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U.S. DEPARTMENT OF STATE
SOUTH AFRICA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICES
BUREAU OF ECONOMIC AND BUSINESS AFFAIRS





                           SOUTH AFRICA

                     Key Economic Indicators
        (Billions of U.S. dollars unless otherwise noted)


                                   1992      1993      1994 1/

Income, Production and Employment:

Real GDP (1990 prices) 2/          83.7      74.1      67.6
Real GDP Growth (pct.)             -2.1       1.1       1.9
Real GDP (at current prices) 2,3/ 111.0     111.8     115.2
By Sector:
  Agriculture                       4.5       4.8       4.9
  Mining                            9.3       9.2       9.2
  Energy/Water                      4.5       4.3       4.2
  Manufacturing                    26.1      24.5      23.8
  Construction                      3.6       3.4       3.3
  Wholesale/Retail Trade           17.2      16.9      16.5
  Financial Services               17.2      17.2      17.3
  Other Services                    2.3       2.3       2.5
  General Government               16.6      16.1      15.8
Net Exports of Goods & Services     1.3       1.7       .08
Real Per Capita GDP (1985 rand)   2,412     2,084       N/A
Labor Force (millions) 4/          12.0      12.3      12.6
Unemployment Rate (pct.) 4/        40.0      46.0      46.0

Money and Prices:  (annual percentage growth)

Money Supply (M2)                  10.8       3.9      17.4
Prime Overdraft Rate
  (pct./year-end)                  20.5      16.9     17.25
Personal Savings To
  Disposable Income (pct.)          3.8       4.7       4.4
Producer Price Index
  (year-end pct. change)            8.3       6.6       7.9
Consumer Price Index
  (year-end pct. change)           13.9       9.7       8.2
Exchange Rate ($:rand/year avg.)
  Commercial Rand                   .35       .31       .28
  Financial Rand                    .21       .23       .22

Balance of Payments and Trade:

Total Exports (FOB)                23.5      24.0       6.2
  Exports to U.S.                   1.7       1.6       0.9
Total Imports (FOB)                18.2      18.0       5.0
  Imports from U.S.                 2.4       2.4       1.0
Aid from U.S. (millions/FY)        80.0      80.0     166.0
Aid from Other Countries            N/A       N/A       N/A
External Public Debt               17.3      16.7       N/A
Debt Service Payments (paid)        1.6        .8       N/A
Gold and FOREX Reserves (gross)    11.2      11.1       9.7
Balance of Payments on the
  Current Account                   1.4       1.8        .7
Trade Balance with U.S.            -0.7      -0.1      -0.7


N/A--Not available.
1/ 1994 figures are all estimates based on monthly data as of
June 1994.
2/ GDP at factor cost.
3/ Department of Commerce statistics.
4/ 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.



1.  General Policy Framework

    South Africa is a middle-income developing 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 recent 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 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 was low and declining, outstripped by
high average wage increases;

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

    --Foreign and domestic investment was 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 1.1 percent growth.  Two principal factors,
including a substantial increase (six percent) in the volume of
merchandise and net gold exports and a significant recovery in
agricultural production made a major contribution to this
revival in economic activity.  Although the agriculture sector
accounted for most of the growth during the early part of 1993,
the increase in economic activity spread to other sectors in
the second half resulting in growth in the mining,
manufacturing, electricity, gas and water, and commerce and
finance areas.  In 1994, the economy got off to a sluggish
start due to uncertainty surrounding the election and
transitional period and a large number of public holidays. 
Economists estimate that the South African economy will
register 2 - 2.5 percent growth over the full year of 1994.

    The new South African government has already taken steps to
address some of the structural problems within the economy. 
While there is a long way to go in eliminating apartheid's
legacy and meeting the black community's aspirations, some
progress has been made in reducing economic distortions caused
by the past's racial policies.  Legal restrictions which
prevented black South Africans from owning businesses,
obtaining skilled jobs, or living in major urban centers have
been lifted.  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. 
Nevertheless, high growth in the money supply along with large
increases in food prices have resulted in higher producer and
consumer inflation which are now approaching double digits.

    Traditionally, South Africa has adopted conservative fiscal
policy.  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. 
After 1990, the government of F.W. de Klerk adopted more
restrictive fiscal policies, and the new Government of National
Unity (GONU) has continued a fiscally conservative approach. 
Although the 1993/94 budget ended in a deficit of R31.4 billion
(approximately 8.6 percent of GDP as spending outpaced
revenues), estimates for the deficit before borrowing in fiscal
1994/95 are somewhat lower reaching R29.3 billion, roughly 6.8
percent of GDP.  (These figures are based on a GDP growth rate
of 3 percent).  The GONU says it will resist pressure 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.  Privatization of some state
assets has gained favor more recently, particularly as a way to
reduce the government's high level of indebtedness and to pay
for the new government's Reconstruction and Development Program
(RDP).


2.  Exchange Rate Policy

    Faced with large scale capital outflows in 1985, the
Reserve Bank reimposed comprehensive exchange controls,
including a dual exchange rate.  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 ailing foreign reserve position of the country and
socio-political uncertainties caused the nominal effective
exchange rate of the commercial rand to depreciate by 4.1
percent in the first quarter of 1994 and by a further 8.3
percent by the end of July 1994.  (The real effective exchange
rate of the rand declined by 7.5 percent from December 1993 to
July 1994).  In this period the rand depreciated against all of
the currencies of South Africa's main trading partners. 
However, it also depreciated fairly sharply against the U.S.
dollar and British pound over this period.  Concern over
political developments, labor unrest and profit-taking led to a
sharp depreciation of the financial rand in the beginning of
1994 to an all time low of R5.58 per dollar in April 1994. 
However, when it became apparent that the political transition
would be achieved peacefully, the finrand appreciated again to
R4.55 per dollar in May.  The most recent data put the discount
of the financial rand to the commercial rand at about 10
percent.

    Pressure and speculation on abolishing the dual currency
system has been intense.  Nevertheless, Bank Governor Chris
Stals and other leading economists dispute its eminent
abolition.  


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 1994/5 budget kept the maximum personal income tax
rate at 48 percent on incomes above R80,000 for married and
R56,000 for single taxpayers.  However, it reduced the
corporate primary income tax rate to 35 percent from an earlier
rate of 40 percent.  Corporations' secondary tax rate on
dividends was nevertheless increased by 10 percent.  The
1994/95 budget also imposed a "once-off" levy of 5 percent on
all income (both corporate and individual) over R50,000 to pay
for transition cost overruns.

    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 has continued to
improve in recent years.  At the end of 1993, foreign debt
amounted to $16.7 billion, with the private sector accounting
for about 10.7 billion of this total.  The ratio of total
foreign debt to GDP in 1993 was 14.2 percent, and interest
payments to total export earnings was 7.1 percent.  Debt
repayment obligations in 1994 are estimated to be R4 billion to
R5 billion, although increasing access to international capital
markets should allow South Africa to refinance at least one
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 a democratically elected government,
South Africa is now eligible for Bank loans.  Moreover, after
some twenty-seven years of relative economic isolation, South
Africa became another IMF borrower country. In December 1993,
the IMF approved the government's application for a
$850 million drought reserve loan.  Gaining access to the
drought facility enabled 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 40 percent on some items, 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
Antiapartheid Act 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.  With the removal of the
arms embargo against South Africa in May 1994, U.S. firms may
now export to the South African police and military
organizations, excluding Armscor/Denel and any of their
subsidiaries.  The State Department currently maintains a
denial policy on these firms pending the satisfactory
resolution of a criminal case involving Armscor.  At this time,
American firms are prohibited from trading munitions list items
with these companies.

    Responsibility for administering controls on dual use
nuclear technology rests with the Directorate of System
Co-ordination with the Department of Trade and Industry. 
Legislation on the regulation of such technology is however
still pending and has only recently been published for public
comment (October 14, 1994).


6.  Export Subsidies Policies

    South African 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 promotion; 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.  The South African Government recently
revised GEIS on October 1, 1994.  Under this most recent
revision, subsidies for fully manufactured products will be
lowered from 25 percent to 14 percent of export value on
October 1; 12 percent on April 1, 1996 and 10 percent on April
1, 1997.  The subsidy for partially manufactured goods will
drop from 12.5 percent to 3 percent on October 1; 2 percent on
October 1, 1996 and zero a year later.  The subsidy for raw
materials will drop from 7.5 percent of export value to 2.5
percent on October 1 and below 2 percent on April 1, 1995.  The
subsidy for raw materials will drop from 7.5 percent of export
value to 2.5 percent on October 1 and below 2 percent on April
1, 1995.

    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.  Income tax allowances are
also provided 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 missions.  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 establishment
incentives or tax breaks 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) was barred in the
past by a resolution of that organization, but it remains a
member.  As with South Africa's participation in all UN
specialized agencies, its status is currently under review. 
The country is also party to the Paris and Berne 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 programmes 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
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 also
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."

    In addition, trademark concerns are becoming increasingly
evident.  Local companies and street vendors often "own" the
trademarks of internationally known concerns.  New trademark
legislation was passed in January 1994 and is now awaiting
implementation regulations.


8.  Worker Rights

    a.  The Right of Association

    Current South African labor law entitles all workers in the
private sector to join labor unions of their choosing. 
However, the patchwork nature of that law effectively inhibits
trade union activity.  The result is an uneven and sometimes
volatile labor relations climate, in which trade unions must
rely as much on their own organization and strength as on their
legal rights to achieve their objectives.

    The recently-elected government of national unity is
drafting a new Labor Relations Act designed to consolidate and
simplify South African labor law.  The new law will conform to
the right of freedom of association declared in the interim
constitution, and promote quick and effective industrial
dispute resolution by clarifying the rights and
responsibilities of workers and employers.

    Historically, public sector employees have been legally
prohibited from striking.  The 1993 passage of a Public Sector
Labor Relations Act, while clarifying the collective bargaining
process for public sector employees, still sharply restricts
strike activity.  Until a transparent and fair system of
dispute resolution is in place, the public sector will continue
to be a labor relations flashpoint.

    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.  South African
law prohibits discrimination by private sector employers
against union members and organizers.

    In spite of recent legislative changes, collective
bargaining still does not apply to farm workers and domestic
workers.  Recent passage of the Public Sector Labor Relations
Act (PSLRA) clarifies dispute resolution in the public sector,
but has been criticized by the Congress of South African Trade
Unions (COSATU) as undermining collective bargaining by
unnecessarily restricting public sector strike activity.  That
said, the Ministry of Labor's plans to consolidate the PSLRA
into a single labor relations act has been resisted by
independent public sector unions and associations.

    Private mediation services are available and have been
voluntarily resorted to by management and black trade unions to
resolve industrial disputes.  The Labor Relations Act
establishes an industrial court to rule in labor-management
disputes.  The most common complaints filed with the court
concern dismissals, followed by unfair labor practices.  A
labor court of appeals oversees the industrial court and can
overturn its decisions.

    c.  Prohibition of Forced or Compulsory Labor

    Forced labor is specifically prohibited by the interim
constitution.

    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 national 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.

    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--1993



                    (Millions of U.S. dollars)
                                                                
              Category                          Amount          

Petroleum                                             (1)
Total Manufacturing                                   544
  Food & Kindred Products                   (1)
  Chemicals and Allied Products             149
  Metals, Primary & Fabricated               41
  Machinery, except Electrical              124
  Electric & Electronic Equipment           (1)
  Transportation Equipment                   22
  Other Manufacturing                       156
Wholesale Trade                                        76
Banking                                                 0
Finance/Insurance/Real Estate                         (1)
Services                                                6
Other Industries                                       32
TOTAL ALL INDUSTRIES                                  925      

(1) Suppressed to avoid disclosing data of individual companies
Source: U.S. Department of Commerce, Bureau of Economic
Analysis


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