S. African Economy Hits New Low

Violence, drought, and political stalemate have caused the worst recession in 80 years

THE South African economy, which is struggling to emerge from the worst economic recession in eight decades, has become hostage to a political stalemate, rising violence, and a devastating regional drought.

"If the rains arrived, the politicians got back to the table, and political violence began to recede, there could be a dramatic boost in confidence," says economist Graham Bell. "Add to that the activation of several large industrial projects in the pipeline, an input from the World Bank, and an upswing in the world economy and things could be looking very different by this time next year."

Mr. Bell says that a cyclical upswing in the economy in 1993 and 1994 is becoming visible but needs a support base.

Despite unemployment levels of 40 percent, unprecedented numbers of company liquidations and personal bankruptcies, there are signs that the economy might be ready for recovery. The high unemployment level is largely among blacks. The white unemployment level is closer to 10 percent.

Interest rates have begun to pick up, the 15-percent inflation rate is beginning to fall and exchange rates are holding firm.

"It is gradually developing into an upswing," Bell says.

But the present looks bleak. The economy is set to shrink for its third year and gross domestic product is heading for a loss of about 1 percent.

Despite a promising performance by exports in recent years, hopes of an export-led recovery were dashed as the export confidence index, published Aug. 24, plummeted for the third successive quarter.

Investor confidence is at an all-time low and the depressed international gold price has put further strain on an already ailing gold industry, pushing more mines into marginal status.

In the streets of Johannesburg and the townships around the city, the effects of the recession are evident. Shops often stand half-empty of customers and sale and discount signs adorn hard-pressed retail stores.

"What was once a political struggle for freedom has become a battle for survival," says a Western diplomat, who has been studying the political impact of growing economic hardship.

"Unless we start now to address the developmental needs and upgrade the quality of life of black South Africans, the next government will not be able to cope with the unfulfilled expectations," says a senior government official.

Deprivation and decay in the townships is being fueled by the political turmoil of a violent transition as well as the inability of the ailing economy to channel much-needed funds into renewal programs.

Even middle-class whites have been hard-hit by the recession. Burgeoning unemployment has sent tens of thousands of white families to the soup kitchens of Operation Hunger, a national charity which provides food for the needy.

South Africans are losing jobs at the rate of 7,000 per month, according to the latest figures released by the Central Statistical Service.

The worst hit sectors of the economy are the mining, construction, electricity, and manufacturing sectors.

In the northern suburbs of Johannesburg, a seemingly untouchable pocket of white affluence, stores displaying luxury and imported goods still thrive. Residents driving expensive German cars take refuge in palatial homes with pools and tennis courts behind high walls.

Yet real income has shrunk by an estimated 10 percent over the past two years.

The South African Reserve Bank tabled one of its grimmest annual economic reports Aug. 25 and warned of the need for further painful adjustments that would bear fruit in the long term.

The Reserve Bank, which has asserted its independence since Frederik de Klerk became president nearly three years ago, came out in support of the idea of an economic negotiating forum. The forum would seek an accord between government, business, and labor to remove structural obstructions to economic growth.

"In pursuing this objective, political parties should accept that economic development should not be sacrificed for political gain," the Reserve Bank says in its report. "Economic retrogression is not an easily reversible process."

But economists praise Reserve Bank Governor Chris Stals for following sensible monetary policies and the politicians for extending full independence to the bank in the formulation and execution of monetary policy.

The financial daily, Business Day, said the bank's new policies had reaped dividends.

"The foreign debt problem is solved, reserves are rising, money supply is under control, productivity is up and the [South African] rand is steady - not a bad list for less than three years of full bank independence," the newspaper said in an editorial Aug. 24.

But most economists and analysts agree there is unlikely to be a sustained economic recovery in the present political climate.

"In the past, sanctions put foreign capital to flight," a market analyst says. "Now it is violence and uncertainty that are keeping potential foreign investors at bay."

During the past year there has been a stream of influential trade and investment delegations from Britain, Japan, Germany, and elsewhere. Although keen to invest, they all concluded that the present climate is too unstable.

"Political developments of the past few months have sent businessmen and investors, consumers and workers into a slough of economic despondency," said the influential weekly, The Financial Mail, in an editorial Aug. 28.

The journal said that the harsh reality was that the economic price of delaying a political settlement was not yet high enough to force both government and the African National Congress and its allies into agreement.

"But the emotions of the economy have overtaken the downswing," Bell says. "I think the prospects for a recovery are good if politics and the elements work in its favor."

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