The South African Economy

Domestic Output

Domestic Expenditure

Foreign Trade

Bilateral Investment Treaties

Management of Multilateral Trade Relations

Industrial Policy

Manufacturing

Restructuring of State Assets

Competition Policy

Small Enterprise

Institutional Support Framework

Public Works Program

Human Resources and Employment

Presidential Jobs Summit

Trade Unions

Strikes

 

 

The South African Economy

South Africa is a middle-income developing country with an abundant supply of natural resources; well-developed financial, legal, communications, energy and transport sectors; a modern infrastructure, and a stock exchange which ranks among the ten largest in the world. At the same time, the challenges which the country faces are to create a strong and balanced economy in order to eliminate poverty, develop a dynamic human resource capacity, facilitate the creation of a prosperous southern African region and engage the world economy in a sustainable manner.

In the context of the internationalization of production processes and the integration of commodity, financial and technological markets into a single market, South Africa, like other developing countries, is highly susceptible to trends in the economies of its major trading partners.

The defining feature of 1998 was the havoc wreaked in the global economy by the onset and subsequent spreading of the East Asian financial crisis. South Africa was partially protected from the worst of the crisis. This was primarily due to a stable macroeconomic environment and the soundness of the domestic financial system. However, there were some negative consequences from the Asian crisis – the most important being that the economy was diverted from its growth trajectory for the year.

    


Foreign Trade and Payments

Weak export growth in the second half of 1998, coupled with a marked increase in import demand for high-value capital equipment, resulted in the trade balance moving from a surplus in the first half of the year to a deficit in the second half. A decline in net service payments to the rest of the world from the third quarter of 1998 to the fourth quarter served as some cushioning for the negative balance on the current account in the last quarter of 1998.

Overall, the deficit on the current account increased from 1,5 per cent of GDP in 1997 to 2,1 per cent of GDP in 1998.

In 1998 there was a surplus of R5,9 billion on the trade account, but this was relatively small compared to the surplus of R9,1 billion recorded in 1997.

Export volumes were adversely affected by the fall in demand from Asia. The volume of merchandise exports declined by 3 per cent in the third quarter of 1998 and by 3,5 per cent in the fourth quarter. However, the physical quantity of merchandise exports still increased by 2 per cent in 1998 as a whole, after a growth of some 4,5 per cent in 1997.

The prices of merchandise exports, many of which are determined in foreign currency, benefited from the depreciation of the rand. However, a decline of almost 5 per cent was registered in rand export prices from the third to the fourth quarter of 1998 owing to continually depressed international commodity prices and the slight strengthening of the rand.

The combined effect of the drop in export volumes and prices, was a lowering in the seasonally adjusted and annualized value of merchandise exports from R137,2 billion in the third quarter of 1998 to R25,7 billion in the fourth quarter.

The value of net gold exports, seasonally adjusted and annualized, rose from R26,9 billion in the third quarter of 1998 to R28,2 billion in the fourth quarter. Factors contributing to this growth in gold exports include an increase

  • of about 4 per cent in the physical volume of gold exports

  • in the averaging fixing price of gold on the London market (from 288 US dollar per fine ounce in the third quarter to 294 US dollar in the fourth quarter).

Capital account of the balance of payments (R million), 1992 – 1998

Capital movement*



Period

Private sector

Public authorities, public corporations and the banking sector

Total capital movements (net inflow)

SDR allocations and valuation adjustments

Total change in gross gold and other foreign reserves

Long term

Short term

Long term

Short term

1992

-3 964

-6 167

2 453

3 267

-4 411

326

1 698

1993

2 675

-11 934

-2 947

-2 756

-14 962

1 609

123

1994

775

-4 714

2 728

5 305

4 094

344

2 818

1995

7 255

-6 686

10 975

6 968

18 512

315

3 596

1996

1 330

-13 527

5 409

8 977

2 189

3 245

-1 864

1997

11 171

-11 152

18 865

791

19 675

257

19 208

1998**

20 072

-22 685

5 137

6 553

9 077

6 165

6 305

* A minus sign indicates an outflow
** Provisional figures
Source: South African Reserve Bank

 

Production and consumer price indices, 1992 – 1998

Production prices of goods for domestic use
(June 1995 = 100)

Consumer prices (1995 = 100)

Period

Goods produced in South Africa

Imported goods

All goods

Goods

Services

All items

Food

All goods

1992

78,0

83,3

78,8

75,7

77,1

76,3

77,0

1993

83,4

87,4

84,1

80,9

85,1

82,9

84,5

1994

90,8

92,2

91,0

92,0

93,1

90,3

92,1

1995

99,8

99,2

99,7

100,0

100,0

100,0

100,0

1996

107,3

104,5

106,6

106,1

106,2

109,5

107,4

1997

115,5

109,7

114,2

116,4

114,8

119,5

116,6

1998

119,6

113,1

118,2

123,7

121,7

128,9

124,6

Source: South African Reserve Bank

Large increases in the volume of imports were registered in the manufactured goods category for 1998. Increases in this category stemmed primarily from the persistent high level of real aggregate final demand in the economy, including aircraft purchases, a commitment to the expansion of the telecommunications network and the export contracts of automobile manufacturers requiring imported intermediate goods and equipment to avoid paying higher prices later. The result was that the volume of imported goods in the first three quarters of 1998 was 1,8 per cent up from the corresponding period in 1997. Excluding South African Airways (SAA) aircraft purchases, import volumes would have declined by 2,5 per cent in the fourth quarter. For 1998 as a whole, the volume of total merchandise imports increased by 2 per cent, after a growth rate of 5 per cent in 1997.

As import volumes dwindled, so did the import prices. Factors contributing to this scenario were declining output prices in South Africa’s main trading-partner countries and a mild appreciation in the average effective value of the rand from the third to the fourth quarter. The value of merchandise imports (seasonally adjusted and annualized) declined from R164,2 billion in the third quarter of 1998 to R156,4 billion in the fourth quarter. However, there was still a rise of about 14 per cent in the value of merchandising imports from 1997 to 1998.

Net service payments and transfer payments to non-residents, which had increased from a seasonally adjusted and annualized value of R16,7 billion in the first quarter of 1998 to R21,4 billion in the third quarter, declined to R17,4 billion in the fourth quarter. The drop was attributable to lower interest payments to non-residents following their large-scale selling of domestically registered bonds and a decline in payments for freight and insurance. Owing to the decline in net service payments to non-residents, the deficit on the current account narrowed to R19,9 billion in the fourth quarter of 1998, after having widened from R3,3 billion in the first quarter to R21,5 billion in the third quarter. As a percentage of GDP, the deficit on the current account increased from 1,5 per cent in 1997 to 2,1 per cent in 1998.

As the intensity of the Asian contagion subsided towards the end of 1998, the net flow of international capital (not reserves) was reversed from a net outflow of R3,6 billion in the third quarter of 1998 to a net inflow of R3,6 billion in the fourth quarter. This change in direction of capital flow was confirmation of improved investor sentiment towards South Africa.

There was a net inflow of long-term capital in the first three quarters of 1998, notwithstanding a net outflow in the third quarter, during which non-resident investors reduced their South African bond holdings on a large scale and locally registered banking institutions increased their offshore direct investments. Net inflow of long-term capital subsequently returned in the fourth quarter of 1998, taking the net inflow of long-term capital to R25,2 billion for the year as a whole. In 1997, the inflow of long-term capital amounted to R30 billion.

The persistent outflow of short-term capital during the first three quarters of 1998 turned into a net inflow of R2,8 billion in the fourth quarter of 1998. Much of this reversal represented the delayed repatriation of export earnings after the repatriation period had been extended by exchange control authorities from 30 days to 180 days.

The gross gold and other foreign reserves of the country, including the borrowed reserves of the South African Reserve Bank, declined from R44 billion at the end of the third quarter of 1998 to R41,8 billion at the end of the fourth quarter. Overall, the country’s gross gold and foreign reserves declined from 7,3 billion US dollar at the end of December 1997 to 7,1 billion US dollar at the end of December 1998.

Aggregate import cover, i.e. the value of gross international reserves expressed as a ratio of the value of imports of goods and services, was estimated at about 10,5 weeks at the end of 1998 – broadly unchanged from the end of 1997.

The average exchange value of the rand against a basket of four currencies depreciated by 3,2 per cent from December 1997 to April 1998. The decline was larger than the inflation differential between South Africa and its main trading partners, implying that the competitive standing of domestic producers in export markets was heightened somewhat by the currency depreciation. From the middle of April 1998, non-resident investors began to reduce their holdings of South African bonds. This led to an excess supply of rands on the foreign exchange market, a scenario which was exploited by highly leveraged international investors and other currency speculators who sold rands to establish short positions which would allow them to profit from a fall in the foreign exchange value of the rand. The selling of rands was so severe that the average nominal effective exchange rate of the rand declined by 21,6 per cent from the end of April to the end of August 1998. The rand weathered the effects of the Russian moratorium on government debt repayments in August 1998 and began to strengthen at the beginning of September. The appreciation was to some extent assisted by the closing of positions by some currency speculators who were left with short positions at a less profitable exchange rate than they had expected. In general, the rand strengthened by 6,7 per cent against the four-currency basket from the end of August to the end of December 1998.

    


Foreign trade

The importance of foreign trade to the economy is evident both from the ratio of its exports (goods and non-factor services) to GDP, and from the ratio of imports (goods and non-factor services) to gross domestic expenditure. Despite attempts to diversify its export base, South Africa is still largely reliant on the export of primary and intermediate commodities to industrialized countries. However, manufactured goods account for about 70 per cent of exports to Africa.

Merchandise exports, based on preliminary figures, represented 83 per cent (R129,1 billion) of South Africa’s total exports (merchandise plus net gold exports and excluding receipts for services) in 1998.

Net gold exports are responsible for a large part of foreign exchange earnings. Earnings from this source are, however, directly linked to the international gold price. In 1998, net gold exports amounted to 17 per cent of merchandise exports.

Imports mainly comprise capital goods, raw materials, semi-manufactured goods (approximately 76 per cent of total trade imports) and consumer commodities.

In November 1998, the National Export Week was held in Midrand, Gauteng. The week was attended by representatives of the International Trade Center and aimed to raise the awareness of exporters about the services and service providers available.

The week culminated in the presentation of the prestigious President’s Award for Export Achievement. The company Continental Tyre SA (Pty) Ltd took top honors overall as well as in the Plastics and Chemicals category. The other winners were KWV, Durban Clothing Manufacturers, Energy Measurements, Macadams Bakery Manufacturing, Consani Engineering, Rand York Minerals, Swasap, Intertrading, Tradewinds Parasol and Burger International.

At the end of the export week, the Government and the business sector announced details of a joint exporting strategy. A key part of the strategy is the establishment of a National Export Advisory Council, several working groups and sectoral export targets. The council consists of senior government officials, parastatals and business associations and advises the Minister of Trade and Industry and the Government on export related matters. The working groups will investigate the development of sectoral export strategies; improvements in export finance; transport and logistics, and further development of an institutional capacity within the business sector.

Another key element of the strategy is a small exporters’ program aimed at identifying and nurturing the development of 100 small exporters every year.

Overall export targets include increasing the contribution of finished manufactured  exports to total South African exports over the next three years from 20 per cent to 30 per cent. The targets also include raising manufactured exports by 14 per cent a year in real terms and increasing the penetration of South Africa’s exports in non-traditional markets. 

Trade relations

South Africa maintains formal trade relations with various countries by means of treaties, trade agreements and membership of international institutions concerned with trade.

The country’s trade is likely to be increasingly driven by its foreign policy. Evidence of this is the growing number of official missions undertaken at the highest level by the President and Deputy President and other ministerial delegations to countries which, during the sanction years, had not officially traded with South Africa. Countries in the Far East, the Middle East and Africa are becoming important focus areas. (See also Chapter 9: Foreign relations.)

Trade relations with Africa and the Middle East

The conditions regarding a South African value-added export strategy in the Southern African Development Community (SADC), Africa (excluding the SADC) and the Middle East are guided by the country’s capacities in the domestic economy, the related targeting policies for increasing manufactured employment, and the capacities of the receiving market to absorb South African exports. While the Department of Trade and Industry’s efforts in SADC markets have tended to follow a path of trade and investment integration, efforts in the rest of Africa and the Middle East have tended to focus on export marketing, outward investment projects and the resultant export demand created by such investment projects.


The US Agency for International Development (USAid) has become involved in a project called Retail Loan Program aimed at increasing micro-enterprises’ access to finance.

Short and medium-term working capital loans of between R5 000 and R50 000 are made available to established micro-enterprises in all sectors that are deemed ‘unbankable.’ By May 1998, 130 loans worth about R2,4 million had been disbursed since the project’s launch in 1997.


The Department has restructured a number of services to achieve greater value-added exports to these regions. This is done by means of the following strategies:

  • Analysis of  the market opportunities, barriers and business climate in these regions, as well as defining and shaping the nature of the government-to-government relationship as it affects the economic relationship for South African operators. These are available to South African companies in the form of country-strategy publications by the Department. The following country analyses are available: Uganda, Kenya, Mauritius, Tanzania, Egypt, Israel, Saudi Arabia, the United Arab Emirates (UAE), Ghana, Côte d’Ivoire, Senegal, Nigeria, Madagascar, Morocco, Tunisia and Algeria.

  • The export strategies of individual South African firms are supported in the form of non-financial services such as the Export Help Desk at the Department’s headquarters which serves as a port of first call for exporters trying to access the Department’s export services. Sector export promotion specialists at the Department’s headquarters provide the next tier of service available to prospective exporters. A further initiative has been the facilitation of export action groups by sector specialists  to help sectoral groupings to formulate export strategies for these regions.

  • Work done by  the Department’s trade promoters in these regions. These offices are located in Egypt, Côte d’Ivoire, Kenya, Ethiopia, Tanzania, Zimbabwe, Mauritius, Angola, the UAE, Saudi Arabia, Israel and Iran. The offices have been instrumental in providing South African exporters and service providers with the necessary support in achieving success.

  • Provision of marketing-related financial assistance for exporters.  This entails support for primary research, selling trips, exhibitions, export-action group formation, export finance for capital goods or projects, insurance for exports and export finance for small businesses.

Southern African Development Community

The centerpiece of South Africa’s foreign economic policy is the SADC, comprising Angola, Botswana, Democratic Republic of Congo (DRC), Lesotho, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Tanzania, Zambia and Zimbabwe. The 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. Imports from the SADC increased from R531 million (less than 1 per cent of total imports) to R2,5 billion (in excess of 2 per cent of total imports) during that period. The increase in South Africa’s exports to the region was even more dramatic – from R2 billion in 1988 (4 per cent of total exports) to R15,2 billion in 1997 (11 per cent of total exports).

At present, the ratio of South Africa’s exports to imports 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. These sectors generate overall growth and high wage formal employment in the domestic economy – and have grown dramatically – almost tripling between 1992 and 1997.

A disaggregation of South Africa’s exports to the SADC country by country reveals that Zimbabwe is the most important market, followed by Mozambique, Zambia, Mauritius, Malawi, Angola and Tanzania.  On the import side, Zimbabwe features as the most important source of imports, followed by Malawi, Angola, Zambia and Mozambique.

South Africa’s interests and objectives in the southern African region are guided by the existence of strong linkages between the domestic and regional economy. As the market for a large proportion of South Africa’s high value-added exports, the growth of the SADC economies is inextricably linked to the growth of the region’s economies.

In order to strengthen trade, investment and industrial linkages within the SADC region, the member states are engaged in negotiations to conclude a Free Trade Agreement (FTA). The Department has been active in promoting trade and investment through business missions to SADC countries. Once the FTA is implemented, the trade integration which it will foster will provide a range of opportunities for industrial development within the SADC region in the form of regional specialization and processing.

South Africa has been decisive in propelling negotiations to achieve a free trade area towards conclusion. After extensive consultations with other government departments, the Parliamentary Portfolio Committee on Trade and Industry, Southern African Customs Union (Sacu) member states (Botswana, Lesotho, Namibia and Swaziland), as well as with stakeholders at the National Economic Development and Labor Council (Nedlac), South Africa has structured a tariff order which should set the process of implementing an FTA in motion.

The trade offer was notified in the Government Gazette of 11 September 1998, and all stakeholders have been invited to comment. Once the latter have been incorporated into the trade offer, an intensive period of negotiations with the SADC member states – addressing both tariff and non-tariff issues – is envisaged. This should ensure the rapid conclusion and implementation of a free trade area in the near future.

During 1998, the Department led business missions to Angola, Mauritius and Tanzania. The missions provided a number of trade and investment opportunities which offer high returns, but which also contribute to investment, technology transfer, employment and input for local production in these  countries.

On the investment side, the implementation of Spatial Development Initiatives (SDIs) throughout the SADC region, coupled with trade and investment missions led by the Department of Trade and Industry from South Africa to SADC member states, has resulted in substantial investments in the region that are mutually beneficial to South Africa and the recipient countries. The following progress has been made:

  • The Maputo  Development Corridor is expected to attract 7,6 billion US dollar in investment in terms of the projects identified by March 1999. Successful implementation of the project is ongoing.
  • The Walvis Bay SDI  has been approved by the Namibian Cabinet and the process of implementation has been set in motion.
  • The Nacala, Beira and Lobito corridors were  the focus of the Department of Trade and Industry during 1998. Discussions with Angola, Mozambique, Malawi, Zimbabwe and the DRC are at a very advanced stage and the prospects for implementation in the near future appear to be positive.

Coupled with the extension of the mandates of the Development Bank of Southern Africa and the Industrial Development Corporation (IDC) to provide finance to the entire SADC region for the development of infrastructure and industry, these initiatives have played, and will continue to play, an important role in stimulating investments to SADC member states, leading to higher growth, employment and industrial development in the recipient countries.

Trade with Europe

Europe is the biggest source of investment for South Africa, and accounts for almost half of South Africa’s total foreign trade. Seven out of ten of South Africa’s top trading partners are European countries.

Since the end of South Africa’s isolation and the gradual easing of exchange control announced in July 1997, Europe has become an important destination for South African investment and a vehicle for effective integration into the global economy. At the same time, European investment in South Africa has assumed a larger and more important dimension. Both bilateral development co-operation and multilateral development programs through the European Union (EU) form a substantial element of South Africa’s reconstruction and development. Relations with Europe, with the EU as the pivot, are economically crucial.

Britain is South Africa’s largest single trading partner and its biggest export market. British exports to South Africa were worth R14 billion in 1998 while South African exports to Britain totaled R11 billion.  In May 1998, a trade promotion campaign called Britain and South Africa: Partners in Opportunity, was launched. The campaign will be funded by the British Government to the tune of R17 million over three years to encourage trade relations between British and South African companies.

Also in May 1999, South Africa and the United Kingdom (UK) signed an investment promotion and protection agreement.

In July 1998, the British Minister for Small Firms, Trade and Industry led a delegation on a visit to South Africa to investigate investment opportunities. In September 1998, the British Trade and Industry Minister paid a visit to South Africa to open the UK-South Africa Partnership Week in Johannesburg.

Trade between Germany and Africa rose in 1997, with South Africa remaining the single most important African partner for both imports and exports. German exports to South Africa were valued at DM5,9 billion in 1997, a rise of 7 per cent over previous years. German imports from South Africa were up almost 16 per cent to R9 billion in 1998. The German-South Africa Binational Commission (BNC) was inaugurated in 1997. The Commission with its five committees is intended to build further on the strong commercial links that already exist between the two countries.

In March 1998, Germany’s former Federal President, Dr Roman Herzog, visited South Africa – the first visit to the country by a German Head of State.

In February 1998, relations between South Africa and Norway were strengthened when King Harald V and his wife, Queen Sonja, arrived in the country on a State visit.

In April 1998, a trade and investment mission led by the Minister of Trade and Industry visited the Netherlands. The Minister hosted an investment conference in The Hague. The Deputy Minister of Trade and Industry led another delegation to the Nordic countries in May.

Trade between South Africa and Denmark has increased significantly since the first democratic election in 1994. Denmark has also been giving substantial aid to South Africa since that time.

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. The Joint Economic Commission between South Africa and France, established by an intergovernmental protocol in March 1995, held its second meeting in Paris in November 1998. The growing number and diversity of events over the months following the last meeting of the Commission were welcomed as evidence of an intensification of relations between the two countries. Specific actions undertaken by both sides during this period, including the France Technologies exhibition, held in July 1997 and the French-South African Forum, held during President Jacques Chirac’s visit to South Africa in June 1998, were seen as important for consolidating and promoting co-operation between South African and French firms. Various seminars, visits, exhibitions, bilateral agreements and financing concessional agreements, among other things, also contributed to the strengthening of bilateral relations.

In August 1998, South Africa and the Belgo-Luxembourg Economic Union (BLEU) signed an agreement on the promotion and protection of mutual investments. The treaty is aimed at stimulating direct investment in South Africa and giving the country access to Belgium and Luxembourg markets. The BLEU is among South Africa’s 15 largest foreign trade partners and mutual investment is growing.

Bilateral trade between South Africa and Switzerland is worth R6,384 billion a year. Almost 400 Swiss companies are represented in South Africa. In August 1998, Swiss President Flavio Cotti arrived in South Africa on a State visit.

In June 1998, the then President Nelson Mandela departed on a State visit to Italy at the invitation of President Oscar Luigi Scalsaro. Italy is one of the top five major trading partners of South Africa, with the two-way trading relations amounting to R8 billion in 1997.

At the end of September 1998, South Africa signed an investment agreement with Spain. The treaty, together with a double taxation agreement which is being negotiated, will boost trade relations between the two countries.

In October 1998, South Africa’s Minister of Foreign Affairs  visited Portugal to strengthen trade ties. Two-way trade between the two countries totaled R861 million in 1998.

In November, the Greek Foreign Minister visited South Africa to further the work of the South African Hellenic Chamber of Commerce. Greek investment in South Africa totals R36 billion. Two-way trade totaled R861 million in 1998. Five agreements were signed, among them the avoidance of double taxation and the promotion and protection of investments.

Equally important for both economic development to underpin internal progress, and international integration, are South Africa’s relations with Central and Eastern Europe, with their emerging and realigning economies.

Trade and investment ties between South Africa and the Ukraine have increased substantially in recent years. In April 1998, a high-level delegation from the Union of Industrialists and Entrepreneurs visited South Africa to expand economic and trade cooperation between the two countries. South Africa mainly exports base metals, electrical equipment, chemical products, fruit, wine, vegetables and leather goods to the Ukraine. In November, Foreign Minister Borys Tarasyuk arrived in South Africa for an official visit.

Late in November 1998, former Deputy President Thabo Mbeki led a high-powered trade delegation to Russia to boost economic and investment ties between the two countries. In April 1999, Mr Mandela was on a State visit to Russia,. He was accompanied by the Minister of Trade and Industry and a high-powered business, scientific and technical delegation. Two-way trade between the two countries totals some R600 million per year.

European Union

The negotiations for a Trade, Co-operation and Development Agreement with the EU entered its fourth consecutive year in 1999 as one of South Africa’s priority foreign trade projects. It was organized around six parallel negotiating groups: trade-related and non-trade aspects, industrial tariffs, agricultural tariffs, rules of origin, wines and spirits and fisheries.

In March 1999, South Africa’s historic agreement with the EU was concluded. The agreement will result in the abolition of tariffs on more than 90 per cent of trade – currently worth more than R10 billion a year – between the 15 EU countries and South Africa within 12 years. The trade negotiations involved more than 10 000 products. Some, such as wine and spirits, and fishing, will be dealt with in parallel agreements which have yet to be finalized. A few other mainly technical changes were made to a draft accord reached in Davos, Switzerland in January 1999.

South Africa and the EU signed trade and development co-operation agreements worth R635 million in April 1999, as part of the EU’s ongoing program in South Africa. EU grants made between 1995 and 1998 exceeded R3 billion.  

Lomé Convention

In April 1998, the member states of the convention, which links 71 countries in Africa, as well as the Pacific and Caribbean Oceans (ACP) countries  with the EU, completed their internal ratification procedures. This allowed the revised edition of the fourth agreement, which included South Africa’s protocol of accession, to enter into force. South Africa’s membership is on a qualified basis, which means that it is excluded from the trade and aid regimes of the convention.

European Development Fund tenders

From an economic point of view, the most important element of South Africa’s membership is the fact that, for the first time in history, South African contractors are allowed to tender for European Development Fund contracts in ACP countries. These contracts amount to about R70 billion over a five-year period.

Post-Lomé negotiations

In September 1998, the so-called post-Lomé  negotiations were launched in Brussels, Belgium. The multilateral process, scheduled for completion by February 2000, will result in a new arrangement between the ACP and the EU.

The Americas

North America

The United States of America (US) is one of South Africa’s largest trading partners. South Africa is a beneficiary of the US’s Generalized System of Preferences which grants duty-free treatment for more than 4 650 products. South Africa’s exports to the US increased from R5,2 billion in 1993 to R14,8 billion in 1998. Total trade amounted to R34,5 billion in 1998, a 26 per cent increase over 1997. Total US foreign direct investment in South Africa for the period 1994 to April 1998 amounted to R14,3 billion.

The two countries have institutional structures to strengthen trade and investment. The Business Development Committee (BDC), a subcommittee of the SA-US Binational Commission, was established in 1994 by the two governments to provide a forum for business people to develop links and exchange views with each other and with senior government leaders. The BDC is co-chaired by business people from the US and South Africa and its programs are driven by the private sector. The BDC also interacts with the Trade and Investment Committee, a government-to-government committee of the BNC, which is co-chaired by the Minister of Trade and Industry and the US Commerce Secretary. This interaction provides the private sector with an opportunity to raise and find solutions to the problems it may encounter when doing business in the US.

South Africa is a beneficiary of Canada’s General Preferential Tariff (GTP). The GTP rates range from duty-free to reductions in the most favored nations rates. South Africa has a memorandum of understanding with Canada relating to the export from South Africa of certain textiles and textile products for import into Canada – granting South Africa quotas for these products.

Since the lifting of sanctions in 1994, bilateral trade between the two countries has been on the increase, from R756 million in 1993 to R2,8 billion in 1997. Whereas in 1993 South Africa’s exports to Canada were worth R353 million, in 1998 they amounted to R1,3 billion.

In September 1998, there was a Ministerial trade and investment mission to Canada. The mission coincided with the President’s State visit to that country. During the mission, a Trade and Investment Co-operation Arrangement was signed.

South Africa’s main imports

Description

1996

1997

1998*

 

(R million)

(R million)

(R million)

Machinery and mechanical appliances, electrical equipment and parts thereof

39 454

43 824

51 888

Other unclassified goods

15 544

19 047

139 787

Mineral fuels (mostly oil)

11 646

16 958

12 929

Products from chemicals and allied industries

13 595

14 551

15 649

Vehicles, trains, aircraft, ships and associated equipment

9 078

10 356

8 822

Base metals and articles thereof

5 881

6 021

6 582

Plastics, rubber and articles thereof

5 178

5 806

5 837

Textiles and articles thereof

 5 012

5 772

5 213

Prepared foodstuffs, beverages, spirits, vinegar and  tobacco products

3 413

4 014

3 180

Edible vegetables, fruit and nuts, cereals, plant oil and  products thereof

2 978

2 942

2 882

* Not yet audited
Source: Customs and Excise

Latin America

Argentina, Brazil, Paraguay and Uruguay are members of the Southern Common Market (Mercosur) free trade area. In July 1998, the then President Mandela addressed the leaders of the Mercosur trade bloc, the first time that a foreign head of State had been invited to address the summit.

Brazil is South Africa’s biggest trading partner in Latin America, with bilateral trade reaching R2,3 billion in 1998, a decrease of 19 per cent over 1997. Bilateral trade between South Africa and Argentina was steady at R1,7 billion in 1998. In 1998, a Reciprocal Promotion and Protection of Investment Agreement was signed by the two countries during Mr Mandela’s State visit to Argentina in July.

Trade relations between South Africa and Uruguay were boosted in October 1998 when the Minister of Foreign Affairs visited that country.

In November 1998, Chile’s President  Eduardo Frei Ruiz-Tagle paid South Africa a State visit, accompanied by a business delegation. A Reciprocal Promotion and Protection of Investments Agreement was signed.

Asia

South and South-East Asia and Australasia

Economic relations with this broad region were severely effected by the Asian economic crisis. The crisis had its most severe impact in South-East Asia.

South Africa is a member of the Indian Ocean Rim Association for Regional Co-operation (IOR-ARC), a project-based regional economic grouping of 15 countries washed by the Indian Ocean. This group covers the eastern coastal line of Africa, the Arabian peninsula, Southern Asia, and Singapore, Indonesia and Australia. The IOR-ARC member countries account for around 7 per cent of world trade. Currently, South Africa is involved in two projects: a regional ports initiative and a financial systems harmonization initiative.

In conjunction with the Government of India South Africa has established an Indo-South African Commercial Alliance together with a Joint Ministerial Commission (JMC). Total trade with India has been increasing rapidly since 1994, reaching R3,3 billion in 1998. Strategic relations with Australia have also been cemented via the JMC. Total trade with Australia amounted to R5,5 billion in 1998.

Bilateral trade with South-East Asia increased rapidly, starting from a low base in 1990, with an average growth rate before 1998 of approximately 25 per cent per annum. This trade is more or less evenly spread between Singapore, Malaysia, Indonesia and Thailand. Total trade with these countries amounted to R8,3 billion in 1998, with the trade balance being slightly in South Africa’s favor. This was mostly accounted for by a large trade surplus with Indonesia, while Malaysia and Singapore ran surpluses with South Africa. However, in 1998 the economic crisis contributed to the emergence of a large trade imbalance with the region, with the most notable impact being a sharp decline in the value of South Africa’s exports mirrored by a rise in the value of imports from the region. Total trade amounted to R8,9 billion.

South Africa has built its strongest ties in South-East Asia with Malaysia. Evidence of this is Malaysia being the second largest investor on a cumulative basis in South Africa as of April 1998. This investment totaled almost R6,67 billion, and was concentrated in telecommunications, energy and oil, and property. These ties were cemented by two visits to South Africa in 1998 from the Malaysian Prime Minister, Dr Mahathir Mohamed. However, a source of concern for South Africa is the rapidly rising trade deficit with Malaysia.

North-East Asia

Japan is South Africa’s largest trading partner in Asia, and its fourth largest trading partner overall. In 1998, total bilateral trade amounted to R21 billion, an increase of 9 per cent over 1997. This trade is structured along north-south lines, with South Africa exporting commodities, especially minerals, to Japan and in return importing manufactured goods, notably automobiles and electronic goods. Japan is the fifth largest investor in South Africa, with cumulative investment between 1994 and April 1998 amounting to approximately R2 billion. These investments are concentrated in minerals processing and the motor assembly and related sectors, especially tires. Japan is also a substantial aid donor to South Africa.

The importance of Japan as a bilateral partner for South Africa was demonstrated by former Deputy President Mbeki’s two visits there in 1998. The first was part of a visit to the region, including Japan, South Korea and China, in April. During this visit, South Africa and Japan agreed to set up a Partnership Forum designed to strengthen bilateral ties. During the second visit in October, he attended the second Tokyo International Conference on African Development. This conference, organized by the Government of Japan in conjunction with the United Nations (UN), was designed to mobilize support for African development.

Status of bilateral agreements by March 1999

Country

Signed

Date effective

Cuba

8 December 1995

7 April 1997

Denmark

22 February 1996

23 April 1997

France

11 October 1995

13 June 1997

South Korea

7 July 1995

28 June 1997

Switzerland

27 June 1995

29 November 1997

Austria

28 November 1996

1 January 1998

People’s Republic of  China

30 December 1997

1 April 1998

Germany

11 September 1995

10 April 1998

United Kingdom

20 September 1994

27 May 1998

Mozambique

6 May 1997

22 October 1998

Mauritius

17 February 1998

23 October 1998

Netherlands

9 May 1995

South African constitutional procedures complete

Canada

27 November 1995

South African constitutional procedures complete

Iran

9 June 1997

South African constitutional procedures complete

Italy

3 November 1997

South African constitutional procedures complete

Sweden

25 May 1998

South African constitutional procedures complete

Senegal

19 June 1998

South African constitutional procedures complete

Ghana

9 July 1998

South African constitutional procedures complete

Argentina

23 July 1998

South African constitutional procedures complete

Belgium and Luxembourg

14 August 1998

South African constitutional procedures complete

Finland

14 September 1998

South African constitutional procedures complete

Spain

30 September 1998

South African constitutional procedures complete

Egypt

28 October 1998

South African constitutional procedures complete

Chile

12 November 1998

South African constitutional procedures complete

Greece

19 November 1998

South African constitutional procedures complete

Russia

23 November 1998

South African constitutional procedures complete

Czech Republic

14 December 1998

South African constitutional procedures complete

Uganda

25 January 1999

South African constitutional procedures complete

Bilateral trade with China reached R5,3 billion – R8,8 billion if Hong Kong is included – as against R4,2 billion and R8,2 billion in 1997. It is anticipated that this economic activity will gather momentum as the two countries move to sign a trade agreement and establish a joint economic commission. Trade with Taiwan tumbled by 9,2 per cent in 1998, mostly owing to poor demand caused by the crisis in the region.

South Korea is South Africa’s fourth largest bilateral trading partner in Asia. Total bilateral trade in 1998 amounted to R5,3 billion, a decrease of 16 per cent from 1997. This trade is of a similar structure to that with Japan, although South Africa supplies more intermediate goods to Korean markets than is the case with Japan. Investments from South Korea from 1994 until April 1998 totaled approximately R280 million. In recognition of South Korea’s importance to South Africa, Mr Mbeki’s visit there in April 1998 resulted in agreements to form several bilateral committees focused on trade and investment. 

    


Bilateral investment treaties

The Government’s drive to attract fixed direct  investments (FDIs) has been gaining momentum since 1994. Starting from R4,7 billion FDIs in 1994, the 1998 preliminary statistics put the figure at R7 246 billion.

By March 1999, 28 bilateral investment treaties had been signed by South Africa. Since starting on the program to conclude investment treaties, South Africa has adopted a highly modern and advanced constitution which ensures an open, transparent and market-driven investment environment, with positive government encouragement of investment. This has largely served to replace any particularly strong need to conclude treaties to provide for inward investment. To some extent, the focus of relatively limited resources has shifted towards concluding these treaties where they can serve to support investment by South African firms involved in investment and development outside of South Africa, with a particular focus on current regional action.

Management of multilateral trade relations

South Africa’s multilateral trade relations are managed by the Chief Directorate: Foreign Trade Relations of the Department of Trade and Industry, as are participation in the activities of multilateral organizations such as the World Trade Organization (WTO) and the administration of international trade agreements.

The chief directorate also deals with matters resulting from the activities of agencies of the UN that affect South Africa, such as the United Nations Conference on Trade and Development (UNCTAD). Other responsibilities of the chief directorate include the maintenance and improvement of trade relations with individual countries or groups of countries where such relations are not governed by multilateral bodies.

Multilateral economic relations

The WTO and UNCTAD, in partnership with the Bretton Woods Organizations (the World Bank and the International Monetary Fund) are increasingly setting the parameters for and directing the economic policies of governments around the world. This has serious implications for the content, evolution and trajectory of economic development strategies being pursued by the developing countries, including South Africa. In order to influence and shape the configurations of the emerging system of global governance, it is imperative for South Africa to be geared to participate actively and effectively in all multilateral forums to ensure that its particular economic interests and development objectives are achieved.

1999 Provincial election results

Province

Ruling  party

Seats gained

Eastern Cape

ANC

47

Free State

ANC

25

Gauteng

ANC

50

KwaZulu-Natal

IFP and ANC formed coalition

IFP: 34; ANC: 32

Mpumalanga

ANC

26

Northern Cape

ANC

20

Northern Province

ANC

44

North-West

ANC

27

Western Cape

NNP and DP formed coalition

NNP: 17; DP: 5

United Nations Conference on Trade and Development

As President of UNCTAD IX, South Africa is playing an important part in the work of this organization. South Africa attended and fully participated in important meetings dealing with, among other things, the Multilateral Investment Agreement, government and private sector roles and interactions in small and medium enterprise (SME) development, telecommunications, trade facilitation, trade efficiency, electronic commerce and the economic development of least developed countries.

One of the highlights of the work program of UNCTAD in 1998 was the Partners for Development Summit in Lyon, France, in November 1998. Some 2 700 representatives of the private sector, non-governmental organizations (NGOs), academic institutions and governments, from 172 countries attended.