstein, Friesian, and Jersey cows. The milk price was deregulated in 1983, resulting in lower prices, but industry regulations continued to enforce strict health precautions. In a system dating to 1930, all wholesale milk buyers pay a compulsory levy to the National Milk Board. This money is pooled in a stabilization fund and used to subsidize dairies manufacturing butter, skim milk powder, and cheese when a surplus exists. Fresh-milk dairies objected in the early 1990s, however, and several of them were involved in litigation to have the levy lifted.

Forestry

South Africa's forests cover only about 1 percent of the country's total land area. The country never was heavily forested, and by the early twentieth century, humans had destroyed much of its natural wood resources. After World War I, the government began to establish forest plantations to grow trees for commercial use. Located primarily in the northeast and in KwaZulu-Natal, most timber plantations produce pine and eucalyptus trees. Although most wood is used for fuel, industrial uses include construction and mine props, paper products, and a variety of agricultural applications.

The country's pulp and paper industries expanded operations for export during the 1980s. About half of all commercial South African sawlogs came from state-owned plantations for use in the pulp and paper industries and in the mines. The two major paper manufacturers, Mondi (owned by Anglo American) and Sappi (owned by Gencor), spent approximately R3 billion to expand their operations during the 1980s, and in 1991 Sappi expanded even further by purchasing five specialty paper mills in Britain. Sappi was then ranked as the eleventh largest company in South Africa.

South Africa's forests produce more than 14.5 million cubic meters of unseasoned timber annually. Several hundred thousand people are employed on timber farms and in more than 240 wood-processing factories. Although South Africa could supply most of its own needs for wood and wood products, the timber industry faced problems on the export market in the early 1990s. The industry had relied on exports of pulp and paper, but falling world prices threatened profitability. In the mid-1990s, the government's Reconstruction and Development Programme calls for more than 1 million housing starts during the decade, and the timber industry is promoting the use of timber-frame houses to increase its domestic market share under this program.

Fishing

South Africa has a large commercial fishing industry. More than 4,500 commercial fishing vessels licensed by the Department of Environment Affairs work its nearly 3,000-kilometer coastline from Mozambique to Namibia. The industry employs more than 22,000 people. The principal species of shoal fish caught by coastal trawlers are anchovy, pilchard, and herring. Deep-sea trawlers bring in hake, barracuda, mackerel, monkfish, sole, and squid. The most important species caught by handline are tuna, cod, barracuda, silverfish, salmon, and yellowtail. Cape rock lobsters are harvested along the west coast, and several hundred other species, along the east and the south coastline. The total catch in the early 1990s was between 500,000 and 700,000 tons each year.

South Africa exports about 80 percent of its fish in most years. Much of the rest is consumed domestically or processed into fish meal and fish oil. The industry hit a peak in the 1960s, with a catch of more than 1 million tons in 1968, but declined after that, in part because local waters had been overfished and marine resources were severely depleted. Recorded fish harvests also declined in the early 1990s after South Africa relinquished control over its former fishing territory off the coast of Namibia.

The government enforces strict conservation measures, including fishing quotas and closed seasons, to prevent overfishing and to protect the fishing industry. Since 1977 it has enforced an exclusive South African fisheries zone of 200 nautical miles. In 1983 the government reduced foreign fishing quotas, and in the early 1990s it began scaling down the rights of five foreign countries still fishing in South African waters--Japan, Israel, Spain, Portugal, and the Republic of China (Taiwan).

Much of the fishing near large ports, such as Cape Town, Durban, Mossel Bay, and Port Elizabeth, is controlled by Portnet, the national port authority, in the mid-1990s. The provincial governments supervise some harbor facilities and provide marine conservation inspectors at official fishing harbors, including Saldanha Bay, Hout Bay, and at least ten others.

South Africa

South Africa - Manufacturing

Although agriculture and, later, mining historically have dominated South Africa's economy, manufacturing became the most productive sector in the early twentieth century. Until then, manufacturing industries--wine making, tanning, and tallow production--were entirely derived from agriculture and were intended primarily for the domestic market. Then as the mining sector expanded, new industries arose to meet growing urban demands for processed foods, clothing, and footwear. Until the 1920s, the country still depended heavily on imports, ranging from mining equipment to textiles and clothing. The government encouraged local manufacturing through the establishment of state corporations to produce electricity (in 1922) and steel (in 1928) for manufacturers' use and through tariffs designed to protect local industry.

From 1936 to 1946, manufacturing output grew by 6 percent per year, and growth jumped even more dramatically after 1948, when the government tightened its control over imports. Annual manufacturing output increased an average of 13.3 percent in the early 1950s. Since then, most growth in manufacturing has been in heavy industry, led by the local iron and steel industry, but by the early 1990s, the manufacturing sector as a whole was relatively diverse (see table 14, Appendix).

As manufacturing activity expanded, the sector became increasingly capital intensive despite the availability of a large labor pool in South Africa. The government encouraged capitalization through tax incentives and led such investment through the state corporations. During the 1970s, manufacturing enterprises steadily increased their fixed-capital stock, leading to surplus capacity by the mid-1980s. In particular, massive extensions at the government's power utility, Eskom, as well as the establishment of SASOL synthetic fuel plants and the Koeberg nuclear power station, represented significant capital intensification but only a minimum labor requirement. Furthermore, most private manufacturers moved toward machinery and technology to cut labor costs, both to keep up with foreign producers and to avoid confronting an increasingly militant, organized labor force. Nevertheless, by the mid-1980s the government recognized that much of the responsibility for creating jobs for new entrants to the labor market would necessarily rest on the manufacturing industries, and for this reason, government programs in the 1990s were beginning to encourage more labor-intensive manufacturing enterprises.

Because of the general economic downturn of the 1980s, chronic high inflation, and the debt crisis--which hit capital-intensive manufacturing especially hard--manufacturing output slumped during the decade from an overall annual increase of 3 percent in 1981 to a decline of 2.5 percent in 1991. The biggest decreases were in textiles, footwear, industrial chemicals, and nonferrous base-metal industries. The poor performance in these industries reflected a weakness in local demand and the drawing down of inventories because of higher interest rates. Furthermore, average labor productivity in nonagricultural sectors was only about 2 percent higher in 1990 than in 1980, despite a major increase in capital per worker during the decade. Manufacturing sales increased after 1990, largely the result of improved business and investor confidence, increased domestic and export sales, and a decline in stocks of finished goods. In the early 1990s, manufacturing contributed more than 22 percent of total economic output.

Manufacturing industries are heavily concentrated in urban areas--especially in the industrial region around Johannesburg, which accounted for more than 50 percent of industrial output in the early and mid-1990s. Other major industrial centers are Cape Town, Port Elizabeth, East London, and Durban. Smaller, but nonetheless important, industrial concentrations are at Kimberley, Bloemfontein, Queenstown, and Mossel Bay. Government incentives for manufacturers to move to rural areas and the black homelands during the 1980s were generally unsuccessful, in part because of logistical and transportation difficulties. The government then tried regional development projects, intended to bring manufacturing jobs to undeveloped areas by providing performance-based incentives and improving infrastructure, although these projects were difficult and costly to initiate.

Manufacturing industries registered sharp increases in capacity utilization in 1994 and 1995, exceeding 90 percent of capacity in the coal and nonferrous metal industries, as well as in furniture and footwear manufacturing. Investors judged South Africa's manufacturing competitiveness in the international arena to be fairly weak, however, largely because of the outdated facilities and physical plant in many industries.

Electric Power

The country's first electric power plants were developed to support the turn-of-the-century mining industry. Most mines used on-site electrical generators until 1909, when the Victoria Falls Power Company was established. In 1923 the electricity parastatal, Eskom, began providing electricity for the country's railroads and nonmining industries. Eskom bought out the Victoria Falls Power Company in 1948 and has been the country's major power producer since then. Eskom's sales increased faster than GDP growth after World War II, and the utility expanded steadily. From 1950 to 1982, sales grew at an average rate of 8 percent per year.

Despite Eskom's strong sales record, officials became increasingly concerned over the government's capital investments in Eskom's expansion efforts, which were estimated at R27 billion between 1983 and 1987. Eskom was one of the enterprises hit hardest by the cutoff in foreign loans in 1985. After that, it scaled down plans for further expansion. Eskom supplied more than 97 percent of the electricity used nationwide in the early 1990s, but a few mines and industries had power generators of their own. Only about 40 percent of the population had electricity in their homes, but the new government in 1994 placed a high priority on supplying power to rural areas.

Eskom derives nearly 90 percent of its power from coal-fired electric power stations, 8 percent from nuclear power plants, and the remainder from hydroelectric plants. Some energy analysts predict that the country's coal reserves (estimated to be between 60 billion and 100 billion tons) will begin to run out by the middle of the twenty-first century. Eskom officials estimate that the last coal-fired station will be commissioned before the year 2045. With about 14 percent of the world's uranium reserves in South Africa, Eskom then plans to switch to the use of nuclear power to produce electricity.

The Koeberg nuclear power station, commissioned in 1976 but subsequently damaged through sabotage, began operations using uranium as an energy source in 1984. In the mid-1990s, it is the only nuclear power plant in operation, but sites have been selected for at least two additional plants to be built early in the twenty-first century.

South Africa imported electricity from the Cahora Bassa hydroelectric facility in Mozambique during the early 1980s, but that source was cut off in 1983 as a result of sabotage by Mozambican rebels. South Africa, Mozambique, and Portugal agreed on reconstruction plans, begun in 1995, that were expected to reestablish power to South Africa by 1997.

Heavy Industry

Iron and steel production dominates South Africa's heavy industry, providing material for manufacturing structural goods, transport equipment, and machinery, and for the engineering industry. Large-scale production of iron and steel was begun in 1934 by the state-owned South African Iron and Steel Corporation (Iscor). Iscor began selling shares to the public in 1989. It operate plants at Pretoria, Vanderbijlpark (Gauteng), and Newcastle (KwaZulu-Natal) and owns numerous coal, iron ore, and other mines throughout the country. Most major companies in this sector, including Union Steel (Usco), African Metals (Amcor), and Vanderbijl Engineering (Vecor), were established with help from Iscor or are operated as subsidiaries of Iscor. Highveld Steel and Vanadium is owned by the Anglo American Corporation.

South Africa produced about 9 million tons of steel, on average, each year in the early 1990s, only about 1 percent of world production. This output was more than enough to meet domestic demand and to provide some steel for export. The industry plans to increase production in the late 1990s to meet domestic construction needs and to increase steel exports.

The first vehicle assembly plant was established by Ford in Port Elizabeth, and in 1960 the government began to promote the increased use of local parts in vehicle assembly. Phase One through Phase Five of the local-content encouragement program were based on the weight rather than the value of local components and tended to make South African vehicles relatively heavy and expensive. In 1989 the government introduced Phase Six, which shifted the determination of content to value rather than weight. The result was a reduction in the cost of vehicles as manufacturers turned to low-cost imported parts in order to increase the percentage of value represented by local products. The lowered cost of assembly was evidenced in June 1991 when the South African Motor Corporation (Samcor) announced that it had started exporting locally assembled Mazdas to Britain.

Vehicles are manufactured primarily in the industrial area around Johannesburg, in Mpumalanga, and in the Eastern and Western Cape provinces, using parts manufactured locally at more than 150 plants and some imported parts. In 1994 South African automakers assembled more than 225,000 passenger cars and more than 97,000 commercial vehicles, employing more than 91,000 workers. At that time, almost 6 million vehicles, including more than 3.5 million passenger cars, were licensed to operate in South Africa.

South Africa also has a significant heavy-engineering industry that meets many of the country's industrial and construction requirements. Many of the firms connected to Iscor produce structural steel, for use in construction, as well as machinery and mining equipment. Most advanced machinery, such as Eskom's generators or SASOL's plant, was still being imported in the 1990s. Nevertheless, when the production of all categories of heavy industry is combined--including steel and metal products, machinery, and vehicles--this subsector accounts for about one-fourth of manufacturing output by value.

Chemicals Industry

South Africa has a well-developed chemicals industry that dates back to the use of explosives in the late nineteenth-century mining industry. Miners imported dynamite from France and Germany until 1896, when the De Beers company succeeded in establishing a dynamite factory at Modderfontein in partnership with a British chemical manufacturer. In addition to explosives, the African Explosives and Chemical Industries (AECI) plant produced a wide variety of industrial chemicals including insecticides, paints, varnishes, nitrogen compounds, sulfuric acid, and cyanide.

The government controls a significant segment of the chemical industry. Its largest investment is the SASOL operation, in which synthetic oil and gas are extracted from coal through a gasification process that also produces ammonia, pitch, alcohol, and paraffin. The government established the Phosphate Development Corporation (Foskor) in 1950 to produce phosphate concentrates for use in chemical fertilizers, and Foskor also produces zirconium and copper. Government involvement in the industry increased in 1967, when the IDC created a holding company to merge several small chemical companies in an effort to achieve greater economies of scale.

Many other chemicals are produced in South Africa, including plastics, resins, dyes, solvents, acids, alkalis, hydrogen peroxide, iodine, nitrates, and chemical materials for atomic reactors. Pharmaceutical products are also produced, primarily by subsidiaries of large international firms.

Consumer Goods

The single most productive subsector in manufacturing is the food-processing industry, which produces canned fruits and vegetables, dried fruit, dairy products, baked goods, sugar, and meat and fish products. Dairy products and baked goods are sold exclusively on the local market, but dried fruit, canned foods, sugar, meat, and fish products are exported. In the early 1990s, South Africa produced about 400,000 tons of canned fruits and vegetables each year.

Clothing manufacturing and textile weaving are important consumer industries. The clothing industry predated local textile manufacturing; even at the end of the nineteenth century, clothing manufacturers relied on imported textiles to produce a variety of apparel. By the 1990s, the clothing industry not only met the country's needs but also exported its goods, aided in part by the government's elimination of import duties on cloth. It maintained a 30 to 35 percent import duty on most apparel through the early 1990s. Then, because clothing manufacturers increasingly relied on imported cloth, the domestic textile industry suffered from the increased competition, and as all import tariffs were being lifted in 1995 and 1996, both clothing and textile manufacturers were laying off workers.

The bread industry was subsidized by the government for decades in order to avoid high prices for basic foodstuffs; the government eliminated the bread subsidy in 1991 in an effort to encourage competition. A few large institutions then dominated the bread industry; six of them, representing about 85 percent of the local market, reached a marketing agreement, allocating sales by producer quotas and by regional distributor. The government in the mid-1990s decided to allow the companies to continue market-sharing but was debating whether to discourage such agreements in the future.

South Africa

South Africa - Tourism

In the mid-1990s, control of the tourism industry was transferred from the Department of Environmental Affairs to the Department of Industry and Trade, partly to give a higher priority to tourist-industry development concerns. Through the new Department of Industry, Trade, and Tourism, the government operates National Tourist Bureaus throughout the country as well as the South African Tourism Board (Satour). Satour, established in 1983 to promote tourism from abroad, has been recognized internationally for its high-quality services.

Among South Africa's many tourist attractions are sixteen national parks and numerous provincial and local game parks, nature reserves, and wilderness areas. The National Parks Board employs more than 4,000 South Africans. Kruger National Park in Mpumalanga and Northern provinces is one of the most popular with visitors and is home to more than 140 species of mammals and 450 species of birds. The rare mountain zebra, which is unique to South Africa, is protected in the Mountain Zebra National Park in the Eastern Cape. The Augrabies Falls National Park, site of the fifty-six-meter- high Augrabies Falls on the Orange River near Upington, preserves plants and animals that have adapted to semi-desert conditions. The Kalahari Gemsbok National Park, in the Northern Cape bordering Namibia and Botswana, is known for its free-roaming gemsbok and springbok. In addition to game parks, nature reserves, and big-game hunting between May and July, the wine region of the Western Cape is a consistent tourist attraction.

South African tourism figures have risen since the late 1980s and exceeded 3.8 million in 1994 (see table 15, Appendix). More than half of the tourists in South Africa are from other African countries; most of the remainder are from the United Kingdom or Germany. South Africa is a member of the World Tourism Organization and a participant in the Africa Travel Association, which promotes tourist attractions in Africa to the North American travel industry.

South Africa

South Africa - Banking

The heart of the banking system is the South African Reserve Bank, which is the primary monetary authority and custodian of the country's gold and foreign exchange reserves. The Reserve Bank is managed by a board of fourteen directors, seven representing major commercial and financial institutions, industry, and agriculture, and seven appointed by the government. Of the latter, one serves as governor, and three serve as deputy governors of the Reserve Bank.

The Reserve Bank's primary functions are to protect the value of the rand and to control inflation. The Reserve Bank regulates the money supply by influencing its cost--i.e., interest charged on loans to other institutions. It is technically independent of government control, but in practice it works closely with the Treasury and helps to formulate and to implement macroeconomic policy. The Reserve Bank issues banknotes and is responsible for the sale and purchase of foreign exchange for the government, as well as for the administration of the treasury-bill tender system. Its major customers are government agencies, private banks, and discount houses, although it also performs clearinghouse functions for private banks and assists banks that experience liquidity problems. Finally, the Reserve Bank is the authorized buyer of gold bullion, thereby acting as agent for the gold-mining industry in effecting sales on their behalf in the private market.

The Reserve Bank uses monetary policy to control inflation, primarily by adjusting the liquid-asset requirements of private banking institutions and by restricting bank credit in order to control consumer demand. Until 1975 the bank enforced fixed interest rates on long-term government securities, but thereafter it allowed transactions at market-related prices. Direct control over deposit interest rates quoted by banking institutions was abolished in 1980; nevertheless, the Reserve Bank still exercises considerable indirect control through its own bank rate.

The private banking sector was controlled by commercial banks until the 1950s when banking services began to diversify. Until then, commercial banks had avoided services such as personal loans, property leasing, and credit-card facilities. New institutions--including discount houses, merchant banks, and general banks--emerged to meet this demand, and in reaction to these changes in the banking sector, commercial banks increasingly entered into medium-term credit arrangements with commerce and industry and acquired interests in hire-purchase firms and leasing activities. In addition, they expanded their operations into insurance and even invested in manufacturing and commercial enterprises.

During the late 1980s, the "big five" commercial banks--First National Bank (formerly Barclays), Standard Bank of South Africa, Nedbank, Volkskas, and Trust Bank--were increasingly challenged by building societies, which had listed holding companies on the Johannesburg Stock Exchange (JSE) and had set up commercial and/or general banking arms. The Deposit Taking Institutions Act of 1991 formalized the overlapping of functions between the banks and the building societies that had existed for more than a decade. The act brought South Africa into line with internationally recognized standards for capital requirements.

In February 1991, four of the country's leading financial institutions--Allied Bank, United Bank, Volkskas, and Sage Banks--merged to create the largest banking group in the country, the Amalgamated Banks of South Africa (ABSA), with assets of R56 billion. ABSA, which merged with a fifth bank in 1992, is jointly controlled by the Rembrandt tobacco group and the South African National Life Assurance Company (Sanlam), the country's second-largest insurance group. The banking industry is undergoing further reorganization in the mid-1990s, in part to establish banking services in poor communities that were neglected under apartheid.

South Africa