SOUTH AFRICA

Republic of South Africa
Republiek van Suid-Afrika

COUNTRY OVERVIEW

LOCATION AND SIZE.

South Africa is situated at the southern tip of the continent of Africa. Ranging from west to east across its northern border are the neighboring countries of Namibia, Botswana, and Zimbabwe; Mozambique lies to the east, as does the small nation of Swaziland, which is nearly encircled by South Africa. Another small nation, Lesotho, lies entirely within the borders of South Africa, in the east central region. Total land borders measure 4,750 kilometers (2,952 miles). South Africa has a coastline of 2,954 kilometers (1,836 miles), with the cold Atlantic Ocean on the west coast and the Indian Ocean on the east coast. The area of the Republic of South Africa is approximately 1,219,912 square kilometers (471,008 square miles), making it slightly less than twice the size of the state of Texas, or slightly bigger then Holland, Belgium, Italy, France, and Germany combined. The capital of Pretoria is located in the northeast central area of the country. Other major cities include Cape Town, Port Elizabeth, and Durban on the coast, and Johannesburg, Soweto, and Bloemfontein in the interior of the country.

POPULATION.

The last official census taken in South Africa in 1996 revealed a population 40,582,573 people. In 2001, estimates are that the population of South Africa has grown to 43,586,097. The population of South Africa can be divided into the following main racial groups: Africans (blacks), whites, coloreds (mixed-race descendants of early white settlers and indigenous people), and Asians. The general indication is that the proportion of Africans has slowly been increasing and the proportion of whites decreasing. The proportion of Asians and coloreds has remained quite constant. In 1996, Africans made up76.6 percent of the population, whites made up 10.9 percent, coloreds 8.9 percent, and Asians 2.6 percent; the remaining 0.9 percent represented a variety of races.

The population growth rate for the entire population is a very low 0.26 percent. The birth rate in South Africa was estimated at 21.12 per 1,000 people in 2001, and the birth rate was estimated at 16.77 per 1,000 people. It is likely that the fertility and mortality figures could change due to the HIV/AIDS epidemic. The spread of HIV/AIDS in South Africa was very rapid in the 1990s. United Nations (UN) estimates indicate that currently 1 in 8 adult South Africans is infected with HIV. The epidemic has exacted tremendous social and economic costs. By affecting the population's most productive age group, it hampers the labor supply.

About 64 percent of the South African people live in urban centers, and that number is expected to grow because more people move to urban areas every year. The migration rate creates increasing demands on municipal services such as sanitation, water provision, safety, security, as well as schools, hospitals, and recreational facilities.

The population of South Africa is young, with 32 percent of people between the age of 0 and 14, 63 percent between 15 and 64, and only 5 percent over the age of 65. Life expectancy is fairly low, at 48.09 years for the entire population, 47.64 for males and 48.56 for females.

OVERVIEW OF ECONOMY

Emerging from a long period when it was a pariah nation because of its racial policies, South Africa is an attractive emerging economy that is both modern and diversified. Paradoxically, the country still exhibits many of the characteristics of a less developed nation, including a distorted distribution of wealth and a thriving informal sector economy whose interactions are outside the law. The agricultural, industrial, and service sectors are well developed, however, and government plans to improve services and economic access to the poor and dispossessed offer the promise of modernizing the lagging elements of the economy.

The dominant forces which shaped South Africa's economy in the modern era exhibited themselves in 8 main periods. From 1910 to 1922, British influence dominated in economic and political terms, and a racially-segregated community was structured. When economic nationalism was born from 1922 to 1933, white mineworkers and farmers tried to establish a welfare state in South Africa. Between 1933 and 1948 English political power dominated again, and industrialization in South Africa occurred with less government interference. From 1948 to 1960 was the period of Afrikaner ascendancy (Afrikaners were the descendants of the original Dutch and German settlers). Between 1960 and 1973, black urbanization became important as a strong social force, and attempts were made to impart further institutional force to apartheid (the nation's official policy of racial segregation) via the homeland policies of President Verwoerd. The sixth period, between 1973 and 1984, was characterized by industrialization and the realization that the racial policy was economically damaging to the country. The seventh period stretches from 1984 to 1994, and can be seen as a period of transition during which economic growth decreased, mainly due to economic sanctions placed on South Africa by many nations. The eighth period started when apartheid ended and a democratic election took place in April 1994. The new government elected at this time initiated economic reforms intended to establish South Africa as a dynamic and more internationally competitive economy.

The free elections of 1994 became possible thanks to changes that had been occurring for years, as the government slowly removed many of the barriers to black political and economic participation. A new constitution, approved in 1993, followed by a plea by African National Congress (ANC) president Nelson Mandela (the nation's foremost black political leader) for foreign nations to lift sanctions led to a pledge of US$850 million in economic aid for South Africa by the International Monetary Fund (IMF). International financing sources saw the IMF funding as a signal to international investors that South Africa was a safe place in which to invest. International investment bankers and large Wall Street investment companies began trading with South Africa, thus opening the way to the current economic era.

The development of the South African economy has seen a long-term transfer from production based on agriculture to production based on industries. Once this transition had been made there was a period of sustained accumulation of physical and human capital. Consumers' spending patterns changed from spending on basic items and essential goods to spending on diverse manufactured and luxury items.

The nation's geography and topography have a significant influence on the country's economic development. The fact that South Africa has vast mineral resources is one of the reasons for its economic survival. In many cases, the country possesses large percentages of the world's known reserves of certain minerals, for example 88 percent of platinum group metals, 83 percent of manganese, and 72 percent of chromium reserves.

Since its early history, South Africa was shaped by its location on major global trade routes. In fact the country's oldest city, Cape Town, grew from a catering station for passing ships, established almost 350 years ago by the Dutch East India Company. Given that relationships between South Africa and other African countries have improved, the country's location on the African continent has earned it the title, "Gateway to Africa." South Africa has a rich variety of natural assets, making it an important eco-tourist destination. The wide variety of habitats accommodate numerous animal species.

South Africa has vast farmlands and climatic conditions that are ideal for agricultural activities. Even though South Africa has an erratic climate, its relatively large supply of arable land and modern methods employed in commercial agriculture are major reasons why it is largely self-sufficient in food supply.

Despite many good economic indicators in South Africa, though, the crime rate has risen to unacceptable levels. Particularly the high occurrence of violent crimes has led to the widespread belief that the police, judicial system, and correctional services are unable to cope with the problem. Large-scale black-market activities further fuel the crime wave in South Africa. Affirmative action, high taxes, and the rising crime rate have contributed to a renewed skills drain as many highly trained workers leave the country, a movement of workers the government needs to stop in order to preserve and develop the tax base. The loss of economically active persons in professional, technical, and managerial positions is particularly discomforting. Moreover, in South Africa, AIDS is a fast growing problem. More than 3.2 million South Africans are infected and living with the disease, with an estimated 1,500 infections taking place everyday. This health crisis is slowing South Africa's economic development because it decreases the number of people who can work.

POLITICS, GOVERNMENT, AND TAXATION

The political system of South Africa was reshaped following the 1994 elections. The African National Congress (ANC), which won the elections, governed under an interim constitution with the Inkatha Freedom Party (IFP) in what was known as the Government of National Unity (GNU). The GNU created a new constitution, which was signed into law by President Nelson Mandela on 3 February 1997. Under the new constitution, the South African Parliament has 2 houses, a National Assembly and a National Council of Provinces. The National Assembly has 400 members who are elected under a system of "list proportional representation ." Voters cast their ballot for a party, which in turn selects the actual members. The National Council of Provinces has 90 members, 10 each from the 9 provinces. Of the 10 delegates from each province, 6 are permanent and 4 are rotating.

The executive president is selected by the ruling party in the National Assembly. The president then selects a cabinet of 28 ministers who must be approved by the National Assembly. The judicial system is topped by a constitutional court and a supreme court of appeals, which rule on constitutional and nonconstitutional matters, respectively. The 1997 constitution provides for a bill of rights which protects the basic human rights of all South African citizens. Because of the high crime rate the general feeling in South Africa is that the legal/court system is insufficient. This belief causes economic instability, which discourages foreign investors from investing in the country. Due to low long-term foreign investments, the growth of the South African economy has slowed.

South Africa has many political parties but is dominated by just a few. In the 1999 elections, the African National Congress gained the vast majority of the seats in parliament, with 266. The ANC formed a coalition with the Inkatha Freedom Party, which gained 34 votes. The Democratic Party (DP), with its 38 seats, and the New National Party, with its 28 seats, formed an opposition coalition called the Democratic Alliance. In 1999 the ANC's Thabo Mbeki was elected president.

As the ruling and most powerful party in South Africa, the ANC has had to balance a number of difficult challenges in managing the economy. On the one hand, the ANC wished to honor the alliance it made with the South African Communist Party (SACP) and labor federation COSATO for the purposes of the 1994 election. This alliance would imply that government policies will be characterized by Marxist tendencies, favoring the nationalization of industry, collective ownership of land, equalization of after-tax income, and direct intervention in the economy. However, the realities of trying to rule over a modern economy while at the same time addressing the problems of decades of racial inequity have pushed the ANC in other directions. The ANC has since dropped its commitment to nationalizing industries and has in fact privatized a number of state-owned firms. Reflecting its still growing commitment to a free market economy, the ANC has committed itself to maintaining fiscal discipline, an anti-inflationary monetary policy , and a stable exchange rate , and the relaxation of exchange controls. The ANC also hopes to lower import tariffs , to expand tax incentives, and to privatize some public sector assets. Perhaps the more pressing of the jobs before the government, however, are the dual tasks of providing for the nation's many impoverished or economically disadvantaged people and dealing with the growing problem of violence and corruption.

The ANC government supports an open economy and has attempted to enter into a variety of trade agreements to ease international trade. The openness of the economy makes the country highly dependent on events in the outside world. This fact was clearly illustrated by the Asian economic crisis and by the increased price of oil after 1999; both events affected the South African economy negatively.

The government levies a variety of taxes, which together amounted to 24.1 percent of the GDP in 2000-01. The largest share (43 percent) of tax revenues come from individuals, who pay a progressive income tax that ranges from 18 to 42 percent. Corporate taxes contributed 10 percent of the total. Indirect taxes , such as customs and excise duties , a value-added tax , a fuel levy, and stamp duties and fees, account for 40 percent of revenues. The government has committed itself to lowering the tax burden on individuals in the coming years.

INFRASTRUCTURE, POWER, AND COMMUNICATIONS

Compared to the rest of Africa, South Africa has a good infrastructure , including a highly developed network of some 358,596 kilometers (222,831 miles) of roads (only 17 percent of which are paved, however) and 21,431 kilometers (13,317 miles) of rail track. There are a number of international and national airports; a highly developed system of bulk water supply; a power supply parastatal , ESCOM, that supplies

roughly half of Africa's electricity at rates that are among the cheapest in the world; a telephone utility company, TELKOM, that provides services for about 4 million main telephones and network links for one of the fastest growing cellular telephone industries in the world; and broadcasting services. However, the infrastructure in the areas occupied by the black majority is generally undeveloped or badly maintained. The Spatial Development Initiative (SDI) program provides the private sector with unique opportunities to exploit the potential of under-utilized areas by identifying public-private partnerships in bulk and municipal infrastructure projects.

South Africa's modern and extensive transport system plays a very important role in the national economies of several other African states. A number of countries in Southern Africa use the South African transport infrastructure to trade. Private motorcars are an important mode of personal travel. In 1998, there were some 6.55 million registered motor vehicles, of which more than 3.8 million were motorcars. Minibus-taxis provide a vital service to nearly 50 percent of South Africa's commuters. More than 480 taxi associations are operating throughout the country. SPOORNET, the largest railroad operator in Southern Africa, has 3,500 locomotives and 124,000 wagons. There are 30 international airports, where the necessary facilities and services exist to accommodate international flights. About 15 million passengers use these airports every year. SAA, Com Air, Sun Air, SA Express, and SA Air Link operate scheduled international air services within Africa and to Europe, Latin America, and the Middle and Far East.

Telecommunications, the lifeline of modern business and industry, is one of the fastest growing industries in South Africa. With a growth rate of 45 percent prompted largely by the introduction of cellular telephones and the partial privatization of TELKOM, this sector is a vital component in the strategy to modernize and increase international competitiveness.

South Africa has approximately 5.3 million installed telephones and 4.3 million installed exchange lines. This figure represents 39 percent of the total lines installed in Africa. By November 1998, more than 1.5 million South Africans were using the Internet with service providers increasing their customer base by 10 percent a month. A 1-channeled television service was introduced on 5 January 1976. Currently, the South African Broadcast Corporation (SABC) offers 3 television channels in 11 languages. It also operates 2 pay-television channels, broadcasting into Africa by satellite. About 14 million adults watch SABC television daily, making South Africa the country with by far the largest television audience on the continent.

ECONOMIC SECTORS

In the primary sector South Africa's abundant natural resources, especially in the mining and agriculture-based categories, provide noteworthy opportunities for companies to add value prior to export. Export earnings associated with the value added to primary products represented 29 percent of total exports in 1995, as compared to 21 percent in 1988, indicating that South African companies are learning to extract more economic value from their natural resources. On average, the contribution of the primary sector to the GDP grew at less than 1 percent per year from 1960 to 1985, and at a negative rate after 1980. However, forecast assumptions yield a positive growth rate for the next 10 years. This sector (agriculture, forestry, fishing, mining, and quarrying) contributed 12 percent to the GDP in 1997.

The secondary sector had stronger growth than the primary sector in the period after 1960. However, due to economic adversity during the struggle against apartheid, the average annual growth rate was only 0.5 percent. This sector (manufacturing electricity, gas, water, and construction) contributed 31 percent to GDP in 1997. Although the tertiary sector showed slower growth than the primary and secondary sectors in the entire period since 1960, its growth was higher after 1980, propped up by government spending. It is expected that this sector will grow at an average rate of about 3.0 percent per year to 2005.

The tertiary sector (trade, catering, accommodation, transport, storage, and communications) is expected to grow at roughly the same rate. The lackluster domestic demand should be countered by the rapidly expanding tourist industry. Rising tourism should boost passenger transport, while technological improvements should continue providing impetus to the communications industry.

Financial and business services have been growing at above-average rates and should continue to do so as the traditional and informal sectors become more formalized and make use of these services. Community and social services and general government services are unlikely to show high real growth, due to the expected tight fiscal situation.

AGRICULTURE

In monetary terms, agriculture's share of the economy has long since been outstripped by those of the mining and secondary industries. In 1960, agriculture contributed 11.1 percent of the GDP, down from about 20 percent in the 1930s. By 1999, however, agriculture's share of the GDP had dropped to 5 percent. Despite the farming industry's declining share of the GDP, it remains vital to the economy, development, and stability of the Southern African region. The various sectors of the industry employ approximately 1 million people, or 30 percent of the workforce.

Agriculture in South Africa has changed radically in recent years. Formerly, it was a highly regulated sector with subsidies and financial concessions available to farmers. But farming has been deregulated since the 1980s, and the agricultural sector is now expected to respond to free market conditions. Farmers seek the most competitive suppliers and purchasers and are increasingly using the South African Futures Exchange to exchange futures contracts and hedge prices for their products.

South Africa has what is known as a dual agricultural economy. On the one hand, there is a well-developed commercial sector; on the other hand, the majority of people engaged in agriculture are involved in subsistence-oriented practices in rural areas. In the predominantly white-controlled commercial sector, applied research and improved farm management have nearly doubled agricultural production during the past 30 years. Currently, South Africa is not only self sufficient in virtually all major agricultural products but in a normal year is also a net food exporter, making it 1 of 6 countries in the world capable of exporting food on a regular basis. Because South Africa's summer harvest season coincides with winter in the Northern Hemisphere, the country is well positioned to supply agricultural goods to a number of wealthy countries in the more developed world.

South Africa has developed 1 of the largest man-made forestry resources in the world. These plantations cover more than 1.4 million hectares with exports accounting for 35 percent of total turnover of forestry products. The 2 private pulp and paper manufacturers rank among the largest companies of their kind in the Southern hemisphere.

About 13 percent of South Africa's surface area can be use for crop production. Some 1.3 million hectares are under irrigation. The most important factor limiting agricultural production is the availability of water. Rainfall is distributed unevenly across the country. Almost 50 percent of South Africa's water is used for agricultural purposes.

The largest area of farmland is planted in maize, followed by wheat and, on a lesser scale, sugar cane and sunflowers. About 15,000 farmers produce maize, mainly in the northwest, the northwestern, northern, and eastern Free State, the Mpumalanga Highveld and KwaZulu-Natal midlands. Local consumption of maize amounts to approximately 6.5 million tons, and surplus maize is usually exported. Wheat is produced in the winter rainfall areas of the western Cape and the eastern parts of the Free State. The 1998-99 season yielded 1.5 million tons. Barley is produced mainly on the southern coastal plains of the western Cape, accounting for more than 98 percent of locally produced barley. The 1998-99 season yielded 215,100 tons. Sorghum is cultivated mostly in the drier parts of the summer rainfall areas. Groundnuts are grown in the northern province, Mpumalanga, the northern Free State, and the northwest.

South Africa is the world's tenth largest producer of sunflower seeds with an annual harvest of between 186,300 and 780,000 tons. South Africa is also the world's tenth largest sugar producer. The bulk of the sugar crop is cultivated on the frost-free coastal areas and the KwaZulu-Natal midlands. However, about 10 percent is grown under irrigation in the southern parts of Mpumalanga. Deciduous fruit trees are grown mainly in the western Cape, as well as in the Langkloof Valley in the eastern Cape. This industry's export earnings represent 21 percent of the country's total earnings from agricultural exports.

South Africa's wine and spirits industry is one of the most developed in the world. About 4,500 grape producers had 103,300 hectares of land under cultivation, making South Africa the 20th largest wine growing area in the world. The average size of the country's harvest is around 900 million liters, ranking it seventh in the world. Exports of South African wine grew from 23 million liters in 1991, to 50 million liters in 1994, and to 100 million liters in 1998. The industry provides income to 3,000 cooperative cellar staff and 45,000 farm workers.

Citrus production is largely limited to the irrigated areas of the northern province, Mpumalanga, the eastern and western Cape and KwaZulu-Natal. Pineapples are grown in the eastern Cape and northern KwaZulu-Natal. Other subtropical crops such as avocados, mangos, bananas, litchis, guavas, pawpaws, grenadillas, and macadamia and pecan nuts are produced mainly in Mpumalanga and the northern province. About 40 percent of the country's potato crop is grown in the higher-lying areas of the Free State and Mpumalanga. About two-thirds of the country's total potato crop is produced under irrigation. In terms of gross income to the grower— apart from potatoes—tomatoes, onions, green mealies, and sweet corn are probably the most important crops.

Cotton, produced mainly in the northern province, constitutes 74 percent of the natural fiber and 42 percent of all fiber processed in South Africa. About 75 percent of local production is harvested by hand. Virginia tobacco is produced mainly in Mpumalanga and the northern province. There are more than 1,000 growers in the country who produce an annual average of 33 million kilograms on about 24,000 hectares of land. The crop represents 173 different grades of Virginia and 5 different grades of Oriental tobacco.

Rooibos tea is an indigenous herbal beverage produced mainly in the Cederberg area of the western Cape. There are some 280 producers, and about 580 tons of tea are exported annually. Ornamental plants are produced throughout the country. They include nursery plants, cut flowers, and potted plants. The industry creates jobs for about 15,000 people. Proteas are the country's top export flowers.

Livestock is farmed in most parts of South Africa, though the numbers vary according to climatic conditions. The 1998 estimates for head of cattle and sheep are 13.8 million and 29.3 million, respectively. South Africa normally produces 85 percent of its meat requirements while 15 percent is imported from Namibia, Botswana, and Swaziland. In 1998, 1.7 million heads of cattle were slaughtered, and the gross value of the red meat industry was estimated to be about R4,954 million. Most sheep are fine-wooled Merinos (50 percent). The Dorper, a highly productive, locally-developed mutton breed for arid regions, and the Merino account for most of South Africa's mutton production. Marketing of wool is free of any intervention. The indigenous meat-producing Boer goat accounts for about 40 percent of all goats, and the angora goat, used for mohair production, for the remaining 60 percent. South Africa has about 3,500 angora farmers. Compared with the extensive cattle and sheep industries, the poultry and pig industries are more intensive and are located on farms near metropolitan areas. The predominant pig breeds are the South African landrace and the large white. South Africa accounts for 80 percent of world sales of ostrich products, including leather, meat, and feathers. In October 1997, Parliament approved legislation to allow the export of breeding ostriches and fertile eggs, which was previously forbidden. Dairy farming also occurs throughout South Africa.

The volume of agricultural production has been erratic in the last decade primarily because of severe droughts. The country is, however, still self-sufficient as far as most primary foods are concerned, with the exception of wheat, oilseeds, rice, tea, and coffee.

INDUSTRY

In 1999, industry provided approximately 30 percent of the GDP and employed 25 percent of the workforce.

MINING. South Africa has a natural competitive advantage in both mining and adding value to mined products thanks to its immense concentrations of reserves of important minerals, its low cost coal-based electricity supply, its excellent infrastructure, developed skills and technology base, and the entrepreneurial abilities of its people. South Africa's mineral wealth is found in its diverse and extensive geological formations. The unique Witwatersrand Basin contains a considerable portion of the world's gold reserves, as well as uranium, silver, pyrite, and osmiridium. It also yields some 98 percent of South Africa's gold output. The Bushveld Complex, a sill-like geological feature occupying about 50,000 square kilometers (19,300 square miles), contains more than half of the world's chrome ore and platinum-group metals (PGMs). It also contains vanadium, iron, titanium, copper, nickel, and fluorspar. South Africa holds the world's largest reserves of ores of manganese (possessing 80 percent of the total world reserves), chromium (68 percent), PGMs (56 percent), vanadium (45 percent), gold (39 percent), and alumino-silicates (37 percent). It is also the leading holder of reserves of ores of vermiculite, andalusite, zirconium, titanium, antimony, fluorspar, and phosphate rock.

As a result of this large reserve base, South Africa is the world's leading producer of PGMs, vanadium, and vermiculite, contributing about 50 percent of the world's total of these commodities. South Africa is also the largest world supplier of alumino-silicates, chrome ore, ferrochromium, and gold, for which its contribution ranges between 20 and 60 percent.

The domestic market for most of these minerals is relatively small, so South Africa's mineral industry is strongly export-oriented. For example, South Africa provides 96 percent of world exports of vermiculite, 76 percent of vanadium, 55 percent of alumino-silicates, 53 percent of ferrochromium, 47 percent of PGMs, 41 percent of chrome ore, and 27 percent of manganese ore and ferro-manganese. For these commodities, as well as for gold, it is also the world's largest exporter. The more notable imports into South Africa in 1997 were diamonds, precious metals, alumina, certain ferro-alloys, nickel, coking coal, phosphate rock, sulphur, magnesite, and magnesia. With some gold mines exceeding a depth of 3,000 meters (10,000 feet), the South African mining industry has become a world leader in developing deep-level mining technology.

In 1997, some 695 mines and quarries employed about 552,000 people, many of whom are workers from neighboring countries, representing about 10.5 percent of all workers in the non-agricultural, formal sectors of the economy. More than R18.1 million was paid out in wages. Over the past 5 years, South Africa's goldmines have been plagued by low productivity, diminishing reserves in some mines, and labor unrest. More than 25,000 workers have lost their jobs through retrenchments in the industry since 1987. On 8 July 1999, the gold price slumped to US$257.20 per ounce, the lowest in 20 years. During 1998, 370 miners were killed, and during 1997-98, 6,064 were injured in mine accidents. Through the Rand Mutual Assurance Company, the mining industry provides care and compensation in the case of accidents. The medical infrastructure of the industry includes group hospitals in all the mining areas, as well as clinics and stations on mines for emergency treatment. The Mine Health and Safety Act of 1996 was put into operation on 15 January 1997 to protect mine workers.

ENERGY.

The energy sector is critical to the South African economy, contributing about 15 percent of GDP and employing about 250,000 people. South Africa's energy resource base is dominated by coal. Many of the deposits can be exploited at extremely favorable costs, and as a result, a large coal-mining industry has developed. In fact, South Africa ranks as the world's fifth largest coal producer. In addition to the extensive use of coal in the domestic economy, large amounts are exported. South Africa is the second largest exporter of steam coal. South Africa produces 5,000 to 1 million tons of coal per month.About 55 percent of South African coal-mining is done underground. The coal-mining industry is highly concentrated, with 3 companies, namely Ingwe, Amcoal, and Sasol, accounting for 80 percent of local production.

South Africa has 1 nuclear power station in operation. The Eskom nuclear power station, Koeberg, is located in the western Cape and operates 2 reactors with a capacity of 1,840 megawatts. Nuclear power contributed 6.87 percent of the country's electricity supply in 1999; the remainder was supplied by fossil fuels, both coal and petroleum.

South Africa consumed some 21 billion liters of liquid fuels in 1998. About 36 percent of the demand is met by synthetic fuels (synfuels) produced locally, largely from coal and a small amount from natural gas. The rest is met by products refined locally from imported crude oil. Sasol is the largest petrochemical corporation in the country. Apart from limited gas and oil reserves in the Mossel Bay area, the country does not have significant commercially exploitable gas or crude oil reserves. In addition to coal gas and liquid petroleum gas, South Africa produces about 1,237,000 tons of gas and 250,000 tons of condensate liquid fuels.

South Africa, which supplies two-thirds of Africa's electricity, is one of the 4 cheapest electricity producers in the world. About 92 percent of South African electricity is produced from coal, with generation dominated by the utility Eskom. It is the world's fifth largest electricity utility, with an installed generating capacity of about 39,870 MW. All told, South Africa produced 186.903 billion kilowatt hours (kWh) of electricity in 1999.

MANUFACTURING.

Exports of manufactured goods experienced growth between 1988 and 1995. The driving forces behind this growth included the introduction of the General Export Incentive Scheme (GEIS) and consecutive phases of the motor industry development scheme; the real depreciation of the Rand; excess manufacturing capacity as a result of recessionary conditions forced on the domestic markets after 1985; and the opening up of international markets as sanctions subsided from the early 1990s. The average annual growth rates in the real output of the manufacturing subgroups from 1995 to 2005 are expected to vary between 0.5 percent in the cases of tobacco products and leather products to 7.5 percent in the case of plastic products. Other industries with good growth potential are industrial chemicals, rubber products, and paper.

The basic iron and steel industry is relatively important within South African manufacturing. There are unprecedented opportunities for growth and prosperity in the global steel industry across the globe, the common thread being privatization and free market focus. The already privatized South African steel industry will have to position itself to compete in the global steel economy and to provide goods for the increasingly segmented market. Possibilities are links with overseas producers and greater specialization, which will bring about greater exports as well as imports of steel products.

SERVICES

TOURISM.

In the context of the country's economic and political transformation, tourism has been accepted by the government, business, and labor as one of the key drivers for job growth, wealth creation, and economic empowerment. After years of isolation, South Africa has emerged as a highly attractive tourist destination.

There are some major strengths operating in South Africa's favor which can facilitate further growth in tourism. Among the top tourist attractions are Victoria and Alfred Waterfront in Cape Town, Cape Point, Table Mountain, the wine region in the western Cape, and numerous other attractions. South Africa attracts more tourists than any other country in Africa. The country's scenic beauty and wildlife remain the biggest attractions for international tourists. Tourism is the fourth biggest industry in South Africa, supporting some 1,200 hotels, 2,000 guesthouses, and 8,000 restaurants. Between January and August 1998, there were 871,414 foreign visitors to South Africa. During 1998, economic conditions, in particular the devalued rand, made South Africa one of the cheapest places in the world to visit.

According to a report released in September 1998 on the direct and indirect effect of tourism on South Africa's economy, the tourism industry provided jobs to more than 737,600 people. It was estimated that the number could increase to 1.25 million by the year 2010.

The fastest growing segment of tourism in South Africa is ecological tourism (eco-tourism), which includes nature photography, bird-watching, botanical studies, snorkeling, hiking, and mountain climbing. Village tourism is becoming increasingly popular, with tourists wanting to experience South Africa in the many rural villages across the country.

With tourism currently contributing approximately 5 percent of GDP against an international norm of between 8 and 9 percent, the potential for significant growth in international tourism and its contribution to GDP is immense.

FINANCIAL SERVICES.

South Africa has a well-developed financial system. Legislation governing the financial sector has been streamlined to meet international norms and provides for the introduction of major foreign financial institutions into the local market. The banking industry in South Africa currently has 55 banks, including 12 branches of foreign banks, and 4 mutual banks are registered with the Office of the Registrar of Banks. Furthermore, 60 foreign banks have authorized representative offices in South Africa. Several major groups dominate the South African banking sector: ABSA Group Limited, Standard Bank Investment Corporation Limited, First National Bank Holdings Limited, and Nedcor Limited. These groups maintain extensive branch networks across all 9 provinces and together hold 70 percent of the total assets of the banking sector.

The major banks offer a wide range of services to both individual and corporate customers. A single relationship banking, with its emphasis on universal banking, instead of isolated services, has gained importance. Nevertheless, several banks specialize in providing merchant banking services, securities underwriting, or services in other niche areas.

On 31 December 1998, the 55 registered banking institutions collectively employed 123,272 workers. Their offices (including both branches and agencies) totaled 3,251, that is, approximately 1 office for every 13,000 inhabitants. If the 2,442 post offices through which the Postbank offers its services are included, banking services are provided at some 5,693 offices throughout the country, or 1 location for every 7,500 inhabitants.

Several new banks have been registered, and competition has intensified, both among banks and between banks and other financial service providers. As a result, the assets held in the banking sector have expanded rapidly, from R39 billion in 1980 to R654 billion in December 1998.

The Johannesburg Stock Exchange (JSE), formed in 1887 and a member of the Federation of International Stock Exchanges since 1963, is the tenth largest stock exchange in the world by market capitalization . The South African Futures Exchange (SAFEX), established in 1990, trades in equity futures contracts, options on equity futures, and a variety of other futures contracts.

The growing momentum in the field of public-private partnerships in project financing and the emergence of powerful black economic empowerment groups continue to drive innovation and efficiency in this sector.

Including the contributions of other services, the services industry provided 65 percent of the GDP in 1999 and employed 45 percent of the workforce.

INTERNATIONAL TRADE

South Africa's trade and industrial policy is moving away from a highly protected, inward looking economy towards an internationally competitive economy, capitalizing on its competitive and comparative advantages. For years, South Africa's ability to trade with the outside world was severely limited by the sanctions placed on

the country by most developed countries as a punishment for South Africa's commitment to apartheid. With the end of apartheid in the early 1990s, international trade has expanded dramatically so that in 2000 international trade constituted 16 percent of the GDP.

South Africa's economy is still largely reliant on the export of primary and intermediate commodities to industrialized countries. However, manufactured goods account for about 70 percent of exports to Africa. Net gold exports are responsible for a large part of foreign exchange earnings. Earnings from this source, however, fluctuate with the shifting international gold price. Imports mainly consist of capital goods , raw materials, semi-manufactured goods (approximately 76 percent of total trade imports), and consumer commodities.

South Africa maintains formal trade relations with various countries by means of treaties, trade agreements, and membership in international trade institutions. The centerpiece of South Africa's foreign economic policy is the Southern African Development Community (SADC), comprising Angola, Botswana, the Democratic Republic of Congo (DRC), Lesotho, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Tanzania, Zambia, and Zimbabwe. The government's key policy objective is to strengthen trade and investment linkages between South Africa and the other SADC countries.

Trade with SADC countries increased dramatically during the period 1988 to 1997. At present, the ratio of South Africa's exports to imports to SADC countries stands at 6:1. Exports to the region are concentrated in high value-added sectors, such as minerals and base metals, chemicals, machinery, transport equipment, and food and beverages. The most important SADC purchaser of South African exports is Zimbabwe, followed by Mozambique, Zambia, Mauritius, Malawi, Angola, and Tanzania. Zimbabwe is also the largest source of imports, followed by Malawi, Angola, Zambia and Mozambique. The member states of the SADC are negotiating a Free Trade Agreement (FTA) to strengthen trade, investment, and industrial linkages within the region.

Europe is the biggest source of trade for South Africa. In fact, 7 out of 10 of South Africa's top trading partners are European countries. Britain is South Africa's largest single trading partner. British exports to South Africa were worth R14 billion in 1998 while South African exports to Britain totaled R22 billion. Trade between Germany and Africa rose in 1997: German exports to South Africa were valued at DM5.9 billion in 1997, while German imports from South Africa were up almost 16 percent to R9 billion in 1998. There has been a steady increase in bilateral trade between France and South Africa, and at the end of 1998, France was the fifth largest supplier of goods to South Africa. South African exports to France totaled more than R2 billion. Bilateral trade between South Africa and Switzerland is worth R6.384 billion a year. Almost 400 Swiss companies are represented in South Africa. Italy is one of the top 5 major trading partners of South Africa, with the 2-way trading relations amounting to R8 billion in 1997. In March 1999, South Africa concluded an historic trade agreement with the European Union (EU) that will result in the abolition of tariffs on more than 90 percent of trade between the 15 EU countries and South Africa within 12 years.

The United States is another of South Africa's largest trading partners. South Africa is a beneficiary of the U.S. Generalized System of Preferences (GSP), which grants duty-free treatment for more than 4,650 products. South Africa's exports to the United States increased from R5.2 billion in 1993 to R14.8 billion in 1998. South Africa also has important trading relations with Japan, South Korea, and countries in South America.

In 2000 South Africa enjoyed a trade surplus of US$3.2 billion on exports of US$30.8 billion and imports of US$27.6 billion.

MONEY

The South African rand was a very strong currency until the early 1980s. Due to political unrest the rand declined slowly but was controlled artificially by the government. After the first democratic elections in April

1994, the value of the rand dropped dramatically. In 1996 the South African rand was valued at R4.30 per U.S. dollar, but by May 2001 the rand was valued at R7.90 per U.S. dollar. The very weak rand causes imports to South Africa to be very expensive and almost unaffordable. However, the devalued rand does make it far easier to export South African products, which seem a bargain to foreign buyers.

The South African financial sector is very modern and can be compared with the best banking systems in the world. The central bank in South Africa is the South African Reserve Bank. The South African Reserve Bank is responsible for monetary policy, and for ensuring that the South African money and banking system is sound, meets the requirements of the community, and keeps abreast of developments in international finance.

South Africa has one of the oldest stock exchanges in the world. The Johannesburg Stock Exchange (JSE) was established on 8 November 1887. The JSE provides a market where securities can be freely traded under a regulated procedure. It not only channels funds into the economy but also provides investors with returns on investments in the form of dividends. All buying and selling of stocks on the JSE is done via computer.

POVERTY AND WEALTH

Due to South Africa's history of apartheid, a period when blacks were oppressed both politically and economically, the country's poverty and wealth profile is highly skewed to favor the white population. According to a study conducted in 1995, whites in South Africa, with per capita income of US$32,076, made 11.8 times more per capita than blacks (who had a per capita income of US$2,717), 5.1 times more than people of mixed-race (with an income of US$6,278), and 2.5 times more than Asians (with an income of US$12,963). In fact, South Africa has one of the most unequal distributions of wealth and income in the world. Recent research indicates that 40 percent of the households with the lowest income in South Africa earn less than 6 percent of total income, while the 10 percent with the highest income earn more

than half the total income. The average income of the top-earning 20 percent of the households is 45 times that of the bottom earning 20 percent.

The general population has high expectations of improvement in their quality of life, particularly concerning housing, education, healthcare, jobs and income. These expectations are the result of election promises by the ANC alliance, formalized in the so-called Reconstruction and Development Program (RDP). The RDP came into being as an ANC election document in the run-up to the 1994 election, and reflected the party's then dominant commitment to state intervention in the economy. According to the U.S. Department of State's Background Notes: South Africa, "The RDP was designed to create programs to improve the standard of living for the majority of the population by providing housing—a planned 1 million new homes in 5 years—basic services, education, and health care."

In 1996, as the government shifted to embrace free-market economic practices, it announced new plans to deal with poverty under a market-driven plan called Growth, Employment and Redistribution: A Macroeconomic Strategy. This plan took the a more market-based approach to economic improvement, using fiscal and trade policy to create jobs and lending less direct government aid to the impoverished.

WORKING CONDITIONS

South Africa has 17 million economically active people but a high unemployment rate of 30 percent in 2000. The unemployment problem is mainly related to structural factors, such as the high rate of population growth and the existence of large sectors of the economy that are poorly developed. The new government has pledged to reduce inequality in the job market by means of affirmative action in favor of non-whites, the disabled, and women. It has begun with a vigorous program of affirmative action in the public sector. A strong influx of illegal aliens from neighboring countries, particularly since 1990, has added to the rapid growth rate of the domestic population and the high unemployment rate. According to news reports, the ranks of squatters and criminals have been swelled by illegal aliens.

Affirmative action policies, high tax rates, and the rising crime rate have all helped to drive more highly skilled workers out of the country. The net loss of economically active persons in professional, technical, and managerial positions is very disturbing. Exact figures are difficult to determine, however, because many South Africans leave the country permanently without stating it clearly.

Both governments elected since 1994 have taken steps to secure and protect the rights of workers, especially black workers, in the South African economy. Among the rights listed in the Bill of Rights in the 1996 constitution were provisions guaranteeing workers the right to fair labor practices, the right to collective bargaining, the right to strike, and other labor friendly practices. Since that time, the government has created a number of laws friendly to workers, including a Labor Relations Act (which sets parameters for workplace bargaining and entrenches the right to strike); the Basic Conditions of Employment Act (which prescribes the maximum number of hours in a work week, leave, and overtime pay provisions, etc.); the Employment Equity Act (which sets out to eliminate discrimination in the workplace on the basis of gender, race, or disability); and the Skills Development Act (which aims to improve the general skills level throughout industry).

According to the U.S. Department of State Country Commercial Guide for FY2000: South Africa, "In 1997 there were 3.4 million union members in South Africa, or nearly 35 percent of the economically active population" (with the latter using a lower figure of 9.8 million workers used by the International Labor Organization). "The largest labor federation, the 1.8 million-strong Congress of South African Trade Unions (COSATU), is in a formal alliance with the African National Congress (ANC) and the South African Communist Party (SACP)." Many union leaders play a prominent role in government, contributing to the generally labor friendly reputation of the government. Unions have used strike threats to persuade employers to pay higher wages, and unions are particularly strong in the mining and industrial sectors. However, the recent tendency of the government to favor free market solutions to economic problems has led to tensions with organized labor.

COUNTRY HISTORY AND ECONOMIC DEVELOPMENT

1652. The first Dutch settlement is established on the Cape of Good Hope by the Dutch East India Company.In the coming decades, French Huguenots, the Dutch, and Germans establish settlements along the coast. Eventually, they go to war with indigenous peoples to establish their claims to the land.

1795-1803. First British occupation of the Cape, leading to tensions between the British and the Afrikaners, the name for the original European settlers in the area.

1806. Second British occupation of the Cape occurs.

1814. Holland cedes the Cape to Britain.

1836. Afrikaner farmers, known as Boers, undertake a "Great Trek" to establish settlements in the South African interior. They battle the native Zulus for control of the area. The Zulus retain control of some parts of the interior until 1879.

1847-49. British immigrants arrive in Natal, and soon sugar is grown in the area.

1852-54. The independent Boer Republics of Transvaal and Orange Free State are created, straining relations with the ruling British.

1869. Diamonds are discovered near Kimberley.

1880-81. The first Anglo-Boer War is fought between British troops and Afrikaner settlers (Boers).

1886. Gold is discovered in the Witwatersrand region of the Transvaal.

1887. Johannesburg Stock Exchange (JSE) is established

1899-1902. The second Anglo-Boer War breaks out, with the British gaining control of the Boer republics.

1910. The 2 republics and British colonies become the Union of South Africa, a self-governing dominion of the British Empire with Louis Botha as prime minister.

1912. Native blacks establish the South African Native National Congress (SANNC), which later becomes the African National Congress (ANC), to protest the creation of laws and practices based on color.

1927. Compulsory segregation is announced.

1930. White women get to vote.

1948. The victory of the National Party (NP) in all-white elections leads to the creation of a strict policy of white domination and racial separation known as "apartheid."

1950-52. Passage of strict racial laws.

1960s. Following protests in the town of Sharpeville that leave 69 black protestors dead and hundreds injured, the ANC and the Pan-African Congress (PAC) are banned and ANC leader Nelson Mandela is imprisoned in 1962 on charges of treason. From this time onward the ANC functions as an illegal but powerful opposition force for black rights in South Africa.

1961. The nation leaves the British Commonwealth and becomes the independent Republic of South Africa.

1984. Revisions to the constitution give colored and Asian people a limited role in the national government, but power remains in white hands.

1990. Following years of mounting black protest and increasing sanctions against South Africa because of apartheid, President F.W. De Klerk announces the unconditional release of Nelson Mandela from prison and the legalization of the ANC, PAC, and other anti-apartheid groups.

1991. The so-called "pillars of apartheid"—the Group Areas Act, Land Acts, and Population Registration Act—are officially rescinded.

1994. First democratic elections take place in April under a new constitution. The ANC wins a majority in the legislature and elects Nelson Mandela as president.

1996. National Party pulls out of the Government of National Unity (GNU). First official census occurs in post-apartheid South Africa.

1999. In the country's second democratic elections the ANC increases its majority in the legislature and selects Thabo Mbeki as president.

FUTURE TRENDS

South Africa's GDP is expected to grow at a modest rate of 3.0 percent a year in the decade from 1996 to 2005, well higher than the 1.7 percent annual growth registered in the years of economic adversity from 1975 to 1995. However, economic problems inherited from that period and the challenges of the political transformation will prevent the growth rate from reaching levels associated with more vigorous growth.

South Africa should enjoy a high level of foreign direct investment in the coming years, especially in comparison to the near total lack of such investment during the years when it was an outcast nation due to its apartheid policies. Years of underinvestment in infrastructure and housing among disadvantaged communities, coupled with government social spending targets set in the RDP, are likely to lead to a relatively high average growth rate of 6.5 percent in government expenditures. Even though unemployment is expected to increase, labor unions are likely to persist in demanding wage and salary increases to compensate them for inflation in the recent past. Both exports and imports are likely to be stimulated by trade liberalization .

Long-term interest rates are expected to remain high because of inflation and continued deficit spending by the government. Monetary discipline and the globalization on the money market will also keep upward pressure on short-term interest rates. The current political transformation makes it very difficult to forecast trends in the financial system, however.

As with any major political and economic transition, problems of adjustment are evident in the incidence of crime and violence in the major metropolitan centers. The concerns of foreign visitors are shared by all South Africans and are addressed by a comprehensive national crime prevention strategy focusing on all components of the criminal justice system. Solutions are also provided by the resurgence of urban renewal and re-development projects in the inner city areas of Johannesburg, Durban, and Cape Town, public works and programs in under-developed areas, and community development projects linking the youth to meaningful income generating opportunities.

Against the background of a rapidly transforming national economy, striving to expand and increase its competitive edge in world markets, the South African government has implemented a variety of incentive programs aimed at easing and accelerating the transition to competitive and sustainable manufacturing industries. These programs are geared to provide support for training and education, technology development, competitive prices for manufacturing inputs, and investment in competitive machinery and equipment.

A level of economic liberalization has accompanied South Africa's political transformation and is reinforced by a restructured civil society. The new constitution provides a solid foundation for political stability as a key cornerstone to long-term real economic growth.

DEPENDENCIES

South Africa has no territories or colonies.

BIBLIOGRAPHY

Arnold, Guy. The New South Africa. New York: St. Martin'sPress, 2000.

Bond, Patrick. Elite Transition: From Apartheid to Neoliberalism in South Africa. London and Sterling, VA: Pluto Press, and Pietermaritzburg, South Africa: University of Natal Press, 2000.

Du Toit, J., and A. J. Jacobs. Southern Africa: An Economic Profile. South Africa: Southern Book Publishers, 1995.

Economist Intelligence Unit. Country Profile: South Africa. London: Economist Intelligence Unit, 2001.

Ginsberg, Anthony Sanfield. South Africa's Future: From Crisis to Prosperity. New York: St. Martin's Press, 1998.

National Treasury. <http://www.treasury.gov.za>. AccessedOctober 2001.

Naude, W. A., and E.P.J. Kleynhans. Economic Development Decisions and Policy: A South African Manual. Potchefstroom, South Africa, 1999.

South Africa Government Online. <http://www.gov.za>. AccessedOctober 2001.

South African Embassy, Washington, D.C. USA. <http://usaembassy.southafrica.net>. Accessed October 2001.

South Africa Yearbook. Cape Town: The Rustica Press, N'dabeni,1999.

Statistics South Africa. Stats in Brief. Pretoria, South Africa, 2000.

U.S. Central Intelligence Agency. World Factbook 2001. <http://www.odci.gov/cia/publications/factbook/index.html>. Accessed September 2001.

U.S. Department of State. Background Notes: South Africa, April 2000. <http://www.state.gov/www/background_notes/southafrica_0004_bgn.html>. Accessed October 2001.

U.S. Department of State. Country Commercial Guide FY 2000: South Africa. <http://www.state.gov/www/about_state/business/com_guides/2000/africa/southafrica00.html>. Accessed October 2001.

WEFA. South Africa Long Term Economic Outlook, 1996-2005 .WEFA Group, Pretoria, South Africa, 1996.

WEFA. South African Macroeconomic Outlook. WEFA Group, Pretoria, South Africa, 2001.

Whiteford, A., D. Posel, and T. Kelatwang. A Profile of Poverty Inequality and Human Development. Pretoria, South Africa: Human Research Council, 1995.

World Economic Forum. The Africa Competitiveness Report, 2000/2001. Oxford: Oxford University Press, 2000.

—Wilma Viviers

A. Tromp

L. Campbell

CAPITAL:

Pretoria (administrative); Cape Town (legislative); Bloemfontein (judicial).

MONETARY UNIT:

South African rand. One rand equals 100 cents. There are coins of 1, 2, 5, 10, 20, and 50 cents and 1 rand. There are notes of 2, 5, 10, 20, 50, 100, and 200 rand.

CHIEF EXPORTS:

Gold, diamonds, other metals and minerals, machinery, equipment.

CHIEF IMPORTS:

Machinery, foodstuffs and equipment, chemicals, petroleum products, scientific instruments.

GROSS DOMESTIC PRODUCT:

US$369 billion (purchasing power parity, 2000 est.).

BALANCE OF TRADE:

Exports: US$30.8 billion (f.o.b., 2000 est.). Imports: US$27.6 billion (f.o.b., 2000 est.).