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South Africa

Role of the Government

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.

Data as of May 1996

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