CNN Newsroom: Global View

home *** CD-ROM | disk | FTP | other *** search

/ CNN Newsroom: Global View / CNN Newsroom: Global View.iso / afr / saf / saf.ec3 < prev next >

Wrap

Text File | 1994-05-02 | 16.1 KB | 325 lines

<text> <title> South Africa: Economic Policy </title> <article> <hdr> Economic Policy and Trade Practices: South Africa </hdr> <body> 1. General Policy Framework South Africa is a middle-income developing country with a modern industrial sector, well developed infrastructure, and abundant natural resources. Economists agree that the South African economy has the potential to grow at an annual rate in excess of five percent; yet economic growth over the past decade averaged less than one percent in real terms; no new net jobs were created in the manufacturing, mining, and agricultural sectors; and per capita incomes declined sharply. Real growth in 1990 failed to meet even this low standard of performance, with real GDP declining by almost one percent. The economy will continue to decline in 1991, as the nation battles to emerge from its longest recession in over forty years. Besides being affected by the present worldwide recession, the South African economy's poor performance can be explained by several structural factors. Apartheid policies have led to inefficient use of human resources, underinvestment in human capital, labor rigidities, and large budgetary outlays for duplicative layers of government and facilities. Inflation has persisted at double-digit levels each year since the early 1970's. Labor productivity has been low and declining, and has been outstripped by high average wage increases. The government has intervened extensively in the economy to protect inefficient industries, provide employment to its constituents, and combat foreign economic sanctions. Foreign and domestic investment has been limited by political uncertainty, continuing violence, labor unrest, and the concern over the role of the private sector in a post-apartheid South Africa. Many sectors of the economy are dominated by a few large firms with pre-emptive market strength. The South African Government has taken steps to address some of these structural problems. The U.S. Government has consistently opposed apartheid but is encouraged by current multiparty negotiations on a new democratic constitution. While there is a long way to go in eliminating the effects of apartheid and meeting the aspirations of the black community, progress has been made in reducing the economic distortions caused by 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 black socio-economic development, including education and health care, has increased in recent years, although it still remains greatly 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. The Reserve Bank has had some success in meeting its M3 growth target for FY 91, of between 8 and 12 percent. 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. Although M3 growth and producer prices have shown some downward movement, consumer prices have remained in the 15 percent range. 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, putting pressure on private capital markets. The government of President de Klerk adopted more restrictive fiscal policies, although the 1991/92 budget, which anticipated roughly a three percent deficit, may again be in trouble as spending in the first half of the fiscal year rapidly outpaced revenues. Pressure is also growing to use fiscal policy to address socioeconomic development requirements in education, health care and housing for the majority of South Africans. The South African Government owns substantial portions of the energy sector, transportation, armaments, electric power, communications, aluminum, and chemicals. In early 1988, then State President P.W. Botha announced a program of widespread privatization of public enterprises to reduce the size of the public sector. The privatization of ISCOR, the state steel corporation, in November 1989 was a major step in that direction. The move toward privatization has attracted much political opposition, however, and further privatization has been put on hold until arrangements for a non-racial majority government are agreed to. 2. Exchange Rate Policies Faced with large scale capital outflows in 1985, the Reserve Bank reimposed comprehensive capital controls, including a dual exchange rate previously abolished in 1983. The Bank maintains one exchange rate (the financial rand) for foreign investment inflows and outflows, and another exchange rate (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 at current prices. 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. Since 1984, the rand has depreciated sharply against all the major western currencies. Since the fall of 1989, the rand has been relatively stable against the U.S. dollar, but continued to depreciate against a trade-weighted basket of currencies. 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 prequalify, 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 the income tax. The 1991/92 budget lowered the maximum personal income tax rate from 44 to 43 percent at an income level of R80,000 for married and R56,000 for single taxpayers. The corporate income tax rate was lowered to a flat rate of 48 percent, including mining enterprises which had previously paid 56 percent of profits to the government. In September 1991, the Government shifted from a 13 percent general sales tax to a 10 percent value-added tax (VAT) levied on many additional goods and services that had been exempt from general sales tax. Originally, VAT was to be implemented at 12 percent, but widespread opposition forced the government to introduce the tax at the lower rate. Continued discontent over the taxation of basic foods, medical services and utilities, as demonstrated by a nation-wide two-day general strike in November, may cause the government to reconsider other aspects of the VAT which especially hurt South Africa's poor. South Africa raises additional revenue 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. 4. Debt Management Policies South Africa's external debt at the end of 1990 was estimated at US$19.4 billion, with the private sector accounting for about US$12.6 billion of this total. The ratio of total foreign debt to GDP in 1990 was 19.1 percent, and interest payments to total export earnings was 7.1 percent. Debt repayment obligations in 1991 are estimated to have been R5-6 billion, although increasing access to international capital markets should allow South Africa to refinance at least 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 a rescheduling arrangement with private creditors in 1986. In 1990, South Africa and its private creditors negotiated a third extension of that arrangement which extends through 1993. 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. U.S. law requires the U.S. Executive Director at the IMF to actively oppose any extension of IMF credit to South Africa until the Secretary of the Treasury certifies to the Congress that such credit would have a number of specified favorable effects vis-a-vis the elimination of apartheid's effects. Since July 1991, when President Bush lifted the Title III sanctions of the Comprehensive Anti-Apartheid Act of 1986 (CAAA), the South African Government has been pressing its case for access to IMF funds as a "safety net" for further expansion of the economy and a seal of international approval on recent government moves to dismantle the apartheid system. 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. Surcharges on imported goods, which range as high as 100 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 repeal of Title III sanctions in the Comprehensive Anti-Apartheid Act lifted restrictions on the export of certain U.S. products to South Africa and repealed the prohibition on U.S. nationals from making new investments in South Africa. Laws still prohibit U.S. firms from exporting to South African police or military organizations (including defense manufacturer ARMSCOR) and from transferring nuclear or supercomputer technology to South Africa. 6. Export Subsidies Policies The General Export Incentive Scheme (GEIS), begun in 1990 and administered by the Department of Trade and Industry, is aimed at encouraging the export of manufactured products with a high local content. GEIS payments to exporters are based on total export value, the degree of processing involved, and the percentage of value added in South Africa. The maximum value of the tax free cash incentive is 25 percent of the FOB value. GEIS will remain in effect until March 1995. The export Marketing Assistance Scheme, begun in 1990, may give cash assistance for primary market research and trade fair and trade mission participation. Other incentives available include customs tariff tax-exempt export development finance. 7. Protection of U.S. Intellectual Property South Africa's attendance at meetings of the World Intellectual Property Organization (WIPO) has been barred by a resolution of that organization, but it remains a member. The country is also a signatory of 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. An effort in the 1989 parliamentary session to prohibit cancellation of license agreements by disinvesting companies was dropped after objections by South Africa's major trading partners. 8. Worker Rights a. The Right of Association South Africa's Labor Relations Act entitles all private sector workers to freely join labor unions. Public employees, farm workers, and domestic servants are not covered by the Labor Code. All private employees enjoy the right to strike, although unions have been denied permits to rally and force has been used to break up labor gatherings. There are increasing incidents of public sector strikes as part of the effort to organize public workers. There are several labor confederations which, although independent of the government, are often closely linked to political groups and parties. South African Labor law does not apply to the "homelands" where labor organizing and the right to strike are generally much less developed. b. The 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. Collective bargaining is freely practiced throughout the country. There is an unbiased system of labor courts to rule in labor-management disputes. Antiunion discrimination in the workplace is illegal. c. Prohibition of Forced or Compulsory Labor South Africa does not constitutionally or statutorily prohibit forced labor; however, Dutch-Roman common law does not permit it. 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 legal 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. Attention to health and safety issues has increased in recent years. The state-funded National Occupational and Safety Association claims that the Ministry of Manpower effectively enforces government-legislated minimum standards for the workplace environment. Most industries have a standard workweek of 46 hours (which is also the well-enforced legal maximum), as well as vacation and sick leave. Overtime is voluntary and limited to 10 hours a week. The law does not mandate a 24 hour rest break. The Basic Conditions of Employment Act which legislates minimum workplace standards does not apply to agricultural workers and domestic servants. Their work conditions and those of workers in the homelands are sometimes far less advanced than in the rest of South Africa. 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. Source: National Trade Data Bank, Agency: U.S. Department of State </body> </article> </text>