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How Is South Africa Stacking Up?
By Harry Germishuis
It’s been four years since South Africa’s 41 million people began the transition to majority rule. U.S. agricultural exporters, who sold $268 million worth of products to the country in 1997, are among the first to appreciate the country’s progress towards economic reform and trade liberalization.
Future expansion opportunities for U.S. exports look good, especially for consumer-oriented products. With $75 million in sales last year, this market has increased fivefold since 1993.
In 1997, South Africa’s growing middle class contributed to a rising gross domestic product (GDP) of $129 billion, which parcels out to a per capita income close to $3,200.
South Africa’s prosperity and stability provide an economic model for the rest of Sub-Saharan Africa. Not only that, but South Africa’s strategic location serves as a gateway to the rest of the continent.
The U.S.-South Africa Binational Commission, established in 1995, facilitates economic development, resolves trade issues and fosters a flourishing two-way trade. Agricultural trade is a component issue of the Commission, which is expected to provide a new clarity in the food products marketplace.
Leaders Strive for Equity
Armed with a little historical background information, U.S. exporters entering the market can grasp the fundamental philosophy that fuels the new government reform and explains certain market conditions.
When South African leaders embarked on their new economic quest in 1994, they had two main goals: redressing past racial inequities and fostering long-term, outward-oriented growth.
Historical inequity in land ownership is the driving force
behind the South African land and agricultural reform process.
But engaging in a reform process based on full compensation
hasn’t been the only challenge. Leaders also inherited other
problems: leftover isolationist policies that favor inward trade
and investment, a low savings rate, high levels of domestic debt
and a largely unskilled work force.
These factors led to a high dependence on foreign capital inflows to finance new investment. For example, to effectively reduce a 30 percent unemployment rate, South Africans need to raise investments from the current 17 percent of gross domestic product to 25 percent.
In 1997, South Africa managed to attract a net capital inflow of $3.58 billion1 (3.4 percent of GDP), more than seven times the $478 million invested in 1996. The inflow was predominantly long-term private capital moving into stock and bond markets.
This dependence on foreign capital inflows to meet domestic capital requirements does have a downside. Domestic interest rates fall when the capital inflow is high; they rise when the inflow falls.
Privatization a Priority
Leaders bent on achieving privatization only after consensus among tripartite stakeholders–business, government and labor–have found the going slow.
The South African government has renounced government ownership--and is taking the first steps to restructure state enterprises along commercial lines. The resulting efficiencies should help pave the way for privatization.
The government now promotes private sector investment and competition and is greatly reducing government input on trade. Export subsidies are gone, tariffs are disappearing and foreign exchange controls are being phased out. Next on the agenda: market-based investment incentive and industrial development policies.
Asian Crisis Restrains Economy
Meanwhile, the ongoing volatility of global financial markets and realignment of emerging market economies has pressured the Rand, pushing up interest rates and slowing growth in 1998.
A reflection of the slowing economy: real GDP growth leveled off in 1997 at 1.7 percent, down from the high of 3.5 percent in 1995.
Even a robust 12.5-percent rise in South Africa’s exports couldn’t outweigh the downward impact of a slowdown in domestic spending, with accompanying declines in employment, and spillover from the Asian crisis.
But reduced domestic demand in 1997 did free up resources for exports while curbing imports. Exports went up 12.5 percent and imports, 11.1 percent. These rising ratios represent favorable feedback for the increasing openness of the South African economy.
Infrastructure Mostly in Place
South Africa has had a good shake from
Mother Nature, with a natural bounty envied by many. Abundant
natural resources have enabled a modern infrastructure, replete
with diversified manufacturing and services sectors.
The port, railway, road and air transportation systems, as well as the telecommunications and electrical infrastructure, are well developed in all urban areas, though there is work still to be done in some rural and former homelands areas.
Water supplies are approaching limits in some urban areas. Small remaining surpluses may soon be consumed by industrial and mining applications, especially in Johannesburg. But the problem is recognized; efforts such as a forward-looking bilateral water development scheme with neighboring Lesotho are expected to provide additional supplies in the next decade.
How About Agriculture?
The volume of agricultural production decreased by 8 percent from the 1996-97 crop year to 1997-98. Seasonal plantings were reduced due to unfounded fears of El Niņo, as well as excessive late rains. The use of inappropriate seed types also hurt yields. Market uncertainties constrained some farmers, adding to the poor harvest.
Producer prices of agricultural products increased by 2.9 percent over the 1997-98 season, much lower than the 8.9 percent of the year before.
The total gross value of agricultural production was estimated at $7.43 billion, an increase of 3.4 percent from the previous season.
Net farm income decreased by 6.3 percent, down to $2.12 billion, mainly due to the large increase in total farm costs.
South Africa’s Exports Increasing
South Africa exports mainly fresh and processed fruits and vegetables, with deciduous, citrus and subtropical foods topping the list. The devaluation of the Rand came along at a good time, making products more competitive.
Before the bid for a free market, South Africa traditionally followed a policy of food self-sufficiency, limiting imports even while it ranked among the world’s top six food exporters.
The free market has changed this one-sided trade situation. While exports continued to exceed $2.21 billion or 11.5 percent of total exports in 1997, imports were now also up to $ 1.59 billion, a 12-percent increase from the year before.
Main agricultural imports in 1997 included vegetable oils, rice and wheat.
Emerging Farm Sector Gains Favor
After 1994, South African agricultural policy expanded its focus from the fully developed, modern, commercial farmer sector to include the emerging farming group found in traditional tribal areas.
Government institutions like the Department of Agriculture, the Land Bank and the Agricultural Research Council hastened to revamp, catering to the needs of this most needy group.
A second big change in agricultural policy came in September
1997, when the New Agricultural Products Marketing Act swapped a
controlled marketing economy for a free market situation. 
Marketing boards were abolished and government assistance curtailed. Farmers and agribusinesses experienced some disruption over loss of support from the government.
But already commodity groups have stepped in. They’re coming through with the kind of support formerly supplied by the government: the vital information role, policy inputs and advice on production and marketing decisions.
1 On Dec. 2, 1998, $1.00 = R5.65
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The author is an agricultural specialist with the FAS Office
of Agricultural Affairs in Pretoria. Tel.: (2712) 342-1891; Fax:
(2712) 342-2264; E-mail: AgPretoria@fas.usda.gov.
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