S. Africa’s Vast Potential Yet to Be Realized

A lot of misconceptions about South Africa’s economy are surfacing during Nelson Mandela’s U.S. tour.

While the South African leader is acclaimed by crowds everywhere, he encounters misgivings from U.S. business people when he talks about his country’s economic future. Americans hear him speak of a “mixed economy” with some state ownership--as he did Tuesday addressing a joint session of Congress--and think that he is out to bring Socialism to a free-enterprise system.

But South Africa’s economy is already heavily state-owned. Government steel mills, chemical plants, oil refineries, railroads, airlines, electric utilities and radio and television companies account for roughly 60% of white employment by some estimates. In eyeing state companies, Mandela--as deputy head of the major black party--is talking politics more than economics and looking for jobs for his people.

Also, there has been a running debate during Mandela’s visit about whether U.S. sanctions on trade and investment in South Africa should be lifted to reward progress or kept on to encourage further gains.


In fact, sanctions may be lifted soon by the United States and Europe, but that won’t change much. “We don’t detect any eagerness by U.S. companies to invest in South Africa,” says Witney Schneidman of the Washington-based Investor Responsibility Research Center. “They’re taking a wait-and-see attitude.”

Sanctions in any case were only part of South Africa’s economic troubles in the past decade. Far more crucial was the fall in the price of gold--and South Africa’s increasing uncompetitiveness in gold production--and the lack of development for most of its 35.6 million people.

The systematic failure to bring the country’s 28 million black people into fuller economic participation as consumers and workers has left South Africa underdeveloped. Its $63-billion gross national product is less than half that of Spain, which is comparable in population, and lower even than that of Hungary, which has only one-third the population of South Africa. Its GNP per person is less than that of tiny Ireland.

How did South Africa get that way? One injustice leading to another. After gold was discovered in the 19th Century, Afrikaner workers--descendants of Dutch and French Huguenot settlers in the 1600s--suffered injustice as the British-owned mines kept wages low by threatening to use abundant black laborers. So the Afrikaners formed labor unions and political parties. And after winning an election in 1948, they set up the apartheid system to separate the races and rig the wage scales.

The result for decades was a wide and persistent wage differential; black wages for the same job in mining or manufacturing would be one-sixth to one-fourth that of white wages. But restricting the wage of 70% of the working population held back the economy.

From a growing market after World War II, South Africa slowed to the point of diminishing returns in the early 1980s. And in 1985, the world’s banks classified South Africa as a poor credit risk and cut back on loans. In 1986, when worldwide trade and investment sanctions were imposed, foreign companies--some 250 of them American--were not unhappy to move out, often selling money-losing businesses to South African firms.

So what lies ahead? Clearly political change is necessary before an economic revival can occur. That’s why the South African government has been dismantling the apartheid system and why Mandela was freed in February after 27 years as a political prisoner. “Political change could come quickly,” says Cecil Jackson, former owner of a Johannesburg accounting firm who is now teaching at the University of Southern California. “In the next two years, you may see an interim government with participation by blacks and whites, and then a few years later a move to majority rule.”

That will be easier said than done, of course, but preparations for the post-apartheid economy are being made. In a meeting with Mandela, the Rockefeller Foundation spoke of a South African Development Bank to channel investment. More than two dozen U.S. corporations later inquired about the bank idea, says a Rockefeller aide.


What’s it all mean? That serious people are beginning to look beyond the obvious risks and tensions to a future in which South Africa’s enormous potential may finally be realized. Economically, it has the only skilled industrial work force on the continent of Africa and could emerge the leader of that vast continent in the next century.

But also there is a political potential in South Africa. If it comes through all its troubles, South Africa could emerge as one of the world’s leading multiracial societies. There was something of that hope in the Congress’ many standing ovations Tuesday for Nelson Mandela.