S. Africa's financial future not quite 'good as gold'
South Africa's opposition politicans called the April general election a "vote now, pay later" poll. Now various factors, especially the gold price, which has dropped $200 an ounce from its average 1980 price, are making the prediction sound gloomily realistic.Skip to next paragraph
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Fuel prices have been increased 10 percent, the steel price is up, interest rates are soaring, money is tight, and the annual inflation rate is running about 16 percent.
Many politicians say Prime Minister Pieter W. Botha, who scored an overwhelming victory, called the election just in time.
And Finance Minister Owen Horweed, the only member of the cabinet with an English- speaking background, (his colleagues are all Afrikaans-speaking) is likely to have problems balancing his books before he introduces the budget in parliament next month.
Local financial experts are going to great lengths to emphasize that the drop in the price of gold is not a catastrophe, although it certainly is unpleasant for this country.
For example, every $10 that is clipped off the price of an ounce reduces South Africa's foreign exchange earnings by $200 million over a year.
If gold remains at an average $400 an ounce for a year, South Africa's loss in earnings compared to last year would be almost $5 billion.
And the government's revenue from taxes on gold sales would decrease by about
There are three ways the government can make up this loss. It can (1) cut spending, (2) borrow money, or (3) increase taxes.
There is a fear that the government may decide to increase a four percent general sales tax, which is levied on all goods and services. But it is considered undesirable because of the impact on the poorer, mostly black section of the population that is struggling even now to meet the cost of essentials.
An increase in personal tax is also considered undesirable because it would tend to depress the economy, which has been booming.
Therefore Finance Minister Horwood is likely to try to save money by cutting state spending, and also raise money through loans. He is also expected to increase the general sales tax.
Minister Horwood also seems to be banking on what he predicts will be a "substantial," but indeterminate recovery in the gold price before the end of the year.
Another financial problem for South Affrica at present is the strong US dollar and the relative weakness of the South African currency, the rand. In January, the rand was rated at $1.35. It is now rated only $1.10.
The rand is not the only currency that is having difficulties with the very strong American dollar, of course, but South Africa's difficulties are accentuated by the fact that its biggest import bill last year was for United States goods. These will be more expensive this year, adding to the country's balance of payments problems.
However, the weaker rand has also helped cushion the drop in the gold price, which is reckoned in presently very powerful American dollars. And the country hopes also that the rand's weakness will make South African exports more attractive.