S. Africa Unfazed by Sanctions : With Emphasis on Economic Growth, Reform Is Checked

Businessmen, economists and government officials here contend that the economic sanctions imposed on South Africa by the United States and Western Europe during the past three years have proved so ineffective that the country need not fear further such measures.

“There is no way that anyone can exert further financial pressure on South Africa,” Fred du Plessis, chairman of the giant Sanlam insurance, financial and industrial conglomerate, declared. “Everything they could do has been done, and we have more than survived. The sanctions card is on the table, and it can’t be played again.”

Like other reform-minded businessmen, Du Plessis argues that international sanctions have slowed political change in South Africa by diverting the government’s energies into protecting the economy and by hardening white resistance on the far right.

The failure of sanctions, he and others argue, now allows the white-led minority government to concentrate on economic growth, which they see as more urgent than political change, and to proceed with step-by-step reforms over the next decade.

“The idea that sanctions would bring South Africa to its knees, that economic pressure would force the pace of change, was crazy from the word go ,” Du Plessis commented. “That’s an economic judgment and does not go into the sheer immorality of trying to cripple our economy to throw people out of work . . . trying to ruin the country, as it were, in order to save it.

“In any case, sanctions have not worked, and I see no further sanctions impact. The economy grew faster last year and will grow even faster this year.”

Last year, South Africa’s economic growth rate, according to preliminary government figures, was 2.6%--modest itself but a significant increase from the 1% growth rate in 1986 and the 1.5% decline in 1985.

In recent months, the economy has been expanding at an annual rate of 5%, according to government figures, and a 3% growth is expected this year.

“When sanctions began, we did not know what the impact would be, what our response should be,” Kent Durr, the deputy finance minister, said. “Now, we are confident we can deal with sanctions, with divestment, whatever may come.”

Activists Still Hopeful

Despite the poor results, anti-apartheid leaders have not lost their faith in sanctions. When the government last month announced a crackdown on political activity by 17 anti-apartheid groups, the cries were renewed.

Archbishop Desmond M. Tutu, who for two years has called for increased international economic sanctions as a means of promoting a peaceful resolution of the conflict here, joined 11 other black church leaders in signing a declaration in Johannesburg calling for tougher sanctions.

“We need the help of the international community,” Tutu said. “That is why I, in my personal capacity, have said I hope that (West) Germany and Britain will follow the example of the United States and other of South Africa’s trading partners in imposing economic sanctions on this country. . . . I say that it is our last option for a nonviolent resolution of our crisis.”

Nonetheless, the broad immunity that the government and business now feel from further sanctions was evident in the way they have shrugged off American, British and Japanese criticism of the crackdown.

This new self-confidence was evident when South Africa’s ambassador to the United Nations, Lesley Manley, furiously stalked out of a U.N. Security Council debate earlier this month, challenging the international community to “do your damnedest” as the council considered a motion by its nonaligned members to impose comprehensive, mandatory economic sanctions on Pretoria.

When the motion was vetoed Tuesday by the United States and Britain on grounds that such measures would inhibit political reform here, South Africa felt far from gratified or even vindicated and instead castigated both countries along with Japan and West Germany, which had abstained from the vote, and the whole Security Council for even debating the crisis here.

“The fact that the Security Council could find time to debate South African affairs while millions are suffering and dying is a cynical admission that they are totally incapable of addressing the true flashpoints of the world,” Foreign Minister Roelof F. (Pik) Botha declared.

But Stoffel van der Merwe, the deputy minister of information and constitutional planning and a leading reformer within the National Party, argued in an interview last week that sanctions had slowed the pace of reform substantially, largely by engendering a major backlash against any progressive measure.

“If over the past two or three years, we had received enouragement, not sanctions, from overseas, then we would be much further ahead of reform,” he commented. “Sanctions have not hurt our ability to survive, but they have limited our ability to do reform, to go places. . . . And that makes those of us who are working for reform very angry.”

There is strong feeling within the government here that it has faced and overcome the toughest challenges the international community can offer and has nothing more to fear. The feeling is so strong, in fact, that Western diplomats find what one described as “an incredible arrogance . . . for a country that we consider to be in the dock,” facing charges of constitutional racism, police brutality and suppression of human rights.”

“They tell us, quite plainly, ‘You’ve done your worst; it’s barely hurt us, and now we don’t care,’ so there is very little point in talking to them except to make a date for lunch or golf,” one senior Western diplomat commented.

“We have no leverage, and they know it, and in an ironic way that gives them power over us in that we hope they won’t expose our complete impotency and lack of influence . . . and so that they pretend we are still important partners.”

Exports Keep Growing

Despite the loss of important markets for its coal, steel, uranium and agricultural produce, South Africa’s exports continue to grow as it has found new buyers in East Asia and Africa. Last year, it had a $3-billion surplus in its current balance of payments--the third year in a row that it has had a surplus of almost 5% of its gross domestic product.

While sales to the United States dropped about 44% and those to the European Communities about 35% because of sanctions, for example, trade with Japan increased last year by 19% in dollar terms, and by 2% in yen terms, ensuring Japan’s place as South Africa’s No. 1 trading partner.

“We have had to find other markets and promote different products for export,” a leading business economist said, asking not to be quoted by name. “In the end, however, what saved us was gold.

“Gold constitutes 42% of our exports, and nobody is going to stop buying gold. Gold is more than 10% of our gross domestic product directly, and the gold mines account overall for a quarter of our economic activity. Gold, in short, remains the single most important factor in our economy, and gold is virtually sanctions-proof.”

Some Exports Vulnerable

Merle Lipton, a liberal academic economist who was formerly based in Cape Town but now works in Britain, estimated recently that only 40% of the country’s exports are vulnerable to sanctions and that loss of half of those in 1986 could have reduced its gross national product by as much as 9%.

But that rough calculation takes no account of import savings, sanctions-busting strategies and other adjustments, Lipton notes in a recent report for the Intelligence Unit, a special publication of the British news weekly the Economist.

And attempts to impose a trade embargo, cutting off imports by South Africa as well as purchases from the country, could even accelerate growth in the short term, she says, as sanctions did in white-ruled Rhodesia (now Zimbabwe).

Only coal exports have been seriously affected by the trade sanctions, according to South African businessmen, and the drop in coal sales resulted as much from a weak international market as from sanctions.

The economic expansion expected this year will probably reduce South Africa’s trade surplus as industry buys more capital goods, which constitute 80% of its imports. But South Africa’s gold holdings and other foreign reserves--$4.1 billion, up from $1.9 billion two years ago--are such that officials are not concerned about the country’s ability to pay its bills.

Only ‘Marginal Impact’

“Trade sanctions have had a marginal impact at best,” says Gerhard de Kock, governor of the South African reserve bank. “Sanctions did make it more difficult to push up exports, but we nevertheless have had a growing trade surplus.”

Lipton concluded in her study that “even full sanctions--unless accompanied by exceptional measures--would not lead to a dramatic or quick collapse of the South African economy.”

“Continued incremental sanctions seem unlikely to unseat the government and more likely to impede reform,” she wrote.

But what did hurt South Africa, De Kock, Du Plessis and others readily acknowledge, was the 1985 decision by major American and European banks, led by Chase Manhattan, to call for repayment of most of the country’s short-term debt rather than renew the loans as had been routine.

This led to a capital outflow of about $10 billion over three years, more than half of it loans that have now been repaid.

“That’s a lot of blood to lose if you want to continue running the marathon,” De Kock commented.

Managed Liquidity Crisis

By unilaterally halting the payment of most of those foreign debts until the banks had agreed to an acceptable timetable and then limiting imports and tightening exchange controls, South Africa was able to manage what had been a severe liquidity crisis.

“Of course, South Africa had to pay a price for this remarkable adjustment in the balance of payments,” De Kock said. “Belts had to be tightened. The rate of real economic growth slowed down. Unemployment increased. As capital flowed out, the exchange rate depreciated and the rate of inflation accelerated temporarily.”

The result, he continued, was a drop of 1.4% a year in 1985, 1986 and 1987 in the country’s per-capita gross national product, the value of all goods and services measured against the country’s population. Real personal, after-tax income declined by an average of 3.5% a year over that period, and private consumption went down about 2.5% annually.

In the final analysis, however, facts show that--far from facing collapse--South Africa has an almost unparalleled balance of payments and debt-repayment performance, De Kock said, “and our economy is now growing at an accelerated if unspectacular rate.”

But the continuing effect of the banks’ action, along with international sanctions prohibiting or restricting new foreign investments here, means that South Africa has not been able to obtain the additional capital it needs--in the past about 10% a year was required from abroad each year--to accelerate the country’s economic development to 5% or 6% annually and thus create more jobs and reduce black unemployment, now estimated at 3 million to 4 million people.

Growth Rate Limited

“Without foreign capital, the rate of growth we can achieve is limited,” Du Plessis said, “and without faster growth we will have difficulty in solving the problems of unemployment and of our large backlog of social needs.”

Durr made the same point: “To the extent that sanctions and disinvestment have damaged the economy, they have also damaged our ability to deliver democracy.”

South African bankers and businessmen, however, now see both a resurgence of economic confidence at home and the slow return of some foreign investors.

“Foreign perceptions are improving,” De Kock said. “People realize there is not going to be a revolution here and the country has not become ungovernable.”

One measure of that confidence has been the appreciation in the value of the South African rand, now worth 49 cents compared to a low of 36 cents in June, 1986, and the financial rand, used for foreign investments, which has risen from 18 cents to about 34 cents over the same period.

Encourages Old Investors

While many countries, including the United States, ban new investment here, and scores of American and European companies have pulled out of South Africa, Pretoria is actively encouraging old investors to keep their money in the country on attractive terms, particularly if that money goes to finance new enterprises.

Officials also say that South African companies are again getting substantial amounts of trade and supplier credits, but they acknowledge that access to the major international capital markets will remain very difficult for the foreseeable future.

“South Africans have learned to live with sanctions,” De Kock commented. “We know it hasn’t brought us to our knees and has not forced us to change our policies.

“Nobody really talks about sanctions any more. It has become a non-issue. Certainly, it has not turned out to be the quick fix people wanted.”