South Africa

In April 1994, the victory of Nelson Mandela's ANC party (African National Congress) in South Africa's first post-apartheid elections heralded a promising new era in the country's history. Mandela, an icon of the struggle against the apartheid regime, and his successor, Thabo Mbeki, have since worked to right the wrongs of the past.

One of the most daunting tasks they faced was reintegrating the economy into the global scene while narrowing its crippling social and economic inequalities.

South Africa is funnelling its wealth of natural resources into more value-added products for international markets.

In this huge ongoing process of economic transformation, South Africa has undeniable advantages. The country has an advanced infrastructure. Its roads and ports are the best on the African continent, and provide quick and easy access to the local market as well as excellent links to the rest of southern Africa. Telecommunications networks are extensively developed and reach all areas of the country. Mobile communications are particularly efficient and have seen spectacular growth in recent years.

Thanks to its ready provision of coal, South Africa also offers affordable electricity to its populace while maintaining reliable supply even at higher output levels. The country holds the world's largest reserves of gold, manganese, chrome, titanium, aluminum and platinum group metals, making it a major force in international commodity markets. Meanwhile, the diversity and stunning beauty of South Africa's landscape and wildlife is making it a tourist destination of choice.

On the other hand, the challenges are equally large. Twenty years of exclusion from the international community has created a warped, inward-looking economic structure, unduly focused on strategic industries such as mining, arms and oil. The apartheid regime also left much of the workforce underskilled and the labor market somewhat inflexible.

Furthermore, South Africa has not been spared the global economic turmoil of the past few years. The local currency, the rand, has lost fifty percent of its value against the U.S. dollar in the space of three years.

The country suffers from alarmingly high crime statistics, in particular around the main cities. This has often been amplified abroad and has so far significantly limited South Africa's attractiveness for tourism and business alike. Moreover, proximity to its more unstable and problematic neighbor Zimbabwe has unjustly contributed to preventing the delivery of its full potential for growth.

Faced with such problems, the duo in charge of guiding South Africa's economy - Alec Erwin at the Department of Trade and Industry and Trevor Manuel at the Ministry of Finance - have implemented policies that have received unanimous approval from developed countries. Erwin and Manuel can be credited with creating a climate of macroeconomic stability and avoiding many of the pitfalls of opening the economy to global competition. Since 1994, this team has done much to reassure investors and create the right conditions for growth.

Average tariffs on manufactured products were successively eased from 14 to 5 percent between 1994 and 2000, and bilateral free trade agreements are being actively pursued. The recent signing of such an agreement with the European Union will present new opportunities for South African products.
South African Trade and Industry Minister Alec Erwin

Currency exchange controls have been reduced significantly and no longer represent any obstacle to investment and trade flows. State intervention in the economy, widespread under previous governments, is now limited. The large state conglomerates have been extensively restructured and many have been privatized, although more work remains to be done.

Incentives have been introduced for companies to encourage export growth. In particular, Alec Erwin's Motor Industry Development Program has been highly successful in securing foreign investment, boosting local industry and obtaining lucrative export contracts around the world.

Yasukuni Enoki, Japan's ambassador to South Africa

The results are already starting to show. Manuel's team at the Ministry of Finance has succeeded in greatly reducing the budget deficit, which in 1993 stood at 11 percent of GDP. Since 1998, the figure has hovered around 2.5 percent of GDP. This has allowed the public debt ratio, which rose from 35 to 50 percent of GDP between 1990 and 1994, to stabilize and start declining in 2000.

The current account has inevitably moved to a deficit, because of the surpluses generated by economic isolation. But the shift is by no means out of control. At its greatest, in 1998, the current account deficit stood at little over 1 percent of GDP. Since then, however, it has stabilized at 0.5 percent of GDP.

The South African central bank has observed a strict monetary policy and managed to keep inflation low. From highs of up to 13.5 percent in the 1980s, inflation has been cut by half. With South Africa's reintegration into the global economy, trade has picked up and continues to grow at a rapid pace. Total imports into the country stood at $18 billion in 2000, from $11 billion in 1994, a 60 percent increase.

Exports have seen similar strong growth over the period, from $8.3 billion to $17 billion. Furthermore, while much of this outgoing trade still remains in minerals, metals, and agricultural products, the breakdown is clearly shifting towards more value-added products. In particular, motor vehicles, chemical products, and machinery equipment are doing increasingly well in foreign markets.

Japan has been a key participant in this. Between 1994 and 1999, Japanese direct investment into South Africa totalled $250 million. In the year 2000 alone, the figure already exceeded $100 million, and is growing rapidly. This places Japan in fourth position for inward investment, behind South Africa's more traditional partner countries such as the US, Britain, and Germany.

Trade has also flourished between the Japan and South Africa. Since 1994, Japanese imports into South Africa have increased by over 25 percent, and reached $1.5 billion in 2000. Japan's share of South Africa's growing imports now stands at close to 8 percent. South African exports to Japan have more than doubled in the same period, attaining $1.7 billion in 2000 for a market share of 8 percent.

Japanese companies have been in the forefront of the "beneficiation" process, which aims to increase the share of semi-finished, value-added goods in the export basket, as opposed to the traditional mineral and metal products that they have been trading in for years.

TOP