Transcript of one hundred third special meeting of Executive Directors, held on Monday, November 28, 1955 : South Africa - Third Transport Project

STRICTLY CONFIDENTIAL 89486 McD INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVBLOPMENT --- ONE HUNDRED THIRD SPECIAL MEETING of EXECUTIVE DIRECTORS -- - Board Room International Bank Building Waabington, D. c. Monday, November 28, 1955 The meeting was convened at 9:30 o•clock a.m., Mr. Robert L. Garner, Vice President, presiding.  2 STRICTLY CONFIDENTIAL Page PJ110po11ect Loan • south Ah1oa • • • • • • • • • • • • ·3. · •** i i! 'i :; ll f! !i :i ;: .... -.  3 STRICTLY CONFIDENTIAL l!.2il!!Jll.lii~ llR. GARNER: The purpose ot this meeting 1& to consider tbe Report and Recommendations on the .proposed. 1oa.n to the Union of South A.tl'ica. I wo.uld like t.o ,call on Mr. I..ejeune t1ret. MR. LEJBUNI: Jilt. Chairman, gentlemen, this is the fitth loan that we are proposing to south Africa. These five loans have been made over a period ot ti ve years. I think we can say Without Question that this association bas been a fruitful one. South Africa baa bad and continues to bave a real need for expanding basic servtcee, such as transport and power, and the local resources there have not been suf'f1c1ent to meet this need. The Bank•s proviston ot capital bas, therefore, been a real help and a significant item in their development. In south A1"1"1ca, one can see the results of the Bank•s efforts, and ·it is a considerable satistaction to tboee ot us who go there trom time to time to see on the gz-ound the physical results. The ftrst thing one sees actually is the station in Johannesburg, a large and imposing one, wbiob bas been financed by us, and a very important thing it is, considering the large amount of commuting tratt1c that goes in and out ot Johannesburg, particularly native labor. To say that the association baa been tru1ttul does not, however, mean that we are entirely easy in our minds about  4 STRICTLY CONFIDENTIAL South Africa •s tuture. tJJ.y Atr1can oountr;y aouth ot the Sahara ts taoed w1 th the problem ot bringing 1 ta Atrican population torval"d to the point where theJ oan adapt tbem- ael vee and their way or lite to tit without tr1ct1on into the modern world. Thia 1s a tremendous task which is raced in South Atr1ca, as well ne in the other less advanced countries ot the continent. But in South Atl'ica, as in Bast I i Atrica and the new Fede:rat1on ot tb.e Rhode11ae, and to aome ji extent in the Belgian Congo, there 1 s the added problem li 11 ot hov to bring together the widely di ttering culturea ot 11 the European and Atr.t.can inbabitanta, and to do this in a way 1 Ii ! I so tbat the7 can cooperate ameably over the :f\Jture. · While the white population baa lived in South Africa Ii I' l fol' man:r generattona, 1t 1a onl:r vttb the J.'ecent 1Ddu1t•a:i.1.J- that it baa become oleal' that tbe white man•a conttnuecl existence 1n South Atnoa now depends on the nat1 ve .a:trican, I I just as much as the African •s advancement aDd welfare depend on 'the white man. Survt val, tbeztet'ore, depends upon bOtb. races making senoua ettorts to 11 ve together amoablJ. It •111 require a high order ot atateemanah1P during the nut tew generations to bring South Atr!oa euccesat'ullJ through this period ot adjustment. Despite obVious polittoal cUft1oult1es., the 1maed1ate economic pl'Ospecta are, bowever, vef!1 good, and there :ts little reason to question tbat South Africa ts cred1tvortby  5 STRICTLY CONFIDENTIAL tor the kind ot borrowing now contemplated. The proposed borrowing in the New York. market 1s evidence that cautious investors are confident tbat lending large awns to South Atl'ica 1a a prudent :risk. You ma7 be interested to lmow the latest in.tormation on the terms of the proposed public 1ssue. The amount, as I think J'OU know all'ead7, 1• to be $25 million all told. i This vill be divided as follows: $3 million in 3-7ear boDCta, bearing interest at 3-7/8 percent J f3 million in 4-year bonds, bearing interest at 4 percent J $2 million in 5•:vear bonds, bearing interest at 4-1/8 percent. Nov, all these Will .be sol4 at par. The remaining $17 million is in 10-:rearl bonda, bearing interest at 4-1/4, and these l0-7ear bonds ' •111 be a old at 98-1/2. The spread on the 10-year bonds •111 be 2-1/2 pe:roent. So tbat tb.e coat to the South Atr!cana, not tald.Dg into account expenses, 1• tor the l0-1ear bond• about 4.43 Pff'Qent, and tor the abort tems Will be just about an even 4 percent. 'J.'heae terme tbat I ba ve juat 118Jlt1oned ba ve not ;vet been g1 ven to the Seour1t1ea and Bxobange Co•tsaion aa a tinal matter. Tbat 1• proposed to be done toaol'l'OV morning. Teobn1oall:r, this loan ia interesting, not onb because it ts another joint operation but because it v1ll, unlike previous South Atl'ioan loans, be diaburaed almost entirely in sterling and will be denomtnated in sterling. 'lbat 1s to  'I' 6 STRICTLY CONFIDENTIAL say, our loan. I am not talking about the public issue. Most ot theg>ods being financed under our loan w111 be bought 1n the UD1 ted Kingdom, thougb some v111 be bougbt OD the continent ot Europe, and to a large extent these, too, will be financed v1th sterling. This sterling has been made ! available out ot the Un1t•d lt1.ngdom•s 18 percent oapttal subscription to the Bank. l I, Ii In making this loan, we are reallJ doing three i; i: jl stgn1t1cant things. Ve are g1 vtng essential help to a r I developing oountrJ, we are enrolling the interest and help i I r ot the market., and ve are making good uae ot our own f cap! tal resources. I reel tbat on theae three points we r i ca13 commend 1t tor your approval. l' MR. OARNBlh I would like to call attention to the I tact that ttr. Lejeune said these tenu on the public taaue I i are not yet public. The7 will be g1Yen to the Securtt1ea I and Exchange C011111sa1on tomorrow and ottering w111 be made on Wednesda7, ao I request you keep them cont1dent1a1. !: I: I would now like to call on *'• ramarok to d1aouaa the I! economic •pee ta. 1: j: IR. l'AJllARCJt1 b. Cba!rman, gentlemen, eoonOJBioally n il II j; the Union ot south Atrtca 1• one nation, though pol1t1ca11J H H H and socially it 11 at least five nations tbat occupy the !1 I I:; same territoey under the political dOJl!natton ot one ot them. 1 Iill Boonom1oally, everything that baa been aob.1eved in I' 11 ;j !J n I' j;  r 1 STRICTLY CONFIDENTIAL agriculture, 111n111g, transport, and in manufacturing 1• a :result or European skill_, oapttal, and management, l.argelJ based on non-Buropean labor, Atr1oan, colofttd, and Aa1an. ll j! The tuture econom:t.c gl'Ovth ot the UD1on depends on the r: i: continued ooope:ratton ot these f1 ve nations. I: !' !. Ot the total population ot the 'Onion ot al.most t j fourteen Rlillton people, two-thirds are African and one-tttth. are lu:ropeana. The Buropeana came into the 11D1on t:roa the south around the 111ddle ot the 17th oentu17, and the Atnoans: entered troa the north peJ'bapa a oenturJ earlier. 'l'he two groups did not meet unt11 about one hundred twent7-tive :rears atter the first European aettlaaent. The prevtoue inbab1tanta ot aouthem Atrtoa, the Buabaen or Hottentot1, are mostl7 killed ott or abaoztbed. 'l'b.e relation between the Buropeana anCI tbe Atr!oana I!•! 1a the aost 1apol"tant one in the Unton, but 1a not the onb I: ;J 1; 11 one. There aM also over one million colonds, that 1a, !! Ii persona or mixed Buropean, Mal.a7, Weat Atrican and Baa~ 1: 1! Arri can legl'O 1 and Af'!1.oan Hottentot origin. Tb.ere are alao tou• hundl'ed thousand Asians, mostl:.r ot Indian and Pakistan! 1 1 origin, but alao including some Oh1nese. The n1ne lll1llion '! Atricaaa are d1Vided into a nua'ber ot tl'ibes which are still I Quite boattle to one another and which speak difte:rent 11 !! languages. A Zulu, tor example, oannot understand nor Ii jt tolerate a :saauto. The tb.ree 111ll1on Buropeans are, aa the 1! fl  'I 8 STRICTLY CONFIDENTIAL Af'r1cans, also di Vided into tribes. Sixty percent ot them are Boers or Atrikanders 1 speaking a kind ot Dutch dialect, 1 : and the remainder most11 speak Bnglieh. The English-speaking dominate moat ot the private urban economy -- f'1nance, H mining, manutactur1ng. The Atrikanders control the Ii I' ii government and the great govel'Dll8nt enterprises, that 1a, Ii the railways, the eleotr1c1ty, iron and steel, and most II ot the European tarma. I! Ii The relation betveen·these two tMbes of' Europeans Ii 1• the Maia ot all political lite, s!llce essentially only I: they have the vote. While there are and there w111 continue I I! to be triottona between them -- at.ld this ba• aome economic ef'tects -- it 1• not likely to interfere deoieivel.7 w1tb I the orderly economie growth or the count17. '!'he little I: opportunity that the non-Buropeana bad to part101pate in the I j goveroment bas been whittled away over the past generation. Bom.e ot the coloreds still bave the l'!ght to vote 1n the geneZ'Sl election or members or parliament, but the •Jor pol1t1cal issue of' the last t1 ve years baa arisen out of' the , ! attempt ot the govel'Daent to take this right away. In tb1s year 1955 the government baa changed the whole structure ! and method or election ot the Senate and bas enlarged t h e l 11 1 ,i b!gheat court, the appellate cO\Jl't, presuaably to be able . 1 I I! to put: the colowd• ott the vo~t:ing liat:a 1n 1956, ! Iir on the taoe or 1t:, in the modem woplcl a ait:uat:ion whew I 1 ~ i i I  ., 9 STRICTLY CONFIDENTIAL QAf. political poweJta/\aonopol1&~7 a small traction ot the total populatiOD would not appear to be a stable one, but th.ere are 1 a number ot points to be mentioned here. Pi:tat, it 11 a I I. j' matter of reoord that in the last ten 7ears the econOJQ' ot I' South Africa bas been disrupted bJ stl'ikes, riots, or other contliots. Second, ot the disorders tbat bave taken pl.ace, r ' there probabl7 bave been more contliots between non-Europeans, tbat 1s, Atrioans ot one tribe against Africans or another, Africans aga1nat Aa1ana, coloreds againat Africans, than I I between European• and non-Europeans. Third, except to'J!t one I i i»atance, the passive rea1etance campaign ot three years ago, the latter troubles bave not been political challenges to I I: the government, but they bave been more in the nature ot l Ii ii F serious outbreakS ot juvenile delinquency or gangate!'!.a:m. Ii " Ii 'l'he7 have been due to the failure of the govel'JUJlent to meet ii ! arta1ng out ot the flow ot Africans into the 1! I the problems ii ,, II cities, enticed there b7 the growth ot industry. These l! !I problems arteot only the two or two and one-bal!' million , II Arrioana who are 111 tbe cities. The -ining tbree..quazoters I j ot the At'rtcans vho are in the native reaerves and in the i l ! i Burope&11 h1'11l8 present 1erto11a probl-, bUt they are probl-1 II or econond.c development an4 ot proper use ot resources. r They are not primarily Pl'Oblems ot political and social 11 l~ I stability. While the mines trom the t1rst bave been ii 1-l Ii !i dependent on Atrs.aan labOr, the taotorte• are only now JI I! I:  10 STRICTLY CONFIDENTIAL becOJD.ing 1ncreaainS11 ao, but moat ot the c1t1ea and the central governaent ba ve unttl reoentl7 retused to tace up to the probl-.a resulting from the 1D1'low ot b.undreda ot ' thousands ot Atricana into the c1tiea. '!'he present part7 i1 in power, 1n tact,, tends to take tbe position tbat tbe i' Ii I: l\tricans do not belong pemanentl7 1n the c1 ties. As a !I I' !, result,, the Atricana ba ve crowded into shanty towns and H j! s luma tba t have been more urban jungles tban organized i' I comunit1ea. The big problem comee trom the children who i: 11 I I! have gl'Own up in theae jungles without tribal or tall1l7 Ii discipline, and with the monls and ethics more ot wolves !' 1; tban ot human beings. I' the cities,, not the so-called savages that bave Ju1t ooae I ;~ l in t1'0ll tl:le reserves, who are reapon•ible tor the r1ota I " and the crime vhioh make so much ot Johannesburg a 01t1 ot I tear. But this ia not a po11t1oal challenge to the exiatenoe l ot the govel"mllent. It is only in the ls.at eighteen month.a that one can eee tbat conorete pJ.'Ogreea 1• being made 1n prov:lding proper houa!ng and proper oo!ll'IUD1tiea tor the Africans on the land around Johannesburg where the a1tuat1on I bas been the worst. But this i• onl7 a beginning, and not I I: enough is yet being done to educate the nev urban generation I into a new wa7 ot lite tbat can 1uece1stall7 substitute tor I: the old tribal d1ac1Pl1nes tbat are breaking down. 1: Consequentl7, even With all the progreas tbat baa been made  11 STRICTLY CONFIDENTIAL recently, we should expect to continue to get trom South 1 • Africa the usual news of ortme, tena1ona, and sporadic ,. outbreaks ot senseless violence. So tar, however, the urban i! Ii I! Africans have not yet developed to the point where the7 1: 11 11 have been able to orpn1ze any continuing ettecttve pol!ttcal Ii 11 action. The pasa1ve resistance oampatgn ot three rears ago 11 was not ve1!'1 1Japress1ve. The jails were not swamped. In all, 1; j! I only abOut eight thousand people were in Pl'iaon. While this I i may be a bai-binger ot the tuture,, until now the Africans I I I have not succeeded 1n creating any pel'!mlnent etreet1ve poltt1cal organization. They bave not succeeded 1n c•eattng any peJmanent ettecttve trade unions. It will probably take some years yet ot urban lite beto:re auch organisations can I \1 I be created and before they can pofee a nal political I ! problem to the govel"D!llent. Wbat the tuture will bring ts 1Jllpoaetble to predtct., I! but there 1• no doubt tbat there are real elements ot rt•k I Ii 11 tor the Bank 1n investing 1n the Union., but aa tar as one L d 1: can see now tbeae are not too great to~ the next ten years, I! n and certainly i t economic grovtb co11ttnues at anywhere near I i'. j Ii the present 1&te all ?eoes get •ome benefit trom it, no mattet I 11 d 1. how small, and the tensions are moderated. [i Ii Aga1nat this backgJ'OUDd ot social and po11t1oal Ii problems, a1 the economic repoJit 1hov1 the eoonoQ ot the 11 I! Union bas been developing Quite aat1atactor111, aDd the Ii i;! :1 I; i  " 12 STRICTLY CONFIDENTIAL eooDOllio prospects ot tb.e Union oonttnue to be goOd. '!'he 11 i,I conoluaion tb.eretore lltl&t be tbat tbe un1on 1• oreditworth1 p I] ji to'!' the propoaed loan. Ii Jm. CJABDRs Thank 1ou. I will now aak )Ir. Wubnig to brietlJ d1souae the project. JllR. WUUICh Jlr. Obaiman, gen'tlemea, the Bank 1• being asked to ttnanoe a continu1ng PJ!l'Oll'&m tor the development ot South Atr1ca•s :railroad•· 'fb.e e11ent1ala ot the propiam are ahovn on this •P· '!'he South Ahioan eoonOllJ' 1s growf.Dg. 'l'b.e volume ot i-a11wa7 height baa 1noiteaaed 55 pel'Oent •1noe the war. 1i ttratt1c 1• now as dense on some k•J' eeottona as in 1n4uatr1al I! II the 1ooat1on ot innatnes and reaou¥'0ea -- the ooal .nelcta, I iron ore, manganese, gold, and gl'Bin. It al.so renecte the location, ot oouae, ot the llB1D ooean porta, l'Jurban, 1 Port ll1aabetb, and Capetown. '!'he heaYie•t dena1t:r 1• he:re (lnd1oat1ng), with 1J'OD ore,, manganeee, and cbrome all tlovs.ns toward tbat di•eotton. About 65,000 tona a da,- move trom. Wb.itbank to JobaDDeaburg. Th1• 1• tttt1 freight tl"a!Da a da7, eaob. va7. Da117 load• ot abOtrt 30,000 tone ocour on tbe n.rbln line• and on the Blo-.toatetn Unea. I'811J' loads ot about 20,000 tona ooour on the llmberle,- line• ,! and on tb.e C&petovn linea. ,I I! 'l'he Soutb. ttnoan econ_., oonttnuea to grow. Tb.e volume 'I ,, 11 !! !1  13 STRICTLY CONFIDENTIAL ot ra11wa7 tre1gb.t should increase 20 percent by 1960. On some ke1 eect1ona, however, tratt1c density v1ll be 30 to 50 percent heaVier. These sections aJie Jobannesburg-Whitbank,. Jobanneaburg-Bloemtontein, Jobanneaburg-Xlmberley, all reflecting, as I sa:.v, the growth ot the hea V'1 metallure;1cal industries around JohannesburgJ l'ad7amith-P1etenaaritzburg- I Durban 1 where 7ou ba ve metallurgical, coal, and other / resources. The railroad• thua need additional oapacit7. lxpans1on i. I: ot line oapaott;y ia the main need. It 1a being provtded by Ii extena1ve e1'Vil works. About 113 mllion pound• 1s being 11 l spent tor new vol'ks on open lines and fol' the oonstruct1on l11 ot nev lines. The map shows aom.e ot the :main work8. ii 11 Multiple tncking ot b.eaVJ denait7 llnea 1s in red. The ,, I' II broken red !s e,.;tenaion ot place• vb.ere 7ou now ba ve double ,; !j tracking in progress. Further eleotnt1cat1on 1s shown tn !! blue or the networks around Jobanneabul'g, around Capetown, ll nAi/ ii ...... ~ I! and around J>arban. Also, there .).r"devtat1ons ot ex1st1ng 1! I' l lines to correct the:ll' curves, grades. et cete1'8. These are f~ 11 Ii :~::::::::::~:~::::::::::~~::: ::::u181 II these little red •pot• :rou see here indicate mem yards wb1oh I Ii are being 111odeftl1aed an4 enlarged. Remote control ot I !I interloopa to speed tntf'1o movements ts ab.own by these I l'. ·l j: ,, 1:  '1 14 STRICTLY CONFIDENTIAL purple anows. Color light signalling 1• ab.own bJ other al"'l'Ovs, again to speed tratt1c movement. The :ra1lva7a also need mo:re rolling stock. Tbq are spending 65 million pound• tol' nev equ1paent. About 7200 height cars, 100 locoaot1ves, and 100 ooacb.ea have been delivered a1noe Jlay ol' are now on order. Road and pol't sel'Vicea are alao operated in cloae oon3unot1on v1tb the ratll"oada. About 9 million pound• 1s being apent to expand these aentces. l The total propam wtll ooat 187 million pounds in the 11 11 i next three yean. This 1noludea 36 million pounds tor overeeaa equipment and material•. Ordere have been plaoed or are pending. Tb.e good• Will all be bought thZ'Ough competitive bidding. The bulk ot the cost. or 169 million pounds, Will be financed 1nternallJ bJ govel'llm.ent bol'l'Owings r and by revenues. Onl.7 18 million pounds equivalent would be 1.· met by ton1gn borrowtng, tb.e Barlk loan request and tb.e proposed publio 1aaue. The tectm1cal l'Ctpol't shows tbat tile develoJ111ent Pl'Ogram 1• tectmicall1, economca11Y, and nna:nctallJ sound. 'l'b.e !1 1'8ilwa1 management 1• competent and tile propen1es aN t' !l ! run ett101ent17. The prenoua Bank loans bave been PQt to 11 good uae. 'l'heJ bave PB1d ror needed addition• to capao1t1 !! I/ whioh ba ve helped to m.ove an 1noreaa1ng 110lae w1 th DIPJ'OYing II ett1c1enc7. There is still a gap between trattio on ottezt III l" ! I 1!  15 STRICTLY CONFIDENTIAL There was no ael'i.ous oougeation last winter, tor the t11'8t time stnce the war. Adequate coal etoolcpiles were ma1nta1ned at all the power etations. Thi• 1Jnprovaaent 1s largely due I I to the good planning and execution ot the developnent prognmJ l Easier del1vertes ot eq\l)ment on oz-cter abroad bave also helped. So have recent reV1•1ona or the railway tarttt etruoture and eased reatr1ot1ons on ahort baul trattte. The present prognm is designed to reach a sat1atactory balance between capac1t1 and trattic by 1957·58· There 1s Ji good reason to believe tl11a balance will be reached. The II tunds which the govel'llDlellt Wishes to borNv abroad thus promise to be productive bort'owing. Thank 1ou. MR. GAUBR: Are there any q11est1ons Hgal'd1ng any ot those :repol'ta? MR. :DO?mBRs In the tecbn1oal report on page 11 and 12, paragraph 59, I read a short parapaph about the piioouMment method used b7 the South African GoverwaeDt. I wonder vhethe~ we could hear a little mo:re abOut the teobn:l.calit!es ot I this. It aa7e here that all pl"Ocurement 11 on tb.e basis ot pl!'Ooedurea ot compet1t1ve bidding. and the last sentence reads that the tende:P boal'd regulat!oaa put all ·foss o:fw suppliers on the same footing. Just tor our1oa1t7>t:a sake, b.ov does the South Atn can Govermaent bring a bout equal tnatme11t ot all toms ot suppliers? The prol~l<~m is poaed  16 STRICTLY CONFIDENTIAL atnce I would think the South Atrtoan CIOTel'DJl.ent :ta vttb.in tb.e real.a ot the Oomonvealth PNteNDoe•. I could 1mgine that tb.1• 1• done 1ll either ot two wa7s. A• I undentaDd it, the Australian &oveJl'Dlleat 1Jlporta au equipaent needed bJ' i :1 ji tbe govel'Dllent v1 tbout an7 tariff dut1e• at all. Another I Ii poea:t.b1l1t7 could be, 1n 111 t•stnation at leaet, tbat all Ji i: 1! auppl1en are 11ven the pNteNDoe tal'f.tta. i1,: llR. WBllCh Aa I undentand tb.e replat1ona ot tbe ';: I'. a11wa7 tender bOaJ'd, whenever a contact 1• to be plaoed i'. , tor constwctton or equtpaent 1• to be ol'de:red, or material•, · I I there are 1nntat1on1 to bid •de to the whole world. Tile I ! regulattone allow, I tb1Dk, a margin ot aoaetbing between 5 i i 1 and 10 percent tn tavor ot South Atnoan auppl1era. 'fbat ta to tavor local home tndaatrtea. Be;roDd tbat, aa I undentand,I I , ! tb.e lowest bidder on a PJte•<aua11t1ed Uet -- tbe7 bave 11ata ot bidden who baYe qua.lifted -- receives tb.e oontn.ct. llR. DODlllh But there ta a teobnioal problem, aa .tar aa I undentand. Jla7be Mr. Plett voultl be in a poa1t1011 to 11 enl1ghteu me. It nothing eiae 1• ct one, l believe the ouatoma 1: i1 1: ott1c1a1a would d1••1'1111nate betweea eupplien coming S.n, r l let'• ea;v • tl'Olll the U. &. and aupp11en eOJ1.111g 1n hom tbe !lti u. s. One poa11b111tJ to avoid thia would be to bave all II11 govemaent illPOl"t• oomiDg 1D without tarttta. a l llR. l'Lllf'fi Do rou mean tbat the tal'f.tt on Coaonwealth 1! I! supplien 1• lower tban tbe tantt on non-COIUlOnwealtb j! ji ! ;; 1: l  17 STRICTLY CONFIDENTIAL suppliers? MR. DONNER: Isn•t that so? MR. FLJft"!': I don•t know that. MR. DONNER: Ian •t that an ind1oat1on ot the Commonwealth preference s7stem? llR. :rr.a.t'Ts It all depends on wbat goods are covered b7 1ntemal preterenoe. I don•t mow 1t ra11wa1 equipment is :, covered. I Ii I MR. HIUB'l'lllAT'l'lh When a govel'DJllent imports someth1ns II IiI tor 1taelt, I don•t thtllk the tarttte appl.J. I llR. »OmfBlh That I would think too, but I know in other cases 1t ts not ao. MR. BIURTIICA'J.''l'Jh Geneally that is the case. RR. GARRBR1 oan anJ'bOdJ anever that queat1011 authori- tat1vel:v? Gctlemen, we have stated the 1ntoJ.!'l'l8t1on we bave which baa juat1tted u• in sa7tng it 1• competitive bidding ·I IJ j on an equal ba•1•· Ye bave no 1ntoJ.1m&t1on to 1nd1oate I otb.en1ae. U an;rbod7 baa an7, we w1ll make f"Ur&her 1Jlqu1r1ef 1 ! but we reat on the statement given to ua tbat that waa the j case. I I MR. BUB.Yi It the govemment did charge ttaeU dut7,, which I ve1!1 muoh doubt, although I oouldntt anaver 1t : det1n1tel.7, not knowing ..... I would be V&rJ' surprised it the i goveJ'Jlllent did cbarge.1tselt dut7, but even 1t it 41dn•t 11 11 and there was a private supplier in the oountl':f, we oan•t II 11 11 I!  18 STRICTLY CONFIDENTIAL expect two altemati ve ates or tantt just to tit 1D with competitive bidding. We have to take tbat 11tuat1on as we find it. mow, aa tar aa other 1aauea are ooncemed, the7 are 1ntereat1ns to a number ot people, but th1a is hardly i: the place where we can hope to deal v1 th them. I: j! MR. DODBEh Mr. Duey, I take exception to this l! Ii Ii statement. I read here on page 12 in the tecbn1cal report, Ii· and I quote th1a language: "The Tende!' Board regulations I •I treat all fol'llls of supplie~s on the same tooting." This 1s 11 4./lt:- ii a statement here, and I am just ••k-!B&g what it means. !' r d Ii MR. GARNER: We stand on tbat stateaeat, unless somebody bas something more tban assumptions tbat it ts Vl'Ong. It 1! an;rbody baa any tacts to show it is wrong,, we Will be Yef!1 I! 11 glad to hear those, but we believe it to be true. 1: MR. WARRIN: It the tenders are, ae uauall7 in tenden Ii t' ot this kind, on a landed dut7 paid basis, the Bank statement i 1 I I is quite true. It is a1so true i~, aa I think we are :ta1r1y " sate in assuming, tbe govel'lltllent I I doea not charge itaelt its own tariff's. I MR. BURY: Irl'especttve ot tbat, look1ng at evel'f'thing r on the c.i.t. basis, the tender board would be getting the i: cheaper one. 1: MR. l>OlmlR: Ot course,, if' this is on a c.1.r. basis I, \! the statement 1a coneot toJmal~, but tl'<>la a substantive I',. j, I. ?i  11 STRICTLY CONFIDENTIAL point ot '91ew, ot course, it 1& not correct. u. GADBlh I at111 sa7 I would welcome some tacts but not just op1a1ons tbat pel'bapa 10u dontt tbink it 1• true. We would be glad to t191 to ob.eek turther into that, but we have stated the 1ntonnat1on tbat we now bave. n. DODBR1 I don•t doubt this atat•ent. All I am ask1ng 1• I would be interested m lmovtng how the tore1p ! 11 suppliers aM being put on an equal tooting. I! MR. GAUBlh lfe •111 t191 to get tal'ther 1ntomat1on on ii I 1t. D. PIOK1 I not:lce in the econoaio :repoPt:, in the I ) teobnioal report, and prevtoua report, that repeatedl7 11 bottlenecks a" h.inted which are due to laok ot manpowe:r. 11 11 Ray I underline tbat I don tt apeak on bebalt ot Q gov8l"1111l8Dt I I think it ta a general pJ.tOblem wh1ob we can aee, tor 1:ostance, in Oel'Jl&n7, the laok ot aa.rapower, or in Great .I Britain, aJMI ao forth. O.o the ot;hei- band, l appreo1ate the II1 d1tf'1oult7, because it 1• aleo hinted tbat thezie 1• a p:robl• ot tood which give• aome conce:m. so I wonder,, i t there 1• an7 problem also 1n ol'der to increase the product1nt7 ot , agl':lculture, which would be a prerequ1a1te tor f.mrl1gl'at1on, to'I! 1ome solution ot thta problem ot bottleneok due to laok ot manpower. I wonder 1t 7011 bave aoae 1ntomatton about the tread in 1m1pat1on about the pol107 ot the govel'ml.ent 1 and j! it the govel'Dll.ent baa a compreheaai ve PlaD in order to oope j t !~ ,, l  'I 20 CONFIDENTIAL STRICTLY wt tll th1 a geneml develoJ111.GDt p:robl•· MR. DMARCJC1 A• tar aa wbat baa bappeued on iam!.gatton, there 1• very little ot tt. 1"be:N 1• not aore tban about tt ve to eight thouaalld 1.t.gmnta a 1ear. net. In part, 1 t 111 :;due to the tact tbat South Africa 1• not a.a attmct1ve a ~1 [ countrr tor iimtpanta aa countnea like Auatralia or Caaada, II tor example. ll But in large pan 1 t 1• due to the polto7 ot 1 i lthe goveJ.'Jllllent. Tbe goveftlleJlt doee not want to briDS in I I ' !People wbo ma7 vote ap.mat 1t. '!'bat ts one prob1ea. ' I Another pl'Oblea a• ta.- as tbe aanpover 11 concerned 1a, ot oour1e, thia whole attitude toval'd tbe DOD•Buropeana. The feeling ot the goveJ!llll.eDt is tbat tbe7 want to keep a1 tar as P>••ible the •killed jobs tor tbe Eul'Opeans. 80 tbat 7ou bave got ve17 large manpower l'ese'l'Ves 1n the oout:r.r among the Atncane, but in seveml tnduatnes, 1n the a1nea, in the building trades, you bave lava wb1oh aa1 tbat the . Afl'icans are not allowed to take cel'taiD joba, and in the other industries theM is e:tther a tade un.1011 reaction to it i O!' > the manutactui-e1-a, the 1nduetr.t.al1ats, are aha1d i t theJ' ' !so too far the gove:r.naent Will crack down on them. It ts I jlpaJ.'t of th111 whole social•J>Olit:toal complex. II II MR. PIC1t1 Ia there any coaprehewt:1ve plan to poaaibly II keep them tn balance ·- tbe development 1n 1ndUat17 and the I ' linoreaae 10 apicultunl production? I leaJPD here tbat, tor Iinatance, ini&llt1on is auppoaed to be ft17 e.zpma1 ve. Doe• II 11  1' 21 STRICTLY CONFIDENTIAL that general statement apply to all caeea or aH there special oases in territories in vh:1ch iJ'l'igation might be i: ueetul 1n order to increase the production or rood, and so iJ'. !i J: f'orth 1 or cattle N1a1Dg tor meat., tor instance? 11 i i MR. JCAJIA.RClta TheJ.'e ts a great deal that can be tJone to improve agriculture in the UDion, b;y 1rr1gatton in part, j but the poas1b1littes ot 1rr1gat1on are ve"J!J limited because I: there 1• not enough water. But a good deal could be done to r improve the produoti VitJ ot agriculture tbl'ough just applying I' better techniques, but there 7ou bave the problem that on the l,i,· Vb.Ole a large part Of agriculture 18 Yer'J' 1 V81!'1 1net1'1ctent l i; because 1t uses this really teuctal a;vstem ot agriculture. 'l Ii I: On a farm 7ou have a large nutaber ot African tam111ea who i provide labOr tor a part o!' the year 1n retun tor having the I i I poss1bil1t7 of cultivating a plot of their own or being able I I I I l' to run some ot their own cattle. It 1s a veFY 1nett1c1ent us' .I Ii I II ot labor and a vepy inetficient use 01" land. ! II I' MR. PICK: There are no plans at the government leve1T l l'I MR. l'AMAROIC& The government agriculture department 11 voitks very hard at t17ing to eduoate the natives, and 1' II recently -- this is just a matter of the 1ast few month& -- 11 the nat1 ve a:ttai:rs department nave f'1nall:Y come around to the Ii II position that the only way ill which you oan 1mp:POve native ll 'i Ii agriculture -- and the natives do bave some ot the beet land I I 11 in the country -- 1a to provide 1nd1V1dual tal'llUIJ tn es•ence, I !I l !j  22 STRICTLY CONFIDENTIAL convert communal holdings into 1Dd1 V!dual farms, which may be quite important if' they reall7 go through with it. JIR. GARNBR1 An:r turther questtons? IR. LID"!INCl:a lb'. Cha1rma.D, on page l l of' the technical report. undel" panpaph 57. 1t 111 ataced that the govemmeDt intends to ra1se another 97 million pound• b7 1nteJ.'D&l loans, and adda that no d!tf'iculttee are expected 1n l'Biaing tbe internal tunde required. May I a1k whether the govermnent has any real assura.nce that this amout V!.ll be found 1D the I I' local market, and on wbat endenoe 1a th!• statement made. MR. lfl.JBIIG # ~e tnt!lttonal aad accepted wa7 bJ' which i" !, the South l.trican Government meets the capital needs ot the .l1 railroads 1• to borrow, either 1ntel'DB1ly or abroad. The I I i; p:roceeda ot all ct the loans aN apecitioalb ea1'1118.rked to !1 I! the ratl.J'084s, and the interest rate ts obarged back to the I ,, I: !i 1: i' railroads. The govel'DJl.ent baa not encountered much d1ttioult~ 1; I: in p%'0V1.tl1ng tbat tntem.al cap1 tal up to now. During the ,, 1' !· pe~od ~ram 1950 to 1955, ~or example, the govenuaeat bas I' 11 I raised, predond.nau.tly f'l'om 1ntemal loans, capital to the I ,, ll exteu.t ot 100 million pounds, which baa been made available 1· to the railroad•. I, MR. GARNER: Baaed en the paet reco:rd, 1t se•ed to ue I reasonable that tb.at amount could be NS.Bed. I: b.y further question.a? I I, MR. llJMOf01 b. Obail'man, I am ver7 glad to know that I ,, j I I I I  '1 23 STRICTLY CONFIDENTIAL the u. 3. investol' is now assoc1~t1ns wtth the Bank for the I public issue to one of the membel' couotl'!es. I would like toi ask one or tu~ 3m.all quest1ons 1n regard to the teobnioal report. I undeJ'Stand that tbe 71eld to the capital ie, generally speaking, 3 percent per anoum tor the last sevel.'81 years. I wondel' vhather the~e 1s any obange in tb.e tar1rr rate trom time to time in order to keep the revenue enough to cover the expense. Ii MR. WUBiiIO: Yes, sir. The f'igure ot 3 percent mentione<f ,I !1 in the teolmical repol't is the average 71eld o·vei- the whole i! Ii II 11 po•tvar pertod. It baa been oona1derably larger at some :1 !1 Ii t1mesj considerably smaller at other times. Rore recentl~ I! the yield has been between 6 and 7 percent. The South I' 11 Af'rican act wh1ch govems the opel"Jtion ot the Nil.roads ·I 1· .1 I prescr:tbes that the ra.1lroads must in etteot charge rates I ! which yield a return out or vhioh the govennnent can be j' 11 il reimbursed perpetually the interest paid on all loans raised II I to provide the l'f11lroads with capital. I m1ght add to that, I I six·, that as the technical report brings out, there have Ii been prof'ouDd changes in the tar1.rr structure over the laet l i I' I A recent change which in effect eliminated a whol~ I I few years. ! series of preterential non-economio taritts has raised the I: I I i earning po~er ot the railroads oons1derably and Will probably! l I lceep it up very h1.gh ror many years to come. i I I MR. GARl\'ER: I~ the:re are no l!IOl'e q11eet1one, ve recOllllllen~ I L I· I I I, I  r 24 STRICTLY CONFIDENTIAL t.he adopt.ton ot the dntt resolution. Do I hear a mottont (The mot1on .as dulJ made and aeconded.) RR. PDJllAU'Alh 11r. Chairman, I v1ah to make a briet atatement on this motion. In the prooesa ot it• eoonoa1c growth, South Atrtoa 18 alreadJ taoed vit.h aenoua problems ot aooial and economic adjustment. 'fheae p:roblems have beoome tar more oomplicated by the extatenoe in south Atnca ot a class 1001et1, the maj0Jtlt1 ot the membe:re ot which are heavily diaoriminated against econOl'lioa.111 and otherwiae. As the repoJ!lt on the our!'ent economic poaition and prospects of the Union or South Ab.'ica obaervee: "'fbe continuance ot South Atrica•s eoonomio growth depends on t.he maintenance ot wholesome relat1onah1p1 among the various racial groups in the count17. One ot the major d1ttioulties inherent in any investment in South Africa is the racial ten11ons which might d1al'Upt the economy through their iapaot on investment or on government pol1o1ea and result in an 1Dh1b1tion ot further growth. The objectionable and 1ntoleJ.'9..nt ra.cial policiea pursued by the South An1.oan Governmqt make the risk, tn our op:tnion, a aet1nttel7 bad one. We coneider, therefore, that the propoaed loan 1• unau1table tor ao 1nst1tut1on like the International Bank tor Reoonst:ruct1on and Development, and tberetore would ab1ta1D troa voting on 1t. JIR. YUllO'l'Ot I •111 support the proposed loan and caat i,  '] i 25 STRICTLY CONFIDENTIAL I ' mJ' vote tor 1t as a unitJ but, Mr. Cba1rman., rou will recall .: when the Board eonatctered the pJ'Opoaed loan to South Afltioa I ,. 1 ' tn 1953 the Oovel"Dtllent ot Burma, one ot the memben ot our t: !i group, •1ab.ed to abata1n fl'Oll the voting 1f the vote could !i . 'i be oaet b7 ind1 Vit'lual m.erabel"I. While I haven •t reoe1 ved aa7 l 1 1nat1111cti01111 tl'olll the goYell'D!Bent ot Bul'llllll on tbia p:ropoaed 1 '! loan, I w1sh to reeerve lllJ' atatement aa to the Bul'Jlleae ! j : reaction, and upon the receipt thereot I ma7 :request to add I· ·the reacts.on ot the BuNeae Go•ermnent to the recoi-ct i t it 1• neeeaaa17. I 1111. SHOlilh Ill'· Chail'lllllln, I would like to abllta1n II troll voting. Ii . u. QAIOOQh Witb those notat!ona, I will ask au s.n Ii ta vor ot thi• loan to please aar •a7e ." I! (Choftls ot "area." ) Ii1 u. GADIK1 Oontney m1Ddedt Ii II I! I heNbJ declare the loan to the O!nion ot South Atrica I! in vartous ounenotea equ1 •1en~ to 9 m:t111oo pouda etea-Ung I! jl a pp:roved. 1' l llR. BO'.RYs Mr. Chairman, 1t I •Y, I ab.ould 11ke to l I thank the Board toP the oonstdel'Bt!on tbe7 i.ve g1 ven to the I l1oan and tor granting !t to south Ah!oa. The South A.hioana , I I !in their relattoaa to me eerta:tnly paitl particular trtbUte I Ito the qualitr ot the iieport} •llioh the lank autt bad prepaHd~ land I would l!ke 'to mention tbat. It will be also ot 1J>Sereat l I I I I 11 ! I ! i I  J STRICTL CtONtFIDFNTIAtL o be Jf'"oard o ,_ au.aow that as "'"'r _ a• the ns k i a concerned 26 on tbia loan that Moody•• Bond Servioea have given it an "A" rating, whioh compares not unf'a vorably vi th tbat or some or the bonds or other countr1ea to wn1oh ve have lent money 1! in tbe past, and 1t ma7 help to rea1aure the Board • •1 I: MR. GARNER a Tbank you.