South Africa Has Foundation for the Challenging Task Ahead

Now that South Africa, in its first multiracial election, has given the world an example of political courage and maturity, the hard work of fixing the economy will begin.

New President Nelson Mandela’s government starts with some advantages--but formidable obstacles too.

Mandela inherits an economy that, however richly ornamented with gleaming cities and comfortable suburbs for some, remains a Third World economy for most of South Africa’s 39 million people.

In total output of goods and services, South Africa is comparable to an industrial nation like Denmark. But in gross domestic product per person, it ranks behind Mexico.

Mandela inherits a bloated, government-heavy economy in which more than 60% of the white working population is employed by state agencies or corporations.

But unemployment runs to 45% among the 29 million black people, more than 50% of whom are under the age of 18. South Africa’s need for jobs and housing and education is acute.

And so Mandela’s government comes to office with a Reconstruction and Development Program that recalls the New Deal of the 1930s in the United States.

The RDP plan of Mandela’s African National Congress, which won almost two-thirds of the vote, is to spend $11 billion in the next five years to build houses and bring electrification and water, training and education to millions of South Africans.

“South Africa can afford such a program, it’s a big economy,” says Michael Brown, chief economist of Frankel Pollak, a brokerage firm in Johannesburg. He reckons 300,000 houses a year can be built without straining available resources and that the RDP will be a powerful engine for creating jobs and teaching skills.

For financing, South Africa’s new government counts partly on foreign investment. It will soon come to world markets to float about $1 billion in bonds, with the help of a financial agent to be named shortly--either J.P. Morgan, Morgan Stanley or Goldman Sachs.

“South Africa will get a pretty good credit rating because it doesn’t have much foreign debt,” says Jonathan Auerbach of Auerbach Grayson, a New York financial firm. He reckons South Africa’s new bonds will pay interest of about 11%--compared to more than 12% on old bonds currently outstanding.

The credit advantage for Mandela’s government is ironic: The reason South Africa has low foreign debt is that it has been cut off from global markets for more than a decade because of world condemnation of its apartheid policy.

Now such sanctions have been lifted and the new emphasis is on investment. South Africa will get $858 million from the International Monetary Fund. And it may receive up to $200 million a year in aid from the United States, where the Congressional Black Caucus has written President Clinton to urge support for the new government.

That money could pose a danger for bond investors if it inflames expectations for jobs and higher wages and leads to spiraling inflation.

But economists in Johannesburg point out that Mandela’s first budget won’t be presented until next March. And other forces, such as the current recovery from recession, are likely to ease the transition. “I think the next two years could be a honeymoon period,” says economist Brown.

Longer-term, the challenge remains to bring the benefits of industrial society to all.

In that respect, South Africa has an advantage over most developing countries. It has a vast mining industry--the world leader in gold, diamonds and platinum.

Mining gives South Africa exports to the world, big companies capable of investing vast sums of capital, and a complex industry in which workers can learn every kind of skill, from the mine shaft to the front office.

The Afrikaaner people, descendants of Dutch and French settlers who have governed the country since 1948, built their National Party around mine labor unions.

In recent years, rural black labor has come into many mine jobs, at wages one-fourth those of white laborers. But now efforts will be made to close that wage gap, perhaps in new mines that will be opened over the next five years, say experts at Martin & Co., a Johannesburg investment firm.

South Africa’s big companies, notably Anglo American Corp., which owns De Beers diamonds, Barlow Rand and Gencor Beherend Beperk, are all cash-rich these days, having built up capital during the four-year recession.

New investments by those companies, whose top officers are conferring with chief economist Trevor Manuel and other ANC planners, could make a big difference in South Africa’s economy.

The country already has manufacturing industry, producing automobiles, steel, chemicals and all manner of consumer goods. It was never world-class industry, but it was competitive enough for Southern Africa.

However, because apartheid--introduced in 1948--held back development of most of South Africa’s people, those consumer industries became uneconomical. Apartheid was an economic disaster as well as a moral one.

Now that apartheid is over, those industries could be revived and South Africa’s consumer market could surge on pent-up demand. The houses to be built under the RDP, for example, will cost about $2,800 apiece--”and that’s well within the pocketbook of millions of people,” says an analyst.

What is the risk as this complex country tries to move on? The greatest risk is disorder between people of different races, different backgrounds, as occurred in the year before this election.

But risk is always there. It’s more intelligent to ask what’s the promise. And that is that South Africa’s people will develop and become more productive, becoming an engine for all of Africa--and a light for the world.

To understand what such words mean, think of an unplowed field. It might be fertile, but nobody knows until the earth is turned and seeds are planted and allowed to grow. Then the possibilities are endless.

And that could be the way it is with South Africa today.

The Unbalanced Country

South Africa’s total output of goods and services, or gross domestic product, ranks it with industrialized or advanced developing countries.

GDP, In billions of dollars Denmark: $118.0 Turkey: $117.3 South Africa: $114.0 Norway: $112.2 Malaysia: $50.4 Figures are for 1993

But its highly unbalanced economy-high living standards for 13% of the population, poverty for more than 70%-leave its GDP per person trailing many countries with poorer, less developed economies:

GDP per capita Mexico: $3,700 Malaysia: $3,700 Chile: $3,000 South Africa: $2,900 Brazil: $2,500 Figures are for 1992

Sources: South Africa Foundation; Martin & Co., Johannesburg; Times estimates