Announcement that the Bank Has Granted a Fifty Million Dollar Loan to the Union of South Africa on January 23, 1951

.,,, ·• f . • [;" ') t!NTEBNA'l'IONAL :BANK·FOR RECONSTRUCTION.AND DEVELOPMENT ·r.oR ~SE « 2;90 P.M. ~ees Release No. 233 Tuesd~h.ranuary 23 1 1951 I . . ·Eugene R. Blaolt.,,, President of the International Bank fo:r Reeonstl'\lotion a~d Developnent: announced today that the Bank had made loans totalJns · $50.,000,000 in tne Ul_liOn of $outh Africa: $30.,000,000 for electric power·and $20.,000,000 f6:r transporl :f'aeil:i.ties·. In addition, t;he Union ·ha8 · arrans~d, through Dillon, Read end Company, for the private pla?emettt wi,th eight letse Alllerican commercial ba~fV ~f $;1.0,000 ,ooo ot t}le Union• e Pta,D!$80i7 iib~e$, as well ae a $20.,000,000 revolv1n$ credit with such·bank~ which t$piaces a re-.' volvins c~edit of simile~ amount, th mak!ns tlle · annQuncement ·~. Biaok·· stated: 11 Thia is t4e first ooca$1on where the~e has been siln~1.taneou.s participation by • the private f1nancial markets in meeting the ~ai,it~i req1,1~re#lents of our t11eJJ1ber cQuntries, and one which 1e most gr~tifyip.g to ;us.'' The Internat!on~l ~ap..1t 1 s loan of $30, 000 1 000 wae 1J1ade to· the Eleetrioi ty Supply Comtnieaion, an autonomous state agenc:,\ to assiet . in the . exparision . of·~· · its generatillS, tra~se1on and disttib~tioh facilities. Tllis loan is fo,:- a tei,n of 20·years and oa~iea -an "int~rest rate of 4%, incltidillS a 1~ comniseion, whicll, in acco:rdanoe with: the l3ank'a AJ"tic.1.es of Agre~Qnt 1~ e.llocate4 'o the :Sank' e special reae"°e f~d. .Amortization pa~nts,. ca~culatt'4 "to ret:t~e the loan by maturity, wiU start tn Mat 15, 1954. The loan is guaranteed by the Union of So~th Africa, , The Intemationei :Sei~is loan of $20 1 000,000 was Uiade to the U11;t.on for . . the expansion and improvement of eta.te-owned. t~anspo~ tacil1t1es, o;perate<l by ·t~~ .So\lt~ African Railw~ye and !larbo\lrs Adln!ntstra.t1on, TlltE;J lroan :l.*3 for a • C', · term qf ·15: ye~s and cerriee an 11\ter~e.t rate of § 3/4%.,1ncl'l-ld1ns the stat\l.tory . i~' o-ssion, . ~0~1zat1on payments ~elQ\llatt"- to ~tt:re the loan by ~turity •• t- '• . . will start on May 15., 1956. ;'• 1·. 'o· . ;i, I: r, ·- 2 ·- • Part1.c1:pating in the private ! 1 . - by the Union throu{#l D1ll.Qn, Bead and Co.mpsny wei-e BarJt of Amenca, N.• T.. anrl, S.A., the Natio11al City Banlt of New York, Central Ha.~r~ :Bank and T:rl.\St Company, Ba..?Jkers Trust COlll~r, Chemical Bank and Trust Company, The New York Tru.st Company, llank of the Manhattan Company, and the First National Bank of Ch1c~go. The $20,000,000 revolving credit is for a term of 3 yeara and replaces an eµ11t1ng c~ed.1 t of tdmil~ amount. The P?'Ol!liei:10ry notes for the additional $10~000,000 mature half in l955 and half in 19~60 The contracts for both the International Banlt loans e.nd the :private f'i~n- eing we~e sisned toc;la, at the International Bank's headquarters in.Washington. 'Arte~ approval by the Inte~ational Bank's ExeQutive Directors, Eugene B. Black, P1-esident, signed. the loin docUlllenta on b~half of the Interna.t:t.onal Bank fo:r Reconstli'Uction and Deve~o!)Dlent. The Loan.A~eement for t~e t;ransport project • an~ the Guarantee A~em,ent ~or the "electric P?Wel.· :project we:re signed by .Ambassador G., P. Jooate, on behalf of the Un}on of South Africa; apd the Lo~ 1 Agreeinent for tlle eJ;ectric l)Qwer )?reject was stsned by A. J. van l,:ingen of the ~ew Yort Agep.cy of Barciay's Bank (Domtpion:, Co~oni.a.l and Overseas}, on behalf of the Electricity Supply Commission. The loan oont:ract for the :p;rtvate.~~i'inan• C\iPB wae sisned by re:preaen;tatives of the participating private banks, an4, by ..Ambassador Jooste on behalf of tAe Union Qf So~th Afric~. The lo.~na by tl+e Amel'1cau banks a~e fo~ sei1e;ral l'\ll1:loses of the Union \ Treaeuey·. l:lowever, the Um.on. has adv!secl the Ip;te,rnatioz;ial :Sank that ·f\Ulds e<J,.u1valent to th~ l)l'()f"~ Of t:b, $10,.00Q,OOO of promiss()ry notes wtll J)e made a:raUable to the South Mr:i.ean Re.Uways for t ~ t i o n punx>ses du;a!ns lr95l, an,d. 1952., as required.. 'J:bit~ $10,000,,QOO e>f tJie :prtva~e f1nano1?1(3 ~n4 the InternatiQM.l l3arlk'·s loan for $20J.000·1 000., in etteet.,. oon,,tftute one ored,1t t ~ i Q n f9~·-l<Jn ~"~ i 1:;:<:-~ ">- :·  !9' ·~3 - • Specif:foally the Internat!o:nal Eank 1 e loan of $30,000,0:00 to the El.ectricity Supply Commission (ESOOM) w11.; assist in financing the fol"eign exch8l1Se c·oste of import ins e9.l.\iP111ent d'1.rins the yeare 195! and 1952. Suell equipment will include tu»bo-sene;rators, boile~s and accessories, eleet;rical apparatus, including switch gear,. tranaf ormers, power and control ca:b;Le, cable f"o:r station lighting and srounding, ;p\Ul1ps, piping an4 stnictur·~i materials. Power is one of the basic requi~ements fo:r the oont:tnµeq.. expaJµ3:!.on of the South African econo~y. ESCOM sup;pl1es aQout 75% of the electric1 t;" con-· sumeQ. in the Union. Its systems cover an ar~a of 73,200 ~q\lare miles of· the more 1nd~stri~lized parts of the country. Althoush ESCOM has 1nc~eased its eener~ting, transmisston and distrt~tion fac;l.11 ties m.o;re rapidly s~nc·e the fl, end of the war than at any other comparable period, its facilities are.in- '(--= • adequate to meet current and future ex:;pected demands. Its expana:ton prosrani, which the Intern~tional Bank's loan Qf $30,000,000 will belp to finance, is cl.eeigned to keep i,ace with the eoonolJlio devel~~ent tak~ns.place in EJ.ll parts of th$ Uni on and to s~pply the large eXl)ected induatr~al de:mands of the new " Orange Free State gold fields. The International :Ba$!s loan of $,20,000,000 to th-, Um;on w111.as~d.et in financing the fore1:sn excha?l$e co$ts of impo:rrt~ng ~qtliPJlle~t ;n'.~eded fo~ tpe Union•s tl:'~nsport e~ans1on prosx-am dunng the yea:rs 1951 ar.~d 1952 and Will 'be spee~f!caUy devoted to the purchase of such 1.tems as roll:t~~ stock; workshop 1 machinery, :road motor eqv,il?Ill~mt, spal;9e parts fo~ ~:1l"C:t;'af't ,, a~~d- sp,cial JUacl11ne:r,-,. e.nq. equ11'I11ent, fo~ maintenance of f;liJ'dratt, stnct~l inate:r;tals- and -l1¢sceUan- 1 eous eq,upment. ln ~ tnd'l.lstrtalJ.y developed, bl.\t sp~Efel3 poP\llat$c\ coUI1tey l!ke South Africa, with v~st open space$ end lone dlQ't·ancee to b.e ~ereea.~; to •. reach markets o;r ports, the eff1Q1enoy of tr.~eport eervtces ie of vital im- portance t~ the eeoncm.iio weltare of tlle :nation. T~ort factl;tt1ee of all • kinds !}ave :been inade/i-u.ate to:nandle ·the eno~ou:s ·inoreaee in traffic ·03:9o~sht abQut by I) \ p I . t~, ·heavy expansion o:f' :the Un.$on1 s " industries,, and. the seneral -develop- (/ ?nent of th~ country ~uring the war and pDat-wa~ years. The Bailway A<lministra- tion•e six-yea~ :proar~ for the eXJ)aM.1.on and j,lnprovement ot·its tra?lspo~ facil• ttiea has been planned to fit both :the im.ne~ate and future needs of'' South Afr.lea and should ove:x-oome the :present difficulties and greatly';''i.ne:rease tbe eff!c1e:ncy of' all. forms of t:i;-ansport, part!c\llarly the ~ilways. Witll regard to eX11enditure·of the ,(p;cernati(,nal Bank 1Qall8 1 it is e.st:t- , mated, baaed o:r;i orders already plac-,d for equiP!Jlent for the transpo~ and electric :power. pro·Jeeta, the.t about 2,0fo ot the equil)lnent ~quire.cl will be :~awn from the doll.a~ .&rea, with the· re~ifdns 80% to ?OJne from the Vnited Ei~(\om, except :for a very emaU amount wb.ich aj.ght possibly ·be· supplied ·froJJJ.. • Continental Euro:pean sources. (I In .ann0uncing the J:pterr~ational Bank lc;,ana fo;a.-- <levelo:mnent :pm,ipos·es ·in" Sout~ Afr~ca.., Mr. Blaek :pointed out that the rapidl.y cfevelop:J.~ econOJJJY ot . \ 'I, South.Af?;ica makee necesaaey the 1mJ;>ortat1on of capital from ab:t;'oad,·to-J;Jup• plement it,:, local savings. SoutlJ; Af.r:l,oa 1 s trat::t:!onal ;major eo~e of .supply of capita~ has been the United KinsdOl?l, wh1ch,''1a PJ'esent circumstances, does r~r D not consider itself ~able to ·fw."n1sll ,o~pital-- to a. tQtE\l CQDl• ' mensurate n,th the Union• e nee~~ Cc,ne~qµently, SoµtJl Atrioa '111\lSt .eciek sources of external oapita1 tor :I.ts l~se ;tnvea._n~ ·needs. Without the Inter- ne.tione.1 Bank. ;oans, :lmpo;t-t of equipment for ita l)t9f3:ram of expens·1on of ttana~ 0 port and tlectr1c1ty tacil"tiee eo~dr be sec~tt<l only ·e.t,,,the s~ens,_of t~>:e18Jl e:xQhanse .i9eae~ee. In vt~:w of th,e exten~ to wh1cll the Un.ion is subject to.the C., I i?Tegul,ar :lnfl~ ot private ~ore18Jl Q~P1talr, Dla·intenance· ot to~etsn ·8XQJ.l/.qise r,se"'eq et. a 11at!t!facto17 ~vel Js.p~~c""1ax.'l11-mpo.rtant to tli1$ QOunt17, »r e~bUnfJ' S9"tl1 Af~1c~ ~J to avoJd eXQeesjve reQO""e to the I us.o .of its cforeJsn • .'  !I c, : . (]' " ... 5 -· ;~ ?,;, f exdhetlSe reserves, the lnwmational·Bank•s loans· w.:tU contribute d.1:reetl:;v { 0 " to· the maintenance of, a fut\lre. ete·ady rate of ;t.nveetment and. econe~o '~prosress •.. South Africa's ~ernal debt record.is good and the l'evel of ite J) ,. direct gov(?~nta1 debt, 1ncl.'"'11ne.tne present loans· an~ the private financing previ~u.a~· ment:toned., is st1+1· Qnl.y a Uttl~ over half- its ~ · - fiSUI"e • .- Service charges on t~s c;t.ebt are SIQall in ~m}~tion to South_ Afr.iea•s .::::::~°",,· .. '·- . ., foretsn·exchange ea;rhing capacity., an<l.d.o ·not· constitute a serious burden on tb.e country. Mr. Black stated the.t the Internat1.onal Dank has indicated to· the Union - t'/ Government that it ie willing, in Prino1pie, to ent~rt~in further. applications· f~p:) loan faeilit;les in reepectc:of tutw;-Q acceptable :prQ,;l.uctive projects •. (J • 0 ! '  (; • .. '\ - 6 - • ~ ' '\ SUPPLEMENTAL STATl!MENT BY THE INTERNATIONAL BANK t.l THE EOONO}!!~SITION OF THE UNION OF soum AFRICA ~~ , The Union of So\tth Africa, a Dominion of the Conmonwealtll of Nations, is a country with.a large sre~·of 472,000 aqi.iare ~les and a relatively spal"se population of only 12 million of \;;~ich ne.arly 70'fo are native Africans~ 21% are "European" or white, and 9'7/o are either Asiatic Ol:' of mixed blood. The mineral ;resources of Sou.th Africa are extensive. The sold Idnee are at present•the· most valuable, but the exploitation of other tn!nerale is gaining in impo;-tanoe. ~e chief ?Dine.ral resources, apart frolll gold and '1) • dimnomt.Q, are coal, i~n., ooppeJ;''" manganese, chro:ine and asbestos, es well as smaller amoU11,ta of many other :Jninerala. In faot, the eei:,entialxninera:J,.s nee~ed for heavy in~uetry are availab1e in large q~antitiea 1n South Africa. '!'he growth.of manufacturing has proceeded steacUly, and the industrialization of the economy is now weU advanced. The net outpu.t of JDanufact"Uring industry increased almost threefold in the twenty years of ~e inter-war period. How~ ever, e.part f ~ a small e.rea ;1.n the southwest around Ce,pe Town, the asricul• tural developtI1,ent of South Afric~ h.~s been hampered by nat'Ul'al disad.vantages -- moat of the qount=ry suffers from a resular s1,c months winte:t" (µ'Ous}lt and in the a~·the rainfall is irregular ana. often insufficient. · Course of Economic Development I • • - •• I • < • • The develo~ment of a modern economy 1.n SQ"th Africa datee only from the latte~ part of the nineteenth century but hes proo~eded with great ~apidity. The <Usoovery of diamonds, which s1G711fied·· the eta~ of South. Afr!ca•s econom:tc ~evolution., c(llne in 1667 b:utri't->we,a tlle later aold dj.Qcoveries of 1886 wh:tcb provided the ~atest magnet for 1\lro:pean capitarand technical sk;tll and which gave the Union its most important basic industry, · The s~eed of dev~lopment in mining ~d other occupation$ has been ,made possible by the b.lport Qf eubstanti-al $oi..m.ts o:f' capital mainly f'rom the United 10.nsdO?il. A,s ~oat of the p~:lvate ~a:pital went into gold ~ninB, 1nveftb~ent has proceede~ in~ seri~s of b\U'sts ch~ract~~zed ~Y opt~m~atic over-inveatJJJ.ent e.t eo~e penode and excessive caution at othe~s. FactorsAffect1n$ Devei,opment SiPice Worl~W~r.II o. Since the end of the war several, factors have ooinbined to :produce a sustained investment ~nd consumption,, boom. 'l'he ecQnomy ended the wu- with . the, bapking .system in a very ·liquid ·condttion an~ W1th a,l)lple fore:!:sn, e~hange reserves; there was the wartilne bac~9S of 1nvestillent aiid consumption q.emand to '-be made Good; the discovery of a new gold iittnins a:rea ~n tJle ·. Oranse Free State c;tteatea. an altogether n.ew (1.exnand for investinent botll d:lrectlt in mining ~din the provision of ~erv1ces and ~t1l1t1ea; the seneral hish level of activity st:llnulated a continuation of the wart!Jne srowtp. of S~COJld;ary industry and.demande~ a.seneral.expaneion·ot the l)Ublic utilities. ~e boo:m QoS ac- ¢ele;r;-ated an,C,. tac1l:ttt1ted by jQl exceptionally he~vy flow of capital to the Union i'J;'om th,e U.K. in l ..947 and ~a:r.'4].y 1948 an?, by c:re(\it e,cpa:qeion within so,1th Afnc~. ]Mring this ;per:to~ tnt~rnfil eavinss -were VffJ!'Y low ~nd the high  - · 7· u - · / , level of investment and consumption expenditure was maintained by \'-ncurr:tns • • IJ)I larse de:f'ici ts on the balance of pa.ymiants cov:ered e:l ther by· capital inflow o:r by u.tilization. of fore.isn. e:x:ohanse reserves. The total bal~µce of :pay-· ments.defic,i~s in 1946-l.949 p$r:tod wae, S~. A. ~?l5m1ll1on_ond 1n. this period foreign e~ch~nge reserves fell from s. A. 1266.8 million ($:1;160 m111ion, equi- valent) to s& A.11 il.04.6 million ($293 million equ;vuent). JI To meet the a1tu,at1on presented by faUing re.serves, · Sout'.ij Aftfoa im- posed controls on import(=J f:rom l'ta;rd c\1rrency countries in 1948 and, extend.ad them to cove~ aU impo:r,ta 1n 1949. The position was ?QB.de more ee;dous by the virtual cessation of the inflow of capital frotll ~rttain between t~e spring of 1948 and September 1949, the d~te of the devaluation of eterltns. ,. After Se~tember 1949, p~ivate· capital aijain besa.n to enter the Up.ion and· this, tosetner with. 'tp.e :much lower level of 1m:po~te, broudlt about a r('vereal of the do~ward tren<\ in the :reeerves of foreisn exchanse. Euture. Economic Position !n the future South Africa 1 s international econom:tc·posit:ton w;l;U be gx-ea~ly de~endent, not only on tµe rate of inflow of private capital but.also on ~e earnings of ner two most 1m:i;,o~ant expo1'"ts, gold and wool.· ~oid is . " South Af'r:l,ca 1 s most il!1.po:rtant soUJ.'9ce <;>f foreign e~chanse although it does not •• occupy the preponder~nt position which it did i?rmed.iately before the war. In 1937 gold p:roduction was. equal to l?lore than twtoe tlle val\le of aU other exports _combined, but in 1948 :tt was e~°"a,l to only 85% of ~the;r exporle. In 1950; even though devaluation llae i_ncreaaed tbe ve,l~e of gold p:roduct:1on e~· pressed in South African pounds, sold output was only about 70 or 75% of the value of otller exports. The value of golcl out1>1i1t in. 1950 wa,s a.bout ~140 million but over the· next 10 yea~s it wlii be aubetantially inc~e~s~~ ae a r.eeult of the operijti~ns of the new mines in the Orange Free St$te. By 1960 total gold output is l~kely to be larser by about 50%. · fl . . Sout}l .African wool !a of bisb quality ,,'·1110):'8 -:than 80% o_f the clip bei;ng 111e.rin.o. Since the ;war, there has been a vei,y sreat 1no~ease in the de;n;.and tor wool, prices have risen and the valu,e of the· S0'1tll AfriQen ~ool ol,1.p ha~ in- creased from s.A. ~14 million 1n th& ')..946/47 season to S,A. ~38.9 million in ,, 1949/500 Since 1945, world wool consumption h~s exceeded p~oduct1on by approx• imately gO% and the substantial wool stocks whicA were accumulat~d during t~o war h~ve now been fully liquidated. nie high level of Qona,,unptioJl of tlle ;past few yea:r.1! may fe~aonably b~ eXJ;>ected to decline som.ewllr;1t in the near·future, but the:re seems little prospect of a decline su,fficient to close tl:l,e sap be.. tween ·production and o.oneumptton excep~ at prices su.betantie.lly higher than those ~f the 1949/50 seae·on. At present, p:rices for South African·· wool ara nearly 50% above· levels p:reva~lin.s before the seas~ open~d last A\J.gust. It was .expected that the c-~95~ S~uth A:fno~n ·cli.p Wei>ul.d brins ,.n s .A.. 1r,77 miU:ton • as ooin1are4 to S.A. ~38.-9 m1U1on tl.le se~son before. .' ..• , -a- Other :7.mportant exports ,at-e diamonds 1 .. hides and ski~, truit, copper, and coal 'and coke. South Africa als.o has1 very large :\reEJer:ves of many base metals, includins~~ee, c~,.pla.tlmun, vermiculite, and asbestos, and t'.pe total. value of exports of tbeee ccmmod1t1es, al.tho~ ~all, 1$ increa~lng. Need for Add1tione.l Capital I • , .. , . · 1 In ep:t.te of the ~ppeets~'of increased fore1.sn exchange e~~s from her exports, . :!.t ,1s et1U 1Jnportant :for the Unton to· attract extemal\fap!t~. The size of' the investment program, both public and private, cone1dered"":g.~~- eesary by South Af:rioa for the next few ye~s, is ·conatderably larger~- can be financ~d ottt of local sav-'.ngs. Consequently, continued development of the eco:n.omy at the desired rate is de~dent on the continued inflow of fo:reisn capital. The difficult poettion in whiQh $01,1th Africa found itself in mid•l949, wj,th its fore+sn e~cllanee position seriously depleted, .was the .result of the cessation of·the :tnflow of private capital during the second halt' of 1948 and the first ha~ of 1949. '"s\\ Although the U.K. has been the traditional source of capital for South Afrib~, in v:t.ew of the lJlany '.iother demands on the capital ~eaourcea of the :,lJ.K •., ~;\; is dol.\btful whether, for the next few years at least, the U.K. will be ab~ to supply all the ce.:pital which Soiith Africa will nee4 in order to :rnsinta111: the current rate of ecoriolll:!.c development. This applies • certainly to the ptlofio secto1" ·and probaply also to the private sector •. The GoveX'lltnent has, therefo:r:e, been anxious to bprrow dollars and other hard cu1.Tencies to ?neet its own invei:rtment requ1.%'818nts and haa enco'lU'a.sed the !nflow ot private hard currency cal);tte.l •. The International Bank's loans will make poeeible tlie d.esi:red µiveetment in elecrt~cicy a~d transport witl,iout dra~~ng. dQ'Wll :fore!sn e~ehange :reserve-s 1tf pal'!J18nt for 1mp0rte neec:1.ed for this investment. · I Balance of Pa~1t1ents Prospeo·ts • ' • •, ' • ., ......,.... .,,..... AlthoU.$11 South Afric~ is anxious to enoourase the{'inflow ·of 4ollar ct;5.pital as a supplem~nt to that available f1 om the~uJ"i~~l she doee not st.U'fer 1 from a current dollar sho1-tage. ~en in terms of repa1'ent of a dollar loan, South Africa•s capacity to borrow is deter.mined more by its OVtir-all balance of payments prospects than by its bilateral dollar (u1cluct;lng gold) position. With current sold produ,ction taken:· into aocowit, South Afrl.oa has l\.t px-esent a substantial B\U!'Plus in ita cur.rent ~('COUl'lt bal1;U1e~.- of paznnents poej,tion with the dollar area. ~e 4a:rd o~rency surpil.\~ 1n 1950 -Wda. , -about S ,A. i.55 m1Uion ($154)m.ll1on) and is eXI)eeted to continue a.t. a rate of at lee.~t S.A •. 1 ;.50 m1U1?n in tlle next few ye~a. Moreover, as the: new (39ld.. mines in ~he O:range :free $~te e~e into full p~duction, tli1$ surplus should be an in~ cl'easins one. ~e surplus on the iioUar and gold account will b<3 use;d to e.ettle ··tl'lo det191t on the norrdoUar aceotlllt and the ~t:rensth of ~e total poe,1t1on wiU' del)tnd on the r.elatton betw$en the two.. · • The most p:rc,b,ablt dev:elopment .in ~tfte S~U,tll African balance of pa,i,sents, at. least for the next dec;acle.,. 1e. a poeitton with, a ci.i.rrent account deficit not fully covered by gold p~duetion,.but with. the s~P :ftlled by the flow of to:reign capital to So,,tth Af'rioa .... lh1s, it eh9uld b.e noted, is the t;n,ic~l p\oa1t.1on of a·countey w;~ose ~~l tnv,,~t is proceadtng DLOr$ re.pidly than can be t~~- out . "ot a-.n1e savt~.$.