South Africa Table of Contents
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, Réunion, 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.
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.
Data as of May 1996
South Africa Table of Contents