Republic of South Africa; expected political growth and economic slowdown in 1990

REPUBLIC OF SOUTH AFRICA Expect Political Growth and Economic Slowdown in 1990

This should be a year of political growth but economic slowdown for South Africa. The country and its 30 million people are moving into an era of negotiations about the ending of apartheid and the creation of a democratic, non-racial South Africa. Immediate developments include the release of Nelson Mandela, the unbanning of the opposition parties, and Mandela's assumption of the role of the African National Congress' chief negotiator, South Africa's President F.W. DeKlerk has staked his and his country's future on his daring willingness to open up political negotiations.

On the economic side, South Africa has seen its rapid growth of 3.7 percent in 1988 slow to no more than 2 percent in 1989, and prospects are that a rate more than 1 percent would be optimistic for 1990. The cause of the slowing of the economy has been the need to restrict imports sufficiently to generate the 4 to 6 billion rand surplus required to meet the debt repayment schedules negotiated in 1987 and 1989.

Without benefit of either IMF or World Bank funding, South Africa has embarked on its own structural adjustment efforts: higher surcharges to reduce imports; positive interest rates to reduce borrowing and increase savings; increased government revenues to mop up excess liquidity; and privatization of state-owned enterprises through share sales. With regard to the latter, the previously state-owned Iron and Steel Corporation (ISCOR) was completely privatized in 1989. Plans are under way for similar treatment for the Electricity Supply Commission (ESCOM). The need for fiscal rigor will continue at least through 1992, after which the debt repayment burden should lessen.

That American exports to South Africa in 1989 fell by only $30 million out of a total for U.S. exports of nearly $1.7 billion is evidence of the competitiveness of U.S. companies and the key market niches which American products have found in the mining, chemical, and processing control industries in that country. Capital goods for the mining, computer, and transportation sectors, together with intermediate inputs for the chemicals and paper industries, should continue to present strong sales opportunities for U.S. exporters in 1990.

Major mining developments are under way in platinum group metals to satisfy the world's increasing demand for platinum in catalytic converters to meet more stringent clear air requirements. Much heavy construction equipment and power generating equipment will be needed for the Lesotho Highlands Water Project, a joint $2 billion venture between South Africa and neighboring Lesotho. Moreover, it is not too early for U.S. firms to begin assessing the prospects that will exist for them in a post-apartheid South Africa, particularly those companies specializing in franchising; educational planning, services, and supplies; delivering of rural health care services; and building mass small-unit housing. With this in mind; U.S. firms are encouraged to work with the Commerce Department's US&FCS staff in Johannesburg to explore business relationships with South Africa's black entrepreneurs. Investment relationships with non-white South Africans are permitted under the terms of the Comprehensive Anti-Apartheid Act (CAAA).

The sanctions encompassed in the CAAA will remain as they are until South Africa meets at least two additional conditions specified in Section 311 of the statute: the release of political prisoners, and the ending of the state of emergency. Questions as to the specifics of those sanctions may be directed to the Commerce Department's South Africa Desk Officer on (202)377-5148.

COPYRIGHT 1990 U.S. Government Printing Office
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