S. Africa's economy beset by recession and ongoing black unrest
Two things dominate the South African horizon: growing unrest in black townships and an economy in a state of severe recession. But there are hopes among economists that by early next year the recession will begin to lift. The extent of the present recession is manifest in the decline of retail sales by 2.5 percent in the first quarter of 1985 compared to last year. New car sales fell by a hefty 30 percent over the same period. Manufacturing was 5 percent lower. Cutbacks in building and construction also have occurred.Skip to next paragraph
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Inflation, as measured by the consumer price index, has risen 10 percent since the beginning of last year and is running at more than 16 percent.
According to economist Nico Cyzpionaka, ``The broad-based contraction of activity in three major segments of employment -- retail trade, manufacturing industry, and building construction -- has led to a substantial buildup in the number of unemployed workers.''
Unemployment is difficult to quantify in South Africa. Official figures reflect only registered unemployment, but the main component is unregistered black unemployment and underemployment.
It has been conservatively estimated by some analysts that there are a minimum of 3 million unemployed blacks. In South Africa's black homelands, about 50 percent of blacks are unemployed, says Prof. Jeremy Keenan of the University of the Witwatersrand.
``Now it's just worse,'' says an economist with a major bank, commenting on the impact of the present recession on black unemployment.
But, economists aver, the outlook is not entirely gloomy. The fall in the value of the rand as measured against foreign currencies, particularly the US dollar, has led to a decline in imports of 20 percent, helping to stem the outflow of money.
The immediate cause of the present recession is largely the overspending in late 1983 and early 1984 funded by ``domestic credit extension and borrowing abroad,'' as one economist put it.
That period saw a sharp depreciation in the rand which, in turn, prompted the Reserve Bank to attempt cooling down the economy by pushing up the prime borrowing rate from 22 to 25 percent. Instead, as one economic analyst noted, the economy was temporarily ``frozen'' instead of merely cooled down.
A conjunction of economically hostile factors in 1983 exacerbated the situation: the falling price of gold, coal, and iron ore and the worst drought in decades. Last year South Africa had to import corn.
Net outflow of capital further documents South Africa's economic problems. In the first quarter of 1985 there was an outflow of 2.4 billion rand (about $1.2 billion) against an inflow of 1.3 billion rand. The 1.1 billion rand shortfall will have to be made good by drawing on South Africa's gold and foreign exchange reserves or by borrowing money abroad.
Explosive unrest in the black townships which began last year has only made things worse. It diverted resources and discouraged foreign investment. The growing disinvestment campaign in the United States is making recovery that much more difficult.
On the positive side economists point out that exports have increased with the result that the annualized surplus for 1985 is being projected at between 4 and 5 billion rand, helping reduce South Africa's balance-of-payments debt.
Other sectors in the economy, like gold -- the price of which remains high in rand terms -- are reasons for optimism.
The drought has largely broken and the projected grain harvest for 1985 is in excess of domestic demand, thus holding out the hope of exporting grain.
Most important is the government's determination to cut back on state expenditure. ``The 1985 budget, introduced after three successive years of high inflation and little or no real growth, may prove to mark a turning point in our economic affairs,'' Mr. Relly said.