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TITLE:  SOUTH AFRICA ECONOMIC POLICY AND TRADE PRACTICES                           
DATE:  FEBRUARY 1994
AUTHOR:  U.S. DEPARTMENT OF STATE
                           
                           
                           
                           
                           SOUTH AFRICA

                     Key Economic Indicators
            (Billions of rand unless otherwise noted)


                                  1991      1992      1993  /1
Income, Production,
 and Employment

Real GDP (1985 prices)  /2        119.8     117.0     116.9
Real GDP Growth (pct.)             -0.4      -2.1       0.0
Real GDP (at current prices) /2   267.9     295.6     322.1
By Sector:
  Agriculture                      13.0      11.6      15.6
  Mining                           27.0      27.0      30.5
  Energy and Water                 11.7      12.7      13.6
  Manufacturing                    66.6      73.7      78.9
  Construction                      8.2       8.8       9.2
  Wholesale/retail trade           36.2      40.5      43.2
  Financial services               39.7      46.0      51.2
  Other services                    6.4       7.3       7.8
  General government               40.0      46.6      51.2
Net Exports of
 Goods and Services                 5.9       3.6       2.9
Real Per Capita GDP (1985 rand)   3,498     3,349     3,200
Labor Force (millions)  /3         11.6      12.0      12.3
Unemployment Rate (pct.) /3        39.0      40.0      46.0


Money and Prices
(annual percentage growth)

Money Supply (M2)                  16.1      10.9       1.81
Prime Overdraft Rate (pct.) /4     20.25     17.25     16.25
Personal Savings to
 Disposable Income (pct.)           1.6       2.6       2.2
Producer Price Index
 (year-end pct. change)            11.4       8.5       7.0
CPI (year-end pct. change)         15.3      14.0       8.0
Exchange Rate ($ per rand) /5
  Commercial Rand                   .36       .35       .31
  Financial Rand                    .32       .28       .22


Balance of Payments and Trade
 (billions of U.S. dollars)

Total Exports (FOB)                23.7      23.6       n/a
  Exports to U.S.                   1.7       1.7       1.7
Total Imports (FOB)                17.4      18.2       n/a
  Imports from U.S.                 2.1       2.4       2.4
Aid from U.S.
 ($ million USFY basis)           50.0      80.0      80.0
Aid from Other Countries            n/a       n/a       n/a
External Public Debt                6.8       6.5       n/a
Debt Service (paid)                 1.7       1.6       0.8
Gold and FOREX Reserves (gross)     9.8      11.2       9.2
Current Account Balance             6.2       3.9       2.9
  Trade Balance with U.S.          -0.4      -0.7      -0.7


notes:

1/  1993 Figures are all estimates based on monthly data as of
    June 1993.
2/  GDP at factor cost.
3/  Statistics depending on population data are unreliable;
    official black population and unemployment rates are
    understated.  While the Central Statistical Services no
    longer attempts to quantify black unemployment, most
    economists believe the rate is in excess of 40 percent. 
    Unemployment among other racial groups is lower.
4/  As of Dec. 31.
5/  Average annual rate.



1.  General Policy Framework

    South Africa is a middle-income country with a modern
industrial sector, well-developed infrastructure, and abundant
natural resources.  Most economists agree that South Africa has
the potential to grow at an annual rate above five percent; yet
annual economic growth over the past decade averaged less than
one percent in real terms; no new net jobs were created in the
manufacturing, mining, or agricultural sectors; and per capita
incomes declined sharply.  The rate of real GDP growth turned
negative in early 1989, and contracted by one-half percent in
both 1990 and 1991.  The decline in the economy became more
severe in 1992, as the nation battled the longest recession in
over eighty years.  Besides being affected by the present
worldwide recession and the worst drought of the century, the
South African economy's poor performance during this period
could be explained by several structural factors:

-- Apartheid policies have led to inefficient use of human
resources, underinvestment in human capital, labor rigidities,
and large budgetary outlays for duplicative layers of
government and facilities;

-- Consumer inflation persisted at double digit levels (since
the early 1970s) until 1993 when it dropped into the single
digits;

-- Labor productivity has been low and declining, outstripped
by high average wage increases;

-- The government has intervened extensively in the economy to
protect inefficient industries, provide employment to its
constituents, and combat foreign economic sanctions;

-- Foreign and domestic investment has been limited by
political uncertainty, continuing violence, labor unrest, and
the concern over the role of the private sector in a
post-apartheid South Africa.

    In 1993, GDP registered positive growth for the first time
in four years with 1.4 and 5 percent growth respectively in the
first and second quarters.  Despite the surprising increase in
the second quarter, which was due mainly to the recovery in the
agriculture sector, the rest of the economy is still bumping
along the bottom.  It is predicted that the South African 
economy will register zero growth over the full year of 1993.

    The South African government has taken steps to address
some of the structural problems within the economy.  While
there is a long way to go in eliminating the effects of
apartheid and meeting the aspirations of the black community,
some progress has been made in reducing economic distortions
caused by racial policies.  Legal restrictions which prevented
black South Africans from owning businesses, obtaining skilled
jobs, or living in major urban centers were lifted in 1991. 
Black trade unions have been recognized.  Spending on
socio-economic development for blacks, including education and
health care, has increased in recent years, although it still
remains far below spending on white services.  Much remains to
be done, and the effects of past policies, particularly the
legacy of the "bantu" education system, will be felt for many
years.

    Over the last decade, quantitative credit controls and
administrative control of deposit and lending rates largely
disappeared.  The South African Reserve Bank now operates
similarly to western central banks.  It influences interest
rates and controls liquidity through its rates on funds
provided to private sector banks, and to a much smaller degree
through the placement of government paper.  In the past three
years, restrictive monetary policy -- primarily the maintenance
of a relatively high central bank lending rate -- has sought to
curb domestic spending on imports and to reduce inflation. 
Economists believe that the downward trend in M3 growth and
producer prices is beginning to have an impact on consumer
price inflation, which has remained in the 15 percent range
primarily because of higher food prices due to the drought.

    Traditionally, South Africa has adopted conservative fiscal
policies.  In the late 1980's, however, revenues lagged behind
spending, leaving large deficits to be financed through
borrowing and putting pressure on private capital markets. 
Since 1990, the government of President de Klerk has adopted
more restrictive fiscal policies, although the 1992/93 budget
ended in a deficit of R31.1 billion, approximately 11 percent
of GDP, as spending outpaced revenues.  Estimates for the
deficit before borrowing in fiscal 1993/94 are significantly
lower, reaching R7.5 billion, or roughly 8.6 percent of GDP. 
Nevertheless, pressure is growing for the government to use
fiscal policy to address socio-economic needs in education,
health care and housing for the majority of South Africans.

    The South African government controls substantial portions
of the economy, including much of the petroleum,
transportation, armaments, electric power, communications,
aluminum, and chemical sectors.  In early 1988, then State
President P.W. Botha announced a program of widespread
privatization.  However, the proposal attracted much political
opposition, and further large-scale privatization has been put
on hold until a government of national unity is in place.


2.  Exchange Rate Policy

    Faced with large scale capital outflows in 1985, the
Reserve Bank reimposed comprehensive exchange controls, 
including a dual exchange rate previously abolished in 1983. 
The Bank maintains one exchange rate (the financial rand) for
foreign investment flows and outflows, and another (the
commercial rand) for all other transactions.  This effectively
cushions the economy from the effects of international capital
flows.  

    Under South African exchange regulations, the Reserve Bank
has substantial control of foreign currency.  The Reserve Bank
is the sole marketing agent for gold, which accounts for about
30 percent of export earnings.  This provides the Bank with
wide latitude in influencing short term exchange rates.  Except
for a period in 1987 when the bank followed an implicit policy
of fixing the rand against the dollar, monetary authorities
normally allow the rand to adjust periodically with an aim to
stabilize the external accounts.

    The instability in the international foreign exchange
markets and South Africa's weak overall balance of payments
caused the nominal effective exchange rate of the commercial
rand to depreciate by 4.8 percent in the second quarter of 1993
and by a further 0.3 percent by the end of August 1993.  (The
real effective exchange rate of the rand declined by 2.2
percent in the second quarter of 1993).  In this period the
rand depreciated against most of the currencies of South
Africa's main trading partner countries, particularly the
Japanese yen.  However, it also depreciated fairly sharply
against the U.S. dollar and British pound over this period. 
Owing largely to the continued interest in South African gold
mining shares and reasonably favorable progress in the
constitutional negotiating process, the financial rand remained
relatively stable during the first seven months of 1993.


3.  Structural Policies

    Prices are generally market determined with the exception
of petroleum products.  Purchases by government agencies are by
competitive tender for project or supply contracts.  Bidders
must pre-qualify, with some preferences allowed for local
content.  Parastatals and major private buyers, such as mining
houses, follow similar practices, usually inviting only
approved suppliers to bid.

    The primary source of government revenue in South Africa is
income tax.  Although the government planned to lower both
individual and company tax rates over five years, the present
recession induced revenue crisis ended the plan after its first
year.  The 1992/3 budget kept the maximum personal income tax
rate at 43 percent on incomes above R80,000 for married and
R56,000 for single taxpayers, and the corporate income tax rate
at a flat rate of 48 percent.

    In September 1991, the government shifted from a 13 percent
general sales tax to a 10 percent value-added tax levied on
many additional goods and services that had been exempt from
GST.  In April of 1993, the VAT rate increased to 14 percent in
an attempt to cover the shortfall in current government
revenues and to meet increasing demands for social spending. 
The government is also negotiating with labor and consumer
groups over the taxation of basic foods.  South Africa raises
additional revenue through customs duties, excise taxes, import
surcharges, and through estate, transfer, and stamp duties. 
There are no export taxes, but import duties as high as 100
percent in the case of certain luxury goods protect local
industry and provide substantial revenue.


4.  Debt Management Policies

    South Africa's external debt situation continued to improve
in recent years.  At the end of 1992, foreign debt amounted to
$17.3 billion, with the private sector accounting for about
$10.8 billion of this total.  The ratio of total foreign debt
to GDP in 1992 was 15.1 percent, and the ratio of interest
payments to total export earnings was 6.7 percent.  Debt
repayment obligations in 1993 are estimated to be R4 billion to
R5 billion, although increasing access to international capital
markets should allow South Africa to refinance at least half of
that debt.

    In 1985, faced with large capital outflows, intense
pressure against the rand, and a cutoff of its access to
foreign capital, the South African government declared a
unilateral standstill on amortization payments.  Interest
payments were continued, and amortization payments due to
international organizations and foreign governments were not
affected, obviating the need for a Paris Club rescheduling. 
The debt "standstill" was regularized in an arrangement with
private creditors in 1986.  In 1990, South Africa and its
private creditors negotiated a third extension of that
arrangement through the end of 1993.  In September of 1993, the
government, with the consensus of South Africa's major
political parties, finalized a debt agreement with major
western banks on $5 billion worth of mostly private debt caught
inside the "standstill net."

    South Africa is a member of the World Bank and
International Monetary Fund (IMF) and continues Article IV
consultations with the latter organization on a regular basis. 
With the establishment of the Transitional Executive Council
(TEC), South Africa's eligibility for Bank loans is now under
review.  Since July 1991, when President Bush lifted the Title
III sanctions of the Comprehensive Anti-Apartheid Act of 1986
(CAAA), the South African Government has been pressing its case
for access to IMF funds as a "safety net" for further expansion
of the economy and a seal of international approval on recent
government moves to dismantle the apartheid system.

    After some twenty-seven years of relative economic
isolation, South Africa appears set to become another IMF
borrower country.  Approval of the SAG's application to the IMF
for an estimated $850 million drought-related loan appears
imminent.  Gaining access to the drought facility will enable
the government to replenish its foreign exchange reserves and
normalize relations with the international financial community.


5.  Significant Barriers to U.S. Exports

    Under the terms of the Import and Export Control Act of
1963, South Africa's Minister of Trade and Industry may act in
the national interest to prohibit, ration, or otherwise 
regulate imports.  Current regulations require import permits
for a wide variety of goods, including foodstuffs, clothing,
fabrics, footwear, wood and paper products, refined petroleum
products and chemicals.  Surcharges on imported goods, which
range as high as 100 percent, are the most significant barriers
for U.S. exports.  The Department of Trade and Industry is
attempting to simplify its system of tariffs, but some tariffs
have been increased in the process, including hikes of up to
180 percent on certain steel products.  Local content
requirements also apply in certain industries, most notably in
motor vehicle manufacturing.

    The lifting of Title III sanctions in the Comprehensive
Anti-apartheid Act (CAAA) in July 1991 eased restrictions on
the import of certain U.S. products into South Africa and
permitted U.S. nationals to make new investments in South
Africa.  All remaining portions of the CAAA were repealed in
November 1993.  Regulations still prohibit U.S. firms from
exporting to South African police or military organizations. 
Arms exports to South Africa are also prohibited.


6.  Export Subsidies Policies

    Government incentives to export are divided into four
categories:  compensation for a portion of import duties; a
proportion (10 percent) of value added during manufacture;
financial assistance for activities such as market research and
trade fairs; and, income tax allowances.  Other direct and
indirect export subsidies are available to local manufacturers,
particularly for factories located in designated development
areas.  Subsidies include electricity and transport rebates,
export finance and credit guarantees and marketing allowances,
although these export policies are presently under review.

    Several different programs provide incentives for local
exporters.  The General Export Incentive Scheme (GEIS)
encourages the export of manufactured products with a high
value added content.  Provisions of the Income Tax Act provide
tax allowances for capital goods and property used to add value
to base metals and intermediate products for export and income
tax allowances for expenses incurred in promoting or
maintaining an export market.  The Export Marketing Assistance
Scheme, a limited program, provides assistance for export
market research and trade fairs and mission.  The Structural
Adjustment Program provides export incentives tailored to
specific industries, most notably motor vehicles and textiles
and clothing.  Under the Regional Industrial Development
Program, a new or relocating business can apply for incentives
under a uniform, five-year program by locating anywhere outside
the Johannesburg-Pretoria and Durban areas.


7.  Protection of U.S. Intellectual Property Rights

    South Africa's attendance at meetings of the World
Intellectual Property Organization (WIPO) has been barred by a
resolution of that organization, but it remains a member.  The
country is also a signatory of the Paris and Bern Conventions. 
South Africa's intellectual property laws and practices are
generally in conformity with those of the industrialized 
nations, including the United States.  There is no
discrimination between domestic and international holders of
intellectual property rights.  The basic objective of South
African government policy with respect to foreign intellectual
property rights holders is to secure access to foreign
technology and information.  Copyright legislation in 1992
provides further protection for computer software.

    Nevertheless, software piracy occurs frequently in South
Africa.  The Business Software Alliance (BSA), a worldwide body
with active anti-piracy programs in over 50 countries,
estimates that as much as 60 to 70 percent of South Africa's
software is pirated.  Its investigations reveal that for every
one legal software program in use, between three and four are
illegal.  In October 1993, the BSA brought the first legal
action against software pirates under the terms of the new
copyright legislation.  The U.S. motion picture industry
reports that piracy, including unauthorized public performance,
video piracy, and "parallel imports" pose a problem for doing
business in South Africa.  U.S. pharmaceutical firms operating
in South Africa express similar concerns regarding "parallel
imports."


8.  Worker Rights

    a.  Right of Association

    South Africa's Labor Relations Act entitles all private
sector workers to freely join labor unions which are
independent of direct government control.  Amendments to the
Act in 1989, however, made unions liable for financial
compensation to employers in the case of illegal strikes, with
the burden of proof upon the unions.  Following discussions
between the de Klerk government, employers and union leaders,
those amendments were rolled back in early 1991.

    In the past, as unions increasingly assumed the role of
voicing black worker demands for political rights, the
government imposed restrictions on their political activities. 
Government actions in that respect included raiding union
offices, restricting or banning union meetings and detaining
trade union leaders.  Such actions have now ceased.  The only
case of South African government direct intervention in union
activities since it lifted restriction on trade union political
activities in 1990 was the revelation of its financial support
to a pro-government union aligned with the Inkatha Freedom
Party.

    b.  Right to Organize and Bargain Collectively

    The South African government does not interfere with union
organizing in the private sector and has generally not
intervened in the collective bargaining process.  Collective
bargaining is freely practiced throughout the country with the
major exception of public servants, farm workers and domestic
servants who are not covered by the Labor Relations Act.  The
government had pledged in a 1990 agreement to extend basic
trade union rights to farm, domestic and public sector workers,
but has yet to take action on the issue.  Increased efforts to
unionize public workers resulted in illegal public sector 
strikes accounting for 14 percent of all strikes in the first
nine months of 1992.  The largest public sector strike, by the
National Education, Health and Allied Workers Union, was
particularly acrimonious and violent.

    c.  Prohibition of Forced or Compulsory Labor

    South Africa does not constitutionally or statutorily
prohibit forced labor; however, Dutch-Roman common law does not
permit it.

    d.  Minimum Age of Employment of Children

    South African law prohibits the employment of minors under
age 15 in most industries, shops and offices.  It prohibits
minors under 16 from working underground in mining.  There is
no minimum age at which a person may work in agriculture.

    e.  Acceptable Conditions of Work

    There is no legal minimum wage in South Africa.  The Labor
Relations Act provides a mechanism for negotiations between
labor and management to set minimum wage standards industry by
industry.  At present over 100 industries covering most
non-agricultural workers come under the provisions of the act. 
The Occupational Safety Act sets minimum standards for work
conditions and employment, and those standards are enforced.

    f.  Rights in Sectors with U.S. Investment

    The worker rights conditions described above do not differ
between the goods-producing sectors in which U.S. capital is
invested and other sectors of the South African economy.       


         Extent of U.S. Investment in Selected Industries

              U.S. Direct Investment Position Abroad
                on an Historical Cost Basis - 1992
                    (millions of U.S. dollars)

Category                                    Amount

Petroleum                                                 D
Total Manufacturing                                     501
    Food & Kindred Products                     D
    Chemicals and Allied Products             148
    Metals, Primary & Fabricated               45
    Machinery, except Electrical               92
    Electric & Electronic Equipment             D
    Transportation Equipment                   19
    Other Manufacturing                       149
Wholesale Trade                                          67
Banking                                                   0
Finance and Insurance                                     D
Services                                                  5
Other Industries                                         76

TOTAL ALL INDUSTRIES                                    871


(D)-Suppressed to avoid disclosing data of individual companies

Source:  U.S. Department of Commerce, Bureau of Economic
Analysis.

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