South Africa - Report on the economy

EA-12b RESTRICTED This report is restricted to use within the Bank. 11,4 1 rU n LIM II 1 34 . J1ZL, JWAXVL £N. MX Xr,% VTsJ L £XV . 1 . J 04 ^4 fL JL J r- V L,r LVLE M -i&r 11 REPORT nN THgf ECOOMnY OFT ROTTH AFRICA August 20, 1953 Epa Afrmnt f nOApratns Europe, Africa and Australasia CURRENCY EQUIVALENTS 1 South African Pound e 1 Pou d Sterling S.A. El U.S. $2.80 S.A. L 1 million a U.S. $ 2.8 million TABLE U UNTE1l7TS Pae Basic Statistics I. Introduction . . . . . . . . . . . . . . . . . . . 1 II. The Course of Recent Economic Development . . . 4 III. Principal Problems of the Econo . . . . . . . .* . 7 Transportation . . . . . . . . * . . . . . . . . . 7 Agriculture . o . . . . . . . . 10 The Supply of Labor . . . ........ . . . 11 1) Native Farm Labor . . . . . . . . . . . . . . . 11 2) Native Labor for the Gold Mines . . . .. . . . 12 3) The Supply of Skilled Labor...... . . .. . 1 Tariff Policv. Price Control and Imnort Control . 15 The Sunnly of Canital and the Balance of Payments 16 TV-~ it'h W rlniriin --- I;rii+.h Afrjt-.At. nniiqr, Pnqj+.jrn - 20 - - - Arn-endiA4s Tablesa Union of Sout ÅAfric- VLIJA,.IL %J.J.L ~ U L ~.. U ToJta~l Area' 472,000i sq. mln.Jes Pr_ulation (Junie 30, 195) oU. l 12.6 ILlIUon Europeans 2.6 million Natives 8.5 million Colored 1.1 million asians 0.4 million National Incone (i95i/5) Total & S. a. 1,123 million Of which: 1anufactuiring 23.6% &griculture 14.8% ,ining' 13.2% Prices (1948=100) Home Goods April 1953 140 Imnorted Goods April 1953 154 Government Budget Provisional Estimate 19 51/52 ' 1952/53 (;, s. .millions) Current ExpDenditure 194.5 206.0 Current Revenue 198.6 207.4 Surplus 4.1 1.4 Loan Expenditure 62.0 70.0 Foreir,n Trade 1950 1951 1952 (4 S. A. millions) Exports (f.o.b.) 2771 Net Gold Output147 148 l50 To rtali 356 42442 Imports (f.o.b.) 305 467 417 Balance of Payments Trade Balance -96 ýi91 -143 4et Gol oupu 1,7 ~48 15 Invisibles (net) -51 =j6 -72 Balnce on Current Account - -I09 -65 Foein E.--chenge Areserves USv milo Gold Foreign Exchanel/ Total r4.t end of year 14 939 7010 1949 128 165 293 195.-17 2 %66 1951 190 1.94 384 Jun, 1953 173 129 302 / Almost all sterling. UNION OF SLOUTH AFRICA BALANCE nr AYVENTS fN r.URRENrT ArOOUNT (MILLIONS OF SOUTH AFRICAN POUNDS) 0 100 200 300 400 500 600 1937EXPORTS NET GOLD OUTPUT PAYMENTS I....i... IMPORTS NET INVISIBLES 1947 RECEIPTS PAYMENTS :8 Ipt:ti.E ili, 2 I-E 111j RECEIPTS PAYMENTS Wii ......- -IIIIEillt 1949 RECEIPTS RECEIPTSÝ PAYMENTS 1 1951 RECE IPTS PAYMENTS MlE! 1::;:1: iii 1952 PAYMENTS GOLD AND FOREIGN EXCHANGE ASSETS (BILLIONS OF U. S. DOLLARS) . , , , , , , , , 1.0 rm END OF PRtiOD .5LJ ~~/G OLDO~AN. _ ___ _ _ _ _ _ FOREIGN EXCHANGE A1SSTS:.**:*:<.. '38 '46 '48 '50 '52 D J D J D J D J D 950 ~1951 9215 8/14/53 No. 5'9 IBRO- Economic'Staff UNION OF SOUTH AFRICA TOTAL EXTERNAL TRADE (MILLIONS OF SOUTH AFRICAN POUNDS) YEARLY TOTALS MONTHLY - Scale is S (f.o.b.) ~i l 1/12 of annual scale ! ,oolMPORT 500[-1 / ' W ! iA 40 400[- i 1 Li A tv30 300- 200L- -/-A1EXPORTS (f.o.b.) 20 200-í 0 4,' 1 1 1ll0 EXTERNAL TRADE WITH U.S. (Mii i ONS OF cOiTH AFRICAN PUNimmi 0 YEARLY TOTALS iMONTHLY - Scale is 1/12 of annual scale ffin _ _MPORTS 100 - » 1 ' 1 I 5. 50- EXPORTS EXTEOAl TRADE WMITLJ lu.. (MILLIONS OF SOUTH AFRICAN POUNDS) YE ARLY TOTALS MONTHLY-Scale s 1/12 of annual scale 20 2 IMPORTS 00 - SNEXPORTS '38 '46 '48 '50 '52 D J D J D J D J D 190 1951 1952 1953 8/14/53 No. 510 IBRD - Economic Staff UNION OF ROUTH AFRICA (BILLIONS OF SOUTH AFRICAN POUNDS) YEARLY RESOURCES IMPORTED (NET CURRENT ACCOUNT DEFICIT) 1.5 1.5 IO s..... .INVESTMENTS 10 '"BGOVERNMENT EXPENDITURE .5 CONSUMPTION 5 01M [M IM IMM 1 10 1947 1948 1949 1950 1951 1952 1953 GOVERNMENT REVENUES AND EXPENDITURES (MIl IIONS OfF flTi-TH AFRICAN POUNDS) FAR FNiNr MA. I 0 50 100 IO 200 250 30 lQAQ EXPENDITURES CURRENT ACCOUNT ' REVENUES LOAN ACCOUNT EXPENDITURES 1949 RVNE REVENUES EXPENDITURES REVENUES 1953 195. REVENUES (Est.) MONEY SUPPLY AND WHOLESALE. PRICES (INDEX, 1948 =100) 200r-r-III II111 ..........1. 11 1111 11200 YEARLY MONTHLY L - I I I I I.Jl1 CC Al C I ltcc ISO K-i / [-(Home-consumer oos MONEY SUPPLY I......... L1 [I II[I I I I I II [aL-JQ '38 '46 '48 '50 '52 D J D J D .J D J D 8/14/53 1950 1951 1952 1953 No.511 iBRDu- Economic Staff UNION OF SOUTH AFRICA GOLD PRODUCTION (MILLIONS OF FINE OUNCES) 20 >, i 1 1 1 1 1 , 20 Y E ARLY CONFDEN 5 - 15 i93i i935 940194 1950 I955 1959 ~- ESTIMATED -: WOOL WOOL EXPORT1 VALUE PRODUCTION (MILLIONS OF SOUTH AFRICAN POUNDS) (MILLIONS OF POUNDS) 80-- Yj EARLY 1fYEARLY ]0 60- - - - -- 40[ --- t250 ............. .... .......J 1........__ _ __ _ _ _ __ _ _ __ _ _ __ _ _ __ ]' 0 20 193623849 '50 '51 '52 '53 1934238'50 '19 '52 '53 '54 AVERAGE (Est.) AVERAGE YEAR ENDED JUNE 30 NOTE: Greasy basis WOOL (LONDON 70s) PRICES (U.S. DOLLARS PER POUND) YEARLY MONTHLY 2.00 -- 2.00 -01 7, l.00 1.50 [ /% .50 1934238'6 4 '50 '52 '54 1 D J D J D AVERAGE (952 A95G Y934 No.512 Economic Staff REPORT ON THE ECONOPY OF SOUTH AFRICA 1. INTRODUCTION 1. The Union of South Africa is,a Dominion in the Commonwealth of Nations. It was formed in 1910 by the union of the four self-governing colonies of the Cape, the Orange Free State, Transvaal and Natal which then became provinces of the Union of South Africa. The Orange Free State and the Transvaal had been independent Dutch Republics before the Boer War in 1899 after which they became British Crown Colonies. 2. Of the total area of the country of 472,000 square miles, only about 6% is cultivated; it is estimated that 85% of the area is not arable and that of the remaining 15% only one-third can be cultivated intensively. This is due partly to soil deficiencies but primarily to insufficient and irregular rainfall--most of South Africa suffers from a regular six months winter drought. Agriculturally therefore, South Africa is not among the more favored countries of the world. It is, however, well supplied with minerals, having substantial deposits of coal, iron, copper, manganese, chrome and asbestos as well as smaller quantities of many other minerals. The economic resources necessary for an industrial country are, in fact, readil.y available. 3. But far transcending the importance of these base metals and other minerals has been the existence of gold and diamonds. The dis- covery of diamonds in 1867 sienalled the beginning of the Union's modern economic development, but the gold discoveries of 1886 provided the greatest magnet for European canital and technical skill and the gold industry has been basic to South"Africa's development and prosperity since that time. - 4. The economic history of South Africa since the end of the war has bpnn marked hv s hi"h ratp of investment anA rani ennnomin devAnPmnt. In this, South African experience has merely Taralleled the general con- Ai.tiAnna nf' h1ores 4~~aidb nflnAInryresmureslwhichtha been common to much of the world. But South Africa has been unusually fortunate in certain important res-r-ents V4"Frstly, )Ina recipient of overseas capital, almost all of it sterling, which has canOn+, A 4 1++ +a C - IV mW4114a 4= +180 M4- u,1-o 10in +in a 10C This has enabled the economy as a whole to maintain a high level of ; wrestmn wihu_n u.ter-ng SerilcuS trouble ,igt1-o.nafpy ments crises and mounting internal inflation. Consequently, it has been and to keep taxation at moderate levels. -2- by the end of the war, together with the current production of the impotantgoldminng idusty.eable-- ut .f.ica to avoid the p-oh lems of a severe dollar shortage. Although South Africa is considered sterling area dollar pool but instead maintains its own separate gold reserve ka±uuuge, LJ 4.LLr U V W . UI Wo.ls U Q(ALI O LLi. X contribution to the sterling area central reserves). For this reason dollar goods have been Loaniore ee-- availaule n e ca nan Uo AIUL L_vr LY LV±C~± Qo1UUIl tl L±J UJll in the rest of the sterling area. 6. But although the great progress which has been made in the post-war yeare has been carried through fairly mouthly by comparisn with nany other economies,it has not been free of all difficulty. In the early post-war period (1947 an6 1948 in particular) the balance of payments deficits were so large that foreign exchange reserves began to drop with alarming rapidity and the Government was forced to resort to import control in 1949. Moreover the efforts made to keep down costs and rrices (a system of price controls, built up during the war, has never been abandoned) have only been partly successful but the rise in prices that has actually occurred has probably been due much more to the effect of rising prices for imports and exports than to internal inflation, 7. The Governmrent has tried to counter inflation by fiscal and monetary means. Its budgetary policy has been to reduce as far as possible the investment demands of the public services but it has not so far attempted to increase the general level of taxation. To reduce public investment has been difficult because the war left large back- logs in the public services, just as it did in the private econom., which it has been impossible to ignore. However, a very tight grip has been held on the Governmentts capital expenditure which has undoubtedly helped to keep inflation within manageable limits. But unfortunately there was no way in which a similar control could be placed upon private investment, with the result that the public services, restrained by economy measures. were not able to catch up with the demands placed upon them by the expanding rrivate economy and tended to fall even further behind. -3- U. vUUln n11.LL UL UUoMMU1 W-LJn U1el uLOUXe.Ls, UJ.UuLu1g WiU Uiteu Kingdom and the United States, experienced a general slowing down in economic growth during 1752. To some exftent. ths may be due, as in other countries, to a reaction from the boom caused by the Koraan War.But in the OPunvi 01ouou ldriari buinesmen and merchants there nave been otner forces, internal to South Africa, which have been at work. The rise in prLces over the past two years has been more rapid than previously and there has been much talk of "buying resistance". It is also argued that the effect of import control in cutting the variety of available consumer goods has an effect on the total of consumer demand. But whatever the causes there is no doubt about the reality of the result. 9. A further factor of great importance to South Africa has been the fall in the inflow of private capital from abroad.. The import of private capital in 1952 is estimated to be only about & 45 million as compared to T 60 million in 1951 and & 50 and & 53 million in the two previous years. This has been accompanied by an upward movement of interest rates, a move- ment which was intended to complete and stabilize a general rise in the structure of interest rates which has been proceeding for the past three years. 10. The general position of the South African economy at the present time is therefore one of some easing in economic activity and a considerable tightening up in the supply of capital. At the same time the lag in invest- ment in the public services has created bottlenecks in certain important parts of the economy, specifically transport and power. Almost three quar- ters of South Africa's electric power is generated by the Electricity Supply Commission (ESCOM). Although ESCOM has been engaged in a large program of -4- expansion, the increase in the demand for electricity has been so rapid that power has become an immediate limiting factor on economic development. ESCOM has to maintain a "screening" committee on new applications for power. Some requests on behalf of new industrial ven- tures have to be postponed for as long as two years. The new Free State gold mines are demanding substantial quantities of power and ESCOM estimates that other demands in the Free State and the Rand areas in the next few years will increase by around 8% annually. The effect of the shortage of transport is discussed in more detail in Section Ill. 11. To obtain the capital necessary for its own requirements and for those of ESCOM, the Government is seeking external assistance in the form of foreign loans. A possible alternative to external borrow- ing is the use of existing gold and sterling exchange reserves. How- ever, since the end of 1952 the Union's foreign exchange reserves have declined from & 135 million to 5 108 million and will probably drop fur- ther during the second half of this year. Moreover, in view of the reso- lutions and policy recommendations emerging from the 1952 Commonwealth conference, the Government is anxious to make as little use of its re- serves as it possibly can. External borrowing from somewhere other than the United Kingdom is the most desirable policy from the Government's point of view. The Swiss market is too small to be able to meet the Union's needs so that the United States is the only real possibility. Since the rivate capital market in the United States evinced little interest, the Government approached the Bank. II. THE COURSE OF RECENT ECONOMIC DEVELOPMENT 12. The two most imortant &RnAntp rf nont-war noiomin devAlopmAnt in the Union are the growth of secondary industry and the development nf nAW Vnld fields in the Orange Frak State. Althnah thA Ayrnainn of manufacturing has been generally welcomed in South Africa as a much rAAtjAe Myaf14nao nf thn etannmy- it han not eAn so mnh the cnn- sequence of deliberate governmental measures as a natural result of the phyd%al resorce of the %nn+Vtr Tho TTM4ni 41a unnually vih In minerals and possesses very large and easily worked deposits of coal. Tho nv4^a ^f ^%anl A+ +'h im4+._haA a+ 1J4+.$n,n1 4a lmoan thavv A1 -A Va - 0- - - - - - - - - - - V--L1 .V---' ton and consequently South Africa has steam generated electric power WiAk4dft 4. O..a +hna dn=nsn + 4* +hJ onfl The £ A m4 J 4.An dow -I u provided a ready market upon which the growing manufacturing industries ca-1A U- VasA Ma.. +Ua T-_ sInna .aan. .as ta a-4 4* +1a WLA uLO uca e . u V e , W4 uAU vLMuA oULS usJ.W4 WoAS. UOV WA LLW industrial development took place, is a long way from the coast and u&. v.. ~ j. .=J.&.LA%7%A WAID J1=%#LUJ .L j.J.'JUW%V.V VJ.J Al . &.L U.LC&XLPkJ.L% .% % 0 -5- there has also been artificial protection for most industries in been low and not the primary cause of industrial expansion. At present nonr-Europen 3Au -uULM UW unu LV.Lua.Ln..LI.Ly w usouP.ug higher costs, and, because markets are small, a wide variety of pro- UUts SuDG DP ruStUjIbUreU WfeOl 'ULO 1.nnie0a 00I5t5. DUU L LUUUr becomes more efficient and specialization becomes feasible, costs 5nousu come down an- dariufs will ecome even 1ee5 ncea5ry. 13. The effevt or industrialization on the economy as a whole can be seen in various aspects. The following table shows the contribu- tion to the net national output made by the various sectors of economic activity. Table 2 South African National Outiut (Percentage of Total) 1936/39 4%/4 1946/49 1 2U/!LU 119tL/5Z Agriculture 12.7 11.9 12.4 17.2 14.8 Mining 20.7 13.5 10.5 13.1 13.2 Secondary Industry 17.7 19.9 .21.9 22.7 23.6 Trade and Commerce 13.6 16.0 16.6 14.1 13.6 Other -2W 38.7 JL2 M 24& 100 100 100 100 100 Total Output (S.A. & Millions) 394.8 705.4 894.5 1214.7 1123.0 14. The rise in the relative importance of secondary industry can be clearly seen. Furthermore, the rise in the proportions contributed by both agriculture and mining in 1950/51 is the result of price changes only; in the first case of wool and in the second of the .ster- ling price of gold. 15. In 1951/52. the output of gold represented only 9.2% of total national output. This may seem at first sight to be a small amount in view of the very great role which gold mining is acknowledged to play in the South African economy. But for purposes of comparison it may be noted that, in 1952. the net value of agricultural output in -6- the United States was less than 7% of the United States national income. ievertheless, the importance of gold mining in South arfrica is markedly less then it was pre-war and in sPite of the new gold discoveries which will increase gold output by about 40 in 7 or 8 years, it is unlikely ever to regain its old predominance. 16. The decline in the relative position of gold can also be seen in its role as the principal source of South Africa's foreign exchange. In 1938, gold accounted for 65% of all foreign exchange receipts but by 1946 it provided only 49.5% and by 1952 its share had further declined to 35% in spite of the effect of devaluation. The effect of industrialization on the composition of exports has not yet been very marked for nearly all of it caters for the home market. But its consequences can be observed in the behaviour of imports. A rough classification of South Africa's imports into two categories, the first containing all metal manufactures, machinery, vehicles, raw materials and miscellaneous capital goods and the second containing textiles, miscellaneous consumer goods, foodstuffs and tobacco shows a fall in the proportion of the second group from 55% to 41% from 1946 to 1951. The effect of import control in holding down consumerst goods imports must be borne in mind but it is nevertheless true that the import control authorities have been able to prevent any large rise in this class of im:'orts during the last three years despite considerable increases in other imnorts and in the national income. This has not produced any noticeable shortage of consumers goods within the country, because local nroduction has been able to meet the remaining de-mand- 17-. 'liiz c?rrn ovi mnr+rtr-.P~ nf rmmifnt-r nvia in~ +.hp Unincn bi.q nrt nn fnRr had any effect in reducing the importance of external trade to the economy. Tmninp-Iiirling rfnd) are still onal- hattronn nrel . of total-national income. Some of the reasons for this can easily be found. which have added to the level of imports. On the other side of the picture, particularly wool, base metals and diamonds all of which have been selling from South Africa's position as a "dependent" economy (and in particular, Ue:In ei upo gotIU i .C11 WLtl': U'CL1,AU CA Lt LL j).L-jJUL_.L%LL %J.L ULLZ L1QU UL~1. a.L income have often been pointed out; the question most frequently raised is wuether kwlle wil be Luu.ictu otr.ur eort wuen gulu rouucvion unaiQLteLy declines (or if p-rices continue to rise while the gold rrice renains fiXed). Aucfn wil ae;)enu upon tne length of tie Uuring win suc ajutuments wiLL have to be made but in this respect South Africa is now in a better position Unan As ns ever been before. Lne new gol Uscoveri e ne uuuru Bree State will increase the total output of gold from about 11 million ounces at present to around 16 million ounces in 1960 and reserves are sufficient to maintain output at this level for at least 15 years. In the meantime, as has -7- iust been shown. the economy is already becoming less denendent on gold. Also secondary industry is now reaching the stage where instead of con- qi.tirna of a limited rnmb.r of Pnnnminallv indpnndAnt n1ants imnortina practically all of their raw materials, it begins to form a much more ,rocess, each serving each others needs. For instance, the recent er"nn^ nf +Ina a+mnl AiAia+"vrr kne he m^% * n' n"A Wqr Tha acsn'h1 ichm- of a heavy engineering industry which will produce such things as boiler equipml-Ivt.+ ,n we Stat-in.andl. mngA.. , equij-Dila-w 1P1,_ --^4e-#+ P^, --A-l,n A"" oil from coal is now going ahead and is intended to form the basis for a LO. iler uL eS.'LCL UV vpWj Ult, Cr- u11uUr way .L1aJUQU iLne production of fertilizer from phosphate rock, the production of rayon pulp from locally grown eucalyptus--the pulp wil be exported but might later lead to the creation of a rayon industry--and the erection of a plant for producing paper and various types of wooDoard. Ine OSanuar Vacuum Refining Company is setting up a refinery at Durban which will produce gasoline, Kerosene and diesel oila. 19. Simultaneously with the growth of industry, the mining 1:inance companies have been investing very large sums in the development of the Orange Free State gold fields. At the present time there are thirteen new mines in the process of establishment and two have already started production. It is estimated that this will lead to an output of at least 16 million ounces by 1960 but if sufficient native labour could be obtained thisfigure could be considerably exceeded and! output might reach 20 million ounces. The labour question, however, is a difficult one. (See page 12). It has been publicly stated that the foreign exchange earnings from uranium should, in a few years, reach L 30 million a year. 20. The estimates of investment in the .various sectors of the economy are given in Table 1 of the Appendix. It may be noted that investment in manufacturers durable equipment has been running steadily higher than in mining equipment until 1951 and both together have been less than investment in building and construction. There has, of course, been a great deal of new construction necessary in the course of developing the new mines which are situated fur from any existing urban areas. The drop in investment in the railways reflects the economy measures taken by the Government. Railway investment wrs higher in 1952 and will be hipher Still in 1953. III. PRIN7CIPAL PROBLENS OF THE ECONOMY Transportation 21. The shortage of transport has been acting as a brake upon the develonment of the whole economy. Exnorts of base metals. narticularlv chrome and manganese, have been held up and port congestion has developed -8- as a consequence of the inability of the railways to clear the wharves. But the most spectacular manifestation of a transport shortage was the crisis which arose in the winter of 1951 when the railways were unable to transport sufficient coal for needs of such high priority as electric power stations. 22. Since 1947 the annual ton-mileage of goods carried by the rail- ways has increased by 5 or 6% per year - a very rapid rate of in- crease. The railways have had to cope with this increase at the end of the war when the normal expansion and improvement of the system had been suspended for the previous five years. In addition. the program of investment which the Railway Administration had prepared to meet the Dost-war situation was considerably slowed down by the difficulty of obtaining equipment and materials from overseas. 23. The main causes of the 1951 crisis are fairly clear. The general strain on the railway system caused by the ranid economic development was aggravated by an unusually severe winter, a "go- slow" strike on the railways and a shortage of locomotives and coal. The Government, however, set up a Commission of Inquiry which went into the auestion in some detail Daving special attention to the sun- ply of different types of coal. It made a considerable number of detailed recommendations but it was clear that a reneral increase in transport capacity was the main requirement for the solution of the problem. 24. To arrive at any conclusion about the general efficieneV of the South African Railways is not easy. The railways, being owned and operated by the Government. are sometimes drawn into nolitical debate so that opinions about their efficiency become biased. The two points which are most often discussed are the rating Policv and Railway Administration's statutory monopoly over all forms of transport. These two matters are, of course, closely connected. 25. There has been considerable attention paid to the auestion of railway rates in South Africa since the war. The Government estab- lished a commission. the Newton Commission- to make a thoronah in- vestigation of rating policy. There were two main conclusions in the Commission's renort. One was that the mnv snAl rates whinh had been instituted at different times in the past should be either abandoned or "reat1v modified. The second was that the railway wni carrying an appreciable amount of uneconomic traffic which should either nay hipher rates or he allonA to on hv 'na 26. The recommendations concerning special rates were endorsed oy the inquiry into the 1951 coal crisis and the Administration is putting them into effect. A recent regulation has also been issued, permitting manufacturers to haul their own goods by road for distances up to 150 miles though it does not permit inde- pendent road haulers to operate. The Railway Administration, however, contends that without the short-haul traffic its reve- nues would fall and to avoid deficits it would have to raise rates on the remaining traffic. 27. The Railway Administration operates road feeder services, the harbors and the airways in addition to the railways themselves. Independent road haulage contractors are prohibited by the Motor Carrier Transportation Act. Any complete removal of restrictions on long-haul road traffic would necessitate a radical alteration in railway rates since otherwise road transport would be able to take away just that high-rated traffic which brought most of the revenue to the railways. A step such as this would bring about a profound change in the South African transport system. It would have the direct result of relieving some of the present strain on the railway system. But more important in the long run, it would mean the abandonment of the principle that the railway system should be the only means of long-haul freight transport. The railways would be forced to concentrate on the carriage of low-value bulk traffic, particularlv coal and other minerals. The results of such a change would be many and far-reaching; among them would be a considerable chanee in relative transport costs for different commodities, some repercussions, possibly unfavorable, upon the revenue earning r-ananitv of the railways. increased investment in trucks and roads and improved transport of certain goods. It is mnt. nlikely that. thi Snth Afrinan Government wuld non- template such a move without the most prolonged and detailed MO 28. There has been little discussion over the control of harbors and airways although the mission found some opinion to the effect that these activities might well be operated independently. The Inquiry into the coal crisis suggested that there should be a thorough investigation into all aspects of transportation in the Union but there has as yet been no indication that this will be carried out. A2riculture 29. There is widespread agreement that much needs to be done to improve agricultural efficiency in South Africa. Both output per acre and outputt per head are low. To some extent this is due to natural conditions. Most of South Africa is not good farming country; the soils are often poor and rainfall over much of the area is sparse and uncertain and droughts-are common. 30. The principal cereal crops are wheat and maize, maize being an important export when the crop is good. Wheat production, on the other hand, is insufficient for the countrys needs. Fruit and wine are also important exports. Before the war, sugar was exported in considerable Q.uiantities but there is now only a smll surplus cvail,.:ble. South Africa has a large export quota in the Commonwealth Sugar agreement that she has been unable to fill. Small quantities of meat, butter and cheese used to be exported but at present production is barely sufficient to .eet the internal demand. 31. A government White Paner on agricultural policy issued at the end of the war stated, "Today the farming industry and the country generally are, gffAring from thA rpsnlta of systemn of land us that havA hAe carried on with apparent success as far as production is concerned, over lengthy pemioA of +.4m but h4h h.1r n-00 nnihr ran Mana g of Won.e down all over the country. If the farming system is basically unsound, no naont+ nr n-fi^4,mn,err ein th- "ov-+ P%f th1, fz"mmv- ^n" 4+ onatr successful." The results of this system have been severe soil erosion, +'er+41-t4+. Ae,,.I .d4- i-c.A A-e4cnn+4 r- -, In--v areasa A "-".a.+ n.. n ment report with the significant title "Report of the Desert Eneroachment 1wu14-leel Arevw aue-nu tou une great changes an natual vegetat-n-uaw V LIJU. LOU UL U QU VL LJ. YJ V iJL V Ll VL L~U.. L li kOU. kiAll W&IL%.9L had occurred. as a result of European farining methods; srecifically to the reau Ote sM-artu V--------u y-----v-----uu--- tI U nd .,i 4L d±LU A010U . Vrue . Of -V-gGUt'-L.L1 OU ULUZ WAA1 01. l.aad. 32. The need at present is for a -proper system of crop rotation and more use 01 fertilzers. There is much grozng I sjn.La u A, gJv much higher yields through the proper application of phosphate and nitrogen fertiiners. a sart won e n s14 w1Un the passing of the ^oil Conser- vation hct Which provides exrert assistance and sometimes subsidie.s for farmers undertaking conservaMm.n methoI. It -lso gives the governmen certain powers of compulsion. -11. 33. The limitations of water supTly is one of the imrortant factors affecting agriculture. Not only is the rainfall deficient and uncertain over much of the country but the Dossible irrigable area is small amounting to only 2 million acres. Fowever, while it is obvious that the land would be much more productive if the rainfall were higher it is not at present true that economic development is held back by an overall shortage of water. So far only 600.000 acres are irriputed and much scope renains for water control projects. The water rroblem effects industry as well as agriculture; the Vaaldcm. the main source of water for the industrial area of the Wit- watersrand, is being doubled in capacity. The water available from the Veal River is enough to enable the present rate of exP&nsion to continue for about 20 years. There has been some speculation in South Africa that the chana in vAotatinn broiaht nhoit by Euronar farraino- haa hAq mffirient to affect the rainfall adversely and one of the prime purposes of the Desert Encacnhmnr .mmitteauA s towq nve+.at. th1 Voint T+iM Y-nA"t an inconclusive; it found no reliable evidence of a change in the climate but recommeAded that much mor rearch sbould huertaken 4 A %+ ao definite answers could be obtained, 34. During and since the war the output of agricultural products has has been the rrice policy for farm products which has been followed. In L4e Ue.presseu CVundi14ou41 W1 WRI J..V*io, auaen varuv-. wmru uOvo4U."Ovou to purchaseand dispose of farm products. Their principal purpose was to maintain farm incomes ana in sone cases surpluses had to be exported Lt a loss. But now that prices of agricultural products have risen to remunera- tive levels, the machinery or the 1arie-ing Acts has been put into reverse and the prices paid to farmers have been kept below world market prices in the interests of holdingudown the cost of living. That thiha n5 had a dampening effect on output was admitted by officials in the Department of Agriculture but it was held to be not serious. The effect of nigher prices would not be conparable to the results w,hich could be obtained in the long- run by improved technical methods. Since 1946 investment in farming has been running at a rate equal to between 18 and 22% of total private invest- ri;ent. The Supnl of Labor 35. It is commonly alleged in South hfrica that economic development is held back by a shortage of labor. This difficulty apears in three separate forms, firstly as a shortar7e of native labor on farms, secondly as a shortage of native labor for gold mining and thirdly as a sbortage of European skilled labor. i) Native Farm Labor 36. This aspect of the problem is at once the sitrplestend least important of the three. The urbanization of the native porultion has been rroceeding steadily since 1921. &t that date only 12.5% of all the Union's natives were classified as urban but by 1946 the Proportion had risen to 23.1%. -12- - T+ W LI- V w UWSLl LA-V L 4 + V wns m M ' VLI . W J V LV+kj U.LVV C Q VVVD GII%A from the European farms. This was the normal accompaniment to the growh of i*utry taking place in resTne to eunuwfveuc. jSa- tistics on native earnings are not readily available but a pre-war estimamte concluded that the per capita annual incoi:e of natives on European farms was about one-third of that of the urbanized natives. This is a substantial difference wnich more than makes up for the probable difference in the cost of living between the towns and the country. 37. The higher earnings of urbanized natives reflect their higher productivity so that their migration from the rural areas cannot be regarded as uneconomic. The total farming population in South Africa is too large; the European farming sector accounts for roughly one-third of the working population but produces only about one-tenth of the national income. Hence technical measures to increase productivity in agriculture must be accompanied by a reduction of the farming population, both European and native. 2) Native Labor for the Gold Ines 38. The shortage of native labor for the gold mining industry has become a chronic condition. Native employment in the mines reached a peak in 1941/42 when it amounted to nearly 400,000. Since then it has declined and is now fairly stable at around 300,000. 39. Mining labor, although it is Physically in the towns, is in no sense "urbanized". The miners are normally rural natives who come to the mines to supplement their incomes. They come from all over south- ern Africa, some rroceeding independently but others being recruited by a special organization maintained by the mining comr,anies for this nurnose. The natives contract to work for a neriod of at least nine months, after.which they normally return to their homes. The availa- ilit.v of native lnor fnr .ip iAne thus deponds on cnnditAnns in many different territories. Out of a total of 300,000 miners only about I10 - onm from vithin Snth Afrinn Ahnii+. 1r M0 n nme frrm Portu- guese East &frica, nearly 60,000 from the British High Commission Territories (non+tlanA Bechunaland nnA mo41anAN ad +he rmaneAr from areas further north. The progress of economic development in ome P WSen r ean1 .1 n l +h A eMaw,A fo" 4 1a+wi1 1 a-.. 4 +I'm& Union itself affects the supply available for the mines. The mines arnow oi ng t frm Agola. orT o'nnino ael mineit Worlrang Free now' coming in from Angola. The ol-ening of the mines in the Orange Free 'J+O+l. nA~ J l~1 A1~ - ex+l. n J A --l~ . -SU'41 A -p-i. __4 .&'J -J.J l.A 'JA1.L1+ U'. r4.JL nnU (4'.J' u -13- rnnnder nf the I.hnT fnrnp ill he trPr.ferre from older minps on the Rand as these cease operations). The mining companies believe seems far from certain. The degree of success they achieve will lel'an+ tha £.1- output 1- gold more efficient use of native labor. By the use of aptitude tests and special personl~ se'letiOn WZLLLILLL4 -0 ±1U .0. pJCC.J.QL=ISU aLW Lt:C10t= Vk4U-1 put per head. There may be more scope in the Orange Free State for reorganizing methous o wort but opportunities in n utu ireaion are limited by the existence of the color bar. 41. Although the disadvantages of the whole system of migrant labor, in the form of high labor turnover, cost of retraining etc. are well known, the mining industry as a whole does not think that it would be practicable to try to build up a permanent stabilized labor force. The two principal objections to this policy are, firstly, its high cost, and secondly, the fact that the labor, once stabilized, would be unlikely to remain in the mines. 1dning wages are low compared to those in industry and once the labor became urbanized the attractions of higher rewards elsewhere would be powerful. A further factor is th.t under- ground labor would have deleterious effects on the health of the natives if they were to continue working without long rest periods. However, one comrany, the Anglo-American Corporation, is experimentihg in thiA.. direction in its new mines in the Orange Free'State. But the scope of the experiment is small; it is proposed to provide permanent accommo- dation for about 10% of the native labor force but it is by no means certain that this target will ever be reached, The natives will be carefully selected from the highest paid and most responsible grade of native labor. 42. It is difficult to see how all the factors influencing the supply of labor for the mines will work out in the long run. There are signs that the flow from within the Union is diminishing. This may be offset for some time by drawine imcre from other territories but these territories themselves are not enthusiastic over their loss of manpower to the Union and in the lonr run this sonurce ill nrobablv also decline. But on the other hand, there are many over-populated native agricultural areas in southern Afrinn thich noula releasp substantial labor if methods of native cultivation could be inbroved. But there would have to be some considerable reorg-ni-tion in the mining industry rnr Ai.h nrmanntlv d1sp1acd wrkers to be utilized. Also the mines ability to do this will be greatly influenced 1rr +1-~ n,ran.na evp' nT4nrv nnaka M"Ar nP nrn"Qa +h-t r74r.a nf' rnlA j SL~.' 4 J.t4. %~14 X.'. %4 -IJ.W -&J. -k.At* - -'I4 d - - I- -' ... [of E, -- -14- ~J 1ed.U_ W.L bI A.L .L J "abo 4nL OuIJLI Jt"±Z. LL1W 01JU±IJCg U± U1~~LU c0 L ~ ± extent this is the consequence of inflation and over-full employment.. .UU LU Lli U1UaL.Ly aggruvuuu Uy ln teeuence u1 CLvur ulburlmnaluon in the use of labor. As a general rule all skilled labor is performed Uy Europeans, and na.tives are confined to unskilled work and, more recently, operative or repetitive work in industry. This system is main- tained by a combination of law and custom but the recent rapid industri- alization has subjected the color bar to considerable strain. Industrial management is often aware of economies that could be made by the wider use of natives but is unable to put them into practice owing to the opposition of European Trade Unions. All the same, natives are now doing work which they did not do previously and this pr6cess can be expected to continue. The growth of industry has created a demand for more and more labor of the operative or semi-skilled type and it is in this field that competition between Europeans and non-Europeans actually occurs. 44. The number of natives performing work classified as "skilled labor" is, however, very small and there is as yet no indication of any marked change in the position. It has only just recently been made possible for natives to be trained as artisans in the building trades in order to lower the cost of houses for the natives themselves. One obvious way of allevi- ating the skilled labor shortage would be a vigorous policy of European immigration. In fact, European immigration since the war has been only modest; from 1946 to 1949 there was a net inflow amounting to 57,000 but in 1950 and 1951 there was a net outflow of 2,000 due principally to increased emigration from South Africa to Southern Rhodesia. Immigration policy moreover, becomes a matter of political contention because the type of immigrent may affect the electoral balance between the main political parties. 45. The shortage of skilled labor has undoubtedly constituted a brake upon economic development and it has also pushed up the level of costs for it has meant that wage rates for skilled labor reflect its scarcity value. A more rational use of the whole labor fore is one obvious wAy in which much secondary industry could become less dependent upon tariff nrotention- Put it will he R slnw Pnd diffinnlt nroensq to brin 4+ about. -15- Tariff Polinv. PrieP Control and Imnnrt Control /,A- Tbn ntnt.pd nnlinv nf flin Uninn rrwP.ernrnn. is ton rnainta4in t.hA minimum of direct controls over the private sector of the economy. But economy completely. At the end of the war, all import controls were nV,n-aA unA +tha r e w ns A4nhn4n + + a +4ma no to 1vha+a. -4nN controls, other than those on farm products, should also be abolished. Du- 4,- -4Po -P +ke geneal 4-01s+-ow A4-t- --4- -4-1 am.i were retained. In 1948, import controls had to be reimposed in order to pavose uwauxu rocuve us guri uAnuu. n pronous time, therefore, the governnent's weapons for influencing the private economy are frsty, tUrI , secondly, the ,ysem of' raeting Boards for agri- cultural products, thirdly, price control over non-agricultural products and finally import control. The first two are mor 10-88 permunt-ant features of the economy but the last two are regarded as undesiraole and will be eliminated as soon as conditions permit. The operation of the Marketing Boards was described in the section on agriculture. 47. The principal object of the government's policy in the industrial field is to diversify the economy and to encourage the use of local raw materials. If a proposed new industry fulfills these requirements, it may if necessary be granted protection but the level of tariffs is on the average only-12% and never goes higher than 25%.. The South Africans claim that their tariffs are lower than those of any country other than the United Kingdom and Holland.. The government has tried to ensure that import controls do not lead to the establishrent of uneconomic industries producing restricted imports. They believe, probably rightly, that this has not occurred to any marked extent. , 48. The price control system has enabled the government to exercise some control over new industries because-commodities subject to price control had to be allocated among the different consumers. Steel,.for example, was distributed by the Iron and Steel Corporation on the basis of priorities determined by the 1inistry of Economic Affairs. The offi- cial policy for rrice control is thL-t it should only be continued where goods are in short supply. M*uch depends, therefore, on how far internal prices are allowed to rise in order to cut off the excess demand. The policy is based to a large extent on the hope that a sufficient decline in world prices and demand will enable most of these controls to be removed without a large rise in local prices. At the moment the price controls are fairly extensive- Somethina like 70% of the items in the retail price index are subject to control and about half of these are o16ow 49. The effect of these controls upon the economy should not. however, be exaggerated. It is, in fact, quite possible for well- informed persons. even government officials. to hold that both import and price controls could be immediately abolished without any dis. astrous conseauences, althouah this is not, of course, the majority opinion.. There was, in 1951, a very considerable relaxation of import control with the renilt that the value of imnorts inoreased by Over 50%; an outcome which surprised the import controllers and led to a nlsmnina r1nun nn im-net li-1nn-q in 1Q5 Vmuver +hAva mAA annn4.. erable restocking and some speculative importing, particularly of +avt+Tl 1 that oo+nn a4nma n+ nm h n hand upon this event. There is also an important complicting factor which mna+ 4" e v%owr A^4 e,4 r +P al 4mm4 h 4m md 4v A^1+A Africa and this is the obligation which has been undertaken to sell at lnesd I CA -4114on -P --1A omrl +- +I,- TT-4+-A V4--A^- Ml- 4 --^-+ .6 G m in OW W.A. rv uwwUsun Wv UIAo u .n W Wv A u n&J1ai mes L. 4aw J.Uq/%A v P control system has had to discrimin--.te against dollar goods in order to unIQJL ULI. A'J La Anna~ effects but they do not seei to have introduced any serious distortions into the econom7. TIne cice controLs nave 1robably tended to increase consumption at the expense of savings and possibly of exrorts. There were some complaInts tat price control made it difficult for firms to accumulate reserves for further investment but this seemed to be true only of certain industries. The effect oj exports arises because the policy of holding down internal prices below world market prices necessi- totes the control of exports in order to ensure thet local demands at the low price are fully met. This point affects chiefly agricultural products but also some industrial products. The Supply of Capital and the Balance ofaymertg 51. Since the discovezrof diamonds at Kimberly in 1867 and of gold on the Witwatersrand in 1886, British capital has played a conspicuous part in South African economic development. It has been calculated that from 1870 to 1936 the total capital (private and public) invested in South Africa from abroad was S.A. , 523 million. The gold mines provided the magnet and the foundation for most of this activity; the direct invest.- ment in the gold mines themselves was about S.rl. & 145 million. Invest- mient in mining absorbed some two-thirds of all the private capital entering the Union over this period. 52. As a consequence of the dominant part played by gold mining, a sneculative investment. the supply of overseas capital for South Africa has been subject to severe fluctuation. In periods of speculative boom, investment has taken nlace on a larger scale than was really 1ustified. while at other times it has been impossible to obtain funds for clearly economic ventures. Since the war there has been a movement of capital into South Africa on a substantial scale influenced by favorable specou lative prospects for the Orange Free State gold mines and, in the early nostwar years. by political uncertainties in Europe and the United King- dom. Details are given in the following table: Table'a, Inflow of Private Capital to South Africa arM SIA, & Million 1946 17 1qL7 182 1948 91 101.0 I0 1950 53 1041 AC 1952 / Preliminary estimate. 498 Over this period the proportion of the capital inflow which has been investea ' gol --. mining n ueen mn lower tn8n it use oe e ore the war. A great part of it has gone into construction and manufacturing. 53. This capital movement, together with the large gold and foreign exchange reserves which amounted at the end of 1945 to 4 .a. t 4266.8 mion (or the equivalent of fifteen monthsl*impoits at the 1946 rates), has given rise to a sustained investment boom which has proceedea with only minor interiuptions ever since. From 1946 to 1949, there were substantial deficits in the balance of payments. The aggregate deficit for these four years was 4 507 million and it was covered to the extent of & 340 million, or just over two-thirds, by the inflow of capital and the balance was financed by a loss of reserves. In 1948 the deficit on current account was & 176 million, an amount equivalent to over 207 of the national income. (This is almost a world's record; by comparison the worst deficit in the United Kingdom balance of payments, that of the crisis year 1947, was only a little over 6% of the national incorie.) In the letter part of 1948 the inflow of capital carie to a temporary halt and consequently the exchange reserves began to fall rapidly. In early 1949, it seemed as if the Union was heading for a severe balance of payments crisis but in 1950 the cur- rent deficit was almost completely eliminated and virtually 11 the capi tal inflow of that year (some & 53 million) went to increase the reserves. This extraordinary performance was the more remarkable in that it was carried out without any fall in consumption, with only a small decline in investment and without any undue uiward pressure on the general price level. -18- 54. Tie tnree factors whicn cnangea tne total picture oetween 1'84 and 1950 were firstly a decline in imports by about - 50 million, secondly an increase in commodity exports by about & 75 million, and thirdly the increase in the sterling value of current gold output which amounted to nearly 6 50 million. The fall in imports was brought about by direct import control but it was no doubt helped by the fact that the imports of 1948 were unusually high. There was a marked rise in inventories in that year which added to the demand for imports. Also the accumulated wartime demand was probably still exercising some influence. Of the rise in exports of just over & 75 million, almost half resulted from the rise in the price of wool and some of the remainder was due to higher prices of other commodities. 55. But the elimination of a balance of payments deficit entails either a fall in investment or an increase in internal savings. Both events occurred in South Africa between 1948 and 1950. The following table shows the behaviour of savings and investment since the war. Table.& Savings and Investment 1947-1952 (S.A. & millions) 1947 1948 19 9 1950 1951 1952 Net Investment a) Public Investment 55 67 82 59 59 71 b) Private Fixed Investment 87 128 119 122 173 198 c) Inventories 60 25 -19 -2 51 -66 Total 202 220 192 179 283 203 MAt Aevinm in) pr?ivn. Anic.( 12 LT 111L 134 9)0 b) Current Surplus of Publio Aethoritie 30 90 23 1A 92 31 c) Net Overseas Borrowing and Ioa 902 22 1A2 179 283 20M 56. It will be seen fro this table,that the virtual elimination of the defat an the bulance of payments vas reflected principan3y by a rapid increase in private sevings. In 1948, it is true that savings were abnormally low. IT seems likely that there was vtill some spending of wartime savings in that year which would aleo partly account for the heavy imports. it is instructive to compare the changes in savings and in inventories with the behaviour of imports. At the end of the war when import control was abandoned the value of imports increased rapidly and there was a rise in inventories and at the same time savings sank to low levels. After 1948 import control brought about a reduction of imports, inventories dropped and private savings rapidly increased.. But after 1950 the picture is different. In 1951 there was a large increase in imports, a considerable rise in inventories but no fall in savings. That is to say, almost all of the additional resources available from the increase in balance of payments deficit was utilised to increase invest- ment. In 1952 the stocks accumulated in 1951 were allowed to run down (or were forced down by the restriction of imports) but this movement permitted a higher level of fixeo investment to proceed with a lower level of internal savings and a smaller balance of payments deficit. Throughout the past three years fixed investment has been increasing rapidly--4 181 million in 1950, & 232 million in 1951 and & 269 million in 1952, These increases have been proportionately much greater than those of the national income and it appears likely that there will soon be some leveling off or decline in fixed investment. In the immediate future, however, the demands of public investment may take up any slack which may develop if private investment were to decline. Hence an inflow of capital, either private or public, rem-ins important for South Africa at tho present time.. 57. The Reserve Bank estimates that the private eaDital inflow in 1952 was around & 45 million end it has prepared a conservative "forecast" for 1953 on the assumption that the inflow drops to & 20 million. On the whole, this would not be undesirable as it would cause a fall in private investment which would ease the problem presented by the shortage of trena. port and power. But it means that the resources available for investment (anart from official external borrowing) inipht be only 190 or L 1n milliQn. If the needs for governrment and semi-government investment had to be met out of such a totpl. nrivqte Investmnnt won1d hPve tn he At4u. cally reduced. Such a reduction would -mrobably be very difficult to bring shout -uithaut affect.ngecanomdc aih4ty+v and even 4f 4+. Mre posadble 46 is unlikely that the government would be able to obtain the released r _sourcn. T.ymight well maAw +.ha% +.h flow o? fm-mlen cap4+el d rA m up completely. The alternative would be for the government to make use of the Reserve Bankle of fare4rn nehange wh4k a mn+4nA efrP^ it is reluctant to do. This is the situetion which has led the Union ~n mwi- + e +~4I-A,~r% 4n +nAm ONPS , ~, +1l-~ T-'"T) -20- 58. &t the same time, when taking a longer term view, it is possible to envisage a situation when the present needs of the public services and the gold mines have been met, when external capital will play only a marginal role in South African development. If private savings could be maintained at 1 130 to - 140 million, and if the government could increase its own savings. for instance by increased taxation. to say L 40 or L 50 million, such a total of investment would not be altogether out of 1inP for a ountrv with a national innomp of aroinrl 1. 1 -00 million. It certainly represents a slower rate of progress than that of the last ( vAars Ht - One the nrAent stringent nPriod is over- it should not be unduly difficult to settle down to a slower pace if it beamern necsay N. CMv_1ITWaPTT77PI1.q rOCTWLUSIOM An, BforeCan rvroccedng ., o ar c nA.sion cO, ,n.r"in.6 - +t1h rei W.nA4nV,n4n4 ,,n of South Africa, two specific points which have a bearing on the matter, reai to be iscussed. UU QUUJL1 r1 UJLL r.u Iu.L, j _I_ her currency is fully convertible into sterling and capital movements Oetween the Union n tne Unieu aLngUm are no subject ou control. But South Africa maintains her own separate gold reserve instead of participating in the usual dollar pooling arrangements of the other members of the sterling area. 61. Before the war, South Africa had a natural dollar surplus in her trade pattern; her dollar imports were much less than her dollar exports plus the value of current gold output. Consequently, this surplus accrued to the United Kingdom with whom South Africa normally had a trade deficit. But in the early years after the war, South Africa's dollar expenditure increased so much thAt it exceeded her total hard currency income in the form of gold production and dollar exports and led to a rapid decline in her gold reserves. During this period there was a very large movement of sterling capital into South Africa so that the Union received the benefits of membership of the sterling area in the form of freedom of capital move- ments without making any contribution to the sterling area's dollar position. In 1948 when import control was reimposed this situation was rectified by limiting dollar imports more strictly than sterling imports so that it became possible once again for the United Kingdom to earn some payment in gold for exports to South Africa. Since 1948 there have been a series of informal arrangements between the Union and the United Kingdom, the object of which has been that South Africa's import controls will be arranged in such a way that the United Kingdom will be in a position to earn some minimum amount of gold every year. At the present time the arrangement is -21- that South Africa will guarantee the accrual to the United Kingdom of gold to the value of at least L 50 million per year and in addition the Union has undertaken to maintain her gold reserves at a figure of annroximatelv 1 50 million (that is, at around their present figure) and any balance available over this figure will be sold to the United Ninadom- Tn nrantie this will work in the following way. If South Africa's total hard currency income is 1 200 million (1 150 million onli nrnAiintAnn and . s0 millIon dollar exnorts) then dollar exnendi- tures will be limited to 1 150 million so that the other & 50 million will he sol for stprling and heome available for navment for sterling commodities. But if dollar expenditures fall below L 150 million, the unused old will not he added to rtqrvP. but will hP qol for sterlina in addition to the basic L 50 million. 62. The degree of stringency wlich has been required in South Africa +o n k^ii+ +Mo *A4mAl ^-P LSoinl+ Inoo ^+ 'kn a -trh o"N almwl. n z V r%l InV goods are still more readily available in the Union than elsewhere in +ke s-rli e n Alo 4-a *,4 -a 4,-s an+ws+ m +h- sw1A.m+ figure of L 150 million to at least L 200 million by 1960 indicates that South ~A U~L4~n U4.U 63. te toale public external ue of the vUnon is low, t outed at the end of 1952 to only L 84.5 million ($237 million) of which J, 14.4 million ( 4U.4 millon) consisted of obligations of political subdivisions not guaranteed by the national government. Of this total, L 35.6 million ( 99.8 million) represents dollar debt and the equivalent of $13.9 million is repayable in Swiss francs or, at the option of the holders, in U.S.. dollars. There is also an amount equal to 6.4 million which is repayable in gold. 64. Service payments in hard currencies (U.S. and Canadian dollars, Swiss francs and gold) amount to $3.8 million in 1953 but in the three following years they will be $32.7 million, $9.8 million, and $12.9 million. Thereafter from 1957 to 1969 they fall gradually from $7.6 million down to $4.4 million. But all these amounts are very small when compared to South Africa's net current gold and dollar earnings which are now running at about $460 million per year and are due to increase with the rise in gold output. 65. Of more significance, in view of the Union's position as a dollar surplus country, are the service payments on the total debt. The largest annual payment equivalent to nearly $40 million is due in 1954. Other heavy paymnents are $29 million and $23 million in 1958 and 1959 and $33 million and $35 million in 1967 and 1970. Otherwise the service payments -22- moderate for a country whose net foreign exchange income is now approaching w.1, 00C. million a year. Sot U AfLi- .rJLc a wo^Uld- therfore e 01we ll 11'ab10le to service additional dollar debt of the amount she is at present contemplating o.owJn furom th4e J uJQLuu* UU* ILIVEVI .LO LU ro . CAL4 UU.L(au-UO UL . ULI Uw& !i)UU_LJ_u UW~UL, V.L the Union of South Africa, General Conclusion 67. It seems a fair judgement to say that since the war the South African economy has been proceeding in aprroximately the right drection with a con- siderable measure of success. Certainly there have been fewer economic alarms and excitements and more sensible progress than in many if not most of the other major economies in the world. Moreover, some of the difficul- ties with which South Africa has had to deal have not been of her own making. For instance, the vast inflow of capital in 1947 and early 1948 added to the inflationary forces which already existed within the country itself. Also the fact that South Africa has had to impose discriminatory import restrictions against dollar goods is lzrgely the result of the United Kingdom's inability to compete, particularly in terms of delivery dates, with the United States. It can also be argued that much of the rise in prices in South Africa has been imported rather than locally generated. 68. This is not to say that, ideally, things could not have been better managed. If the progress in the rrivate sector had been somewhat slower and that in the public sector a little faster the present unbalanced situation might have been avoided. It might have been wiser not to estab- lish thirteen new gold mines more or less simultaneously though this would have involved some delicate problems of priority. Theoretically, the private economy could have been restrained by direct controls, by monetary policy or by increased taxation. The first was much against the philoso- phy of the aovernment and, indeed, of the country as a whole and thus would probably not have been possible except in an emergency. The second is now beine put into practice; how effective it might have been earlier is an open question. The Governor of the Reserve Bank pointed out that it was not easy for South Africa to nursue such a -oolicv before it was put into practice by the United Kingdom. Also in a rapidly developing economy whern rates of return are fairlv hiph. the effert of hinhpr interest rates might be small. The third method, tax policy, offered morn sonpe. A nurnhase tnr on tAhe linen of the British taxr wunld have deterred investment in the private economy. Income tax is also low questions were important. The government has been under continued it is not surprising that it felt unequal to a purchase tax. Reform of -23- Fie income tax is at present unaer consideration. A 01-partisan poltical committee has been set up to examine the whole question and in this way it is hoped to minimize the political pressures. 69. There are other long-term problems to be dealt with. The local food supply is only just equal to the demand; while food is not officially rationed it is not possible for a private person to purchase as much meat, butter and sugar as he desires. But it aprears that agricultural improve- ment in South Africa is more of e. technical and an educational problem than an economic one. It is not possible, without a specific on-the-spot examination of the agricultural conditions, to be sure whether sufficient, or indeed any, headway is at present being achieved on this front. It seems more likely that as the immediate problems in other fields are over- come the priority assigned to agricultural output will be raised. 70. As mentioned before, the Committee of Inquiry into the coal crisis was in favor of a broad inquiry into the whole transport position in the Union. Any monopoly such as the South African Railways Administration is bound to have its inefficient aspects and in this case the problem is aggravated by the poltical pressures to which the railways are subject. Altogether there probably is and always has been a certain amount of inefficiency in the railway system but, in the absence of a thorough and expert inquiry, its extent is a matter of opinion. 71. But it is above all where the economy comes into contact with racial problems that it encounters the greatest difficulty. The native population is partly still in a sta'-e of primitive agriculture where it continues to wear out the soil on some of the best land in the country. part "urbanized", but rootless, over-crowded and frustrated and part Doised uneasily between the two. The Europeans find it impossible (for ideological reasons) to take emphatic steps to ease the natives' transi- tion into the European economy and eauallv imnossible (for rractical reasons) to force them out of it. This dilemma, and the whole complex of ranial nroblems connected with it. eantA a situation 'here the uorkinc of the economy may possibly be impeded or even dislocated by racial conflict- There is thus some risk to the security of a Bnnk loan- The nature and extent of this risk are not however primarily economic matters anira 4idament nnon them Amn nnt +hnrf'nirnnm tithin tha nnnA nf thin report. 72. But assuming that these problems can eventually be overcome without disasteAr, the ecnonmin fiitmrn nf SmithAfrinnqc . ren.q fnirlv secure_ The present dependence of the economy upon a wasting asset, gold, creates that these cannot be solved and in fact some progress in this direction provides a valuable shook absorber against forces of deflation which miAht c-Pafc Snu+h Afrcna other orn,+ almosn all of tham "v4marw products such as wool, diamonds, minerals and base metals, hides and skins andA foodstuMffS inclUd ing citruss fruits and- V4iMneso -24- 73. At some stage, South Africa will have to make the adjustments necessary on ceasing to be a capital importing country. However, there has been some indication in the last few years of a recovery of internal savings to a degree sufficient to warrant the conclusion that this transi- tion might be carried through, if necessary in the quite near future, without any grave dislocation of the economy. 74. At the moment, however, South Africa is et the climax of several years of rapid development and with certain important projects uncom- pleted. Only two of the new gold mines are producing, the oil from coal plant will not be completed until, at the earliest, late in 1954 and both ESCOM and the Railways heve programs of expansion covering the next four or five years. The capital for the gold mines has already been secured but it is the government's responsibility to find the money for the others. The present creditworthiness of the economy and the productivity and urgency of the projects can form a basis for a Bank loan to South Africa of the amounts at present contemplated by the government. J. .H. Collier APPENDIX Table 1 96LtLLL~ k6~ U~ Q~LÅ 944;Qåg VNt In.es+ment- I. Gross Public Investment 1. Union Government: (a ...and nHarbour 27 32_ 36 2c4 2C. 29 (b) Other Government Business Enterprises 6 6 9 8 7 8 (c) Ion-Business Departments 5 6 5 4 5 7 2. Provincial Administrations 8 10 13 11 14 17 3. Local Authorities: (a) Trading Departments 7 8 10 11 12 12 (b) Other Departments 16 Total Public investment .4 II. Gross Private Fixed Investment 4. Building and Construction: (a) Farming 10 12 13 16 21 17 (b) Other 53 71 64 73 106 113 5. Producers: Durable Enquipment: (a) Farming 16 24 21 19 22 17 (b) Mining 10 14 18 20 27 43 (c) Manufacturing 22 32 36 37 45 58 (d) Commercial, Private Transport and Other __ __13 7 8 Total Gross Private Fixed Investment 120 166 161 172 228 256 Total Gross Public and Private Fixed Investment 182 241 244 02 J Note: Item 1 (b) includes cepital ex,:enditure on the Post Office, the inIt, the Governrent Printing Works, etc. Expenditure on ISCOR, ESGOM, etc. is included with private investment. APPENDIX 19M48/4 1951/52 L Illion $ Million Agriculture, Forestry and Fishing 1260. 14.2 184.3 14.8 Mining: gold 69.4 7.8 114.6 9.2 other 24.2 2.5 49.8 4.0 Manufacturing, Private 195.4 21.9 293.8 23.6 Trade and Commerce 148.3 16.6 169.6 13.6 Transportation (including S.A.R. & F.) 84.1 9.4 107.0 8.6 Finance 16.1 1.8 26.5 2.2 Government (Union, Provincial and Municipal) 127.4 14.3 164.4 13.2 Other 103.0 11.J D342- 10.8 Total Geographical Income 894.5 100.0 1,244.8 100.0 Minus net income accruing to non-Union factors of production _65,8 121,8 Net National Income 828.7 1.123.0 Source: Bureau of Census and Statistics. APPENDIX Table 3 Imports by Commodity Groups (,bS.1 A.illions)J - 1948 1949 1950 1951 1952 Animals, Food, Beverages and Tobacco 24.0 22.7 25.5 27.8 33.2 Textiles 79.7 66.3 67.9 131.9 72.7 Miscellaneous Consumer Goods1/ 13.4 8.1 5.9 12.2 10.8 Metals. Metal Itnufactures, vkhchinery and Vehicles 132.8 113.3 100.2 157.9 161.0 ,iscellaneous Raw Ypterials, etc.-/ 66.2 66.9 80.1 116.3 110.0 Other kerchandise 14.4 6.9 7.4 11.0 10.5 Government Stores 22.3 3 20.2 12.7 21.8 Total 352.8 315.3 307.4 469.8 420.0 1/ Books, stetionery, jewelry, timepieces 6axe frae sis waxes, resins, chemicals, leather, r1 ubber. e Lc APFENDIX Table I Exprte* by flommrdity Quantity Value - . Million i aill i alm l68 i97 1 ,6 2 . Al i5 6.9 io.1 io wottl Bar f, Exri milio is 262 29Q 279 259 2. l o. 6C.0 7s.4 F i ,-&u m l o b 2 - -4 _ , _ ., _-0 ' ., Sub-.tZ al A i u l roducts 0 .,6 . _no 8 LT++e, 1..1 1. In )nii4 lirl '1i c~I~n n n ri i ' r - P. ome thu o-n 27o 4tn A53 101 -.6 1.4 1ø .7 6i nganeseJ thousanL ons 356 C '24 646 64 J. * 2...1 .8 'JIV lramet IL D J ousan-JA tjo,, '2j r.JyJOJ t+.4 7 ,J * J J-*&+ . .J. J.gt. ilil-.. L ~ £16 fN 6 INn i 6) Asbestos tljousand tons 40 L.U.L 126 3 .3 5.1 (. 0.7 Copper thousand tons 28 38 33 36 . 7.2 11.2 Coal (incl. bunkers) thousand tons4,272 3 ,247 2,1 1,101 .,4 ,,0 _. 4a ouubotal - Budk 1-ineraw ' _L-9 . Diamonds-roughL & uncut 000 carats 916 2,920 4,483 4,491 6.0 12.0 15.4 17.7 - cut & polished 000 carats 81 113 116 110 6.0 8.1 9.8 9.3 Other Domestic Exports - - - - 25.6 67.6- 90.8 89.6 Re-exports - - - - _. 2396 - 33637 Total Exports (other thlan gold and gold products) 95,4 21j 278.0 267 Source: Itontbly Abstract of Trade Statistics. APPENDIX Table 5 Central Government Revenue and Expenditure (-, S. A. millions) Estimate 1948A 1949/5 1950/51 1951/52 1952/53 Current Expenditure 143.2 155.3 166.9 194.5 206.0 Expenditure on Loan Account 77.7 _80.0 62.0 70.0 Total Expenditure 220.9 235.3 223.2 256.5 276.0 Total Revenuer' 165.6 167.3 195.7 214.8 223.4 1/ Includes current revenue of the ordinary budaet rlus certain items of revenue credited to the Loan Account. Source: Renort of the Auditor and Controller General; White Paper on the Budget. APPENDIX Jolj and Foreign Exchange Reserves of the South African Reserve Bank End of Year Gold Foreign Exchangel (- S.A.iions) 1945 205.8 61.o 1946 230.7 17.6 1947 187.1 60.7 1948 125.0 35.7 1949 45.4 59.9 1950 69.7 96.3 1951 67.4 69.3 1952 60.2 69.5 June, 1953 62.0 46.1 1/ Almost all sterling. 2/ This figure includes the 6 80 million gold loen to the United Kingdom. Source: Reserve Bank Bulletin. International Financial Statistics. APPENDIX Table 7 Balance of Pavments (4 S. A. millions) 198 1950 1951 2j 1. i\brchandise a) Imports f.o.b-2/ 35 35. Rnz 6A7 4.17 b) Exports f.o.b.- 132 209 211 274 2. Net Gold Output 99 147 148 150 3. Freight and Insurance on Imports -39 -28 -42 ) 3i 4. Other Transportation4nd Insurance and ) Foreign Travel (net) 11 11 ) . Invesme nc (n41t) -4 - -43 6Governr,enlt n.i.e. (net) j ) 7. Other Services InicludLing Donations (net) -2 -3) ø ~ ~~~ f..4 r7C 0. Balance on urret' ecoun, 9. Draig on .M.. 3 --- .--4 --- 10. 4fficl Loansl a) Sterling -- 10 -- -- u/ U.S. joLlars -- 4 9 1u c) Swiss Francs -- 3 -- 5 11. Short Tern Liabilities -3 1 1 -2 12. Net Private Capital 1,ove:,entMEnd Omissions and Errors -2;1 -53 -. 4.5 13. Total (Item 8 through 12) Change in Gold and Foreign Exchange Holdings (Increase4 Decrease-) -84 471 -38 -7 . I P iona ut. L L V.L J Lrv b± ~ . Excluding gold bullion, gold products and ships' stores. / including receipts for shipsi stores. / The Gold Loan to the U.K. in 1948 !-as been omitted. 2/ V.L XwLi1 - 4 LILml(n in 1951 and 5 8 million in 1952 re-resent drawings under I.B.R.D. loans. 21 Including trade eredits and dra,,ings under uranium loans. APPENDIX Production åverag-e IP r. X.A u e Iv TT4 in -2- 1' 7-äo- i, c)i '- e n i r l Prouc Y,4,194/3 1947/z i 19k- /, Ai 951/52- Wool million 'bs. 2o6 2032L24 wjLJj LL r_mm ý V.0p Ma..ze I.LlJbULI - 2 2L7 wiheau juillion tuags 5.0 5. j. . B utter Million Jb. 29.9 475 56.0 63.0 Tobacco million los. 18.9 39.7 46.0 53.0 Cattie Slaughtered thousand 610 1,û91 1,215 1,129 2) Ivneral Production Product -nit 129 12 190 951 195I (Forecast) Manganese thousand tons 305 722 872 844 900 Copper thousand tons 41.2 47.0 51.2 48.9 54.0 Chrome thousand tons 455 446 547 601 750 åsbestos thousand tons 45.7 70.9 87.4 104.5 250 Coal million tons 26.0 27.6 28.7 29.1 39.2 Source: Data provided for IBRD mission. APPENDIX Table 9 Urbanization of the Porulation 1921 1936 1946 (thmr IR elA Total Urban Population Europeans 847.5 1,307.4 1,740.8 Natives 587.1 1,141.6 1,810.5 All Races 1,735.8 3,009.5 4,299.8 Percentage of Each Race Urbanized Europeans 55.8 65.2 73.4 Natives 12.5 17.3 23.1 All Races 25.1 31.4 37.7 Lource. ZIusuria.L egLaLon Cou-amson Repuru. (U.G.62-1951) SOUTH AFRICAN RAILWAYS IBULAWA,0 AND HARBOURS NDM ATE SECTION OF RHODESIA RAILWAYS IN OPERATION -36GAUGE RAILItS FROM YBURG TO BULAWAYO IS 3'6" GAUGE.............. -- WORKED DY THE SOLITH 3' 6" GAUGE ELECTRIFIED. .+++ AFRICAN RAILWAYS 2' GAUGE ....... . .. . ...... =-=.. == NB RIG PRIVATE RAILWAYS... . . . .S..T.A. IAPUNBUDREPORTUGUESE EAST AFRICA BOUNDARIES - TERRITORIAL.. ...........Z :.. g÷ T R A N S v A A L PROVINCIAL. . .S . . BECHUANALAND PROTECTORATE ( BRI TSH I. SOUTH WEST AFR CA PEOSPOUIT IOHANNESIG I LOURENCO MARQUES LUDP I ~ RE TURAHOP J ~ -.J-~ '' SWAZh EVRYGURG LAND u.A N G EpE- i N ET cl . KG ARR15M N A T SL ORANGE IVE K9 I iMER AF RYE LADYSMITIN T L LOEMPORTEIN PORT "OLLOTH T kASUTOLAND1 PIE E RMAR il T2BUR Q \ ITTERFONTEIN DE AA,Rø 1 P R S PST.IN AT L A N T I C 0N D I A N J~PORT ST. .0N O, C E A N C A P E 0 F G 0 0 D H4 0 P EOCEAN BAØ E ARST -LOEDON SCALE TABLE BAY KNYSNA E A LFRE0 50 100 150 200 CAPE TOwn PORT ELIZAGETH SIMONSTOWN I.B. R.OD. DRAFTING SECTION RAINFALL AND VEGETATION IN SOUTH AFRICA 8 22° 26° 302 14024° SOUTH WEST. AFRLl T VA •Jo ESBU G C I~MBER EY ATE2 ATA\ ASU O- CAPE OV lN CE 32° ANNUAL RAINFALL 32c THORN COUNTRY AST ]DESERT LOl9DON KARROO GRASSLAND, PARKLAND, •CAPE TO N MRT ELIZABETH ..AND FOREST MAIN DESERT MOVEMENTS, . . C>MAIN KARROO MOVEMENTS' . . - - -INTERNATIONAL BOUND. . a : . .. . .- · . -------PROVINCIAL BOUNDARJES 14° * 22° 26° PRINCIPAL ECONOMIC RESOURCES OF SOUTH AFRICA SOUTH WEST AFRICA TRANSVAAL PRETORIA JOHANNESBURG WA7 L 7 ORANGE LEGEND FREE -NA TA L SHEEP MBERL STATES GOLD LAND ( DURBA - COPPER MANGANESE CAPE PROVINCE CHROME I M DIAMONDS COAL 2 AST LONDON INDUSTRIAL CAPE TOWN b)" h Ilk AREAS k k PORT ELIZABETH .......................................