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Diplomacy in Action

South Africa (06/05)


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For the most current version of this Note, see Background Notes A-Z.

Flag of South Africa is two equal-width horizontal bands of red (top) and blue separated by a central green band which splits into a horizontal Y, the arms of which end at the corners of the hoist side; the Y embraces a black isosceles triangle from which the arms are separated by narrow yellow bands; the red and blue bands are separated from the green band and its arms by narrow white stripes.

PROFILE

OFFICIAL NAME:
Republic of South Africa

Geography
Area: 1.2 million sq. km. (470,462 sq. mi.).
Cities: Capitals--Administrative, Pretoria; Legislative, Cape Town; Judicial, Bloemfontein. Other cities--Johannesburg, Durban, Port Elizabeth.
Terrain: Plateau, savanna, desert, mountains, coastal plains.
Climate: moderate; similar to southern California.

People
Nationality: Noun and adjective--South African(s).
Annual growth rate (2004 World Bank Group): 0.8%.
Population (2004, 46.6 million): Composition--black 79%; white 9.6%; colored 8.9%; Asian (Indian) 2.5%. Official figures from 2000 South African Census at http://www.statssa.gov.za/.
Languages: Afrikaans, English, isiNdebele, isiXhosa, isiZulu, Sepedi, Sesotho, Setswana, siSwati, Tshivenda, and Xitsonga (all official languages).
Religions: Predominantly Christian; traditional African, Hindu, Muslim, Jewish.
Education: Years compulsory--7-15 years of age for all children. The South African Schools Act, Act 84 of 1996, passed by Parliament in 1996, aims to achieve greater educational opportunities for black children, mandating a single syllabus and more equitable funding for schools.
Health: Infant mortality rate (2000)--59 per live births. Life expectancy--52 yrs. women; 50 yrs. men. Health data from 2000 U.S. Census Report: HIV/AIDS Country Profiles at http://www.census.gov/ipc/hiv/safrica.pdf.

Government
Type: Parliamentary democracy.
Independence: The Union of South Africa was created on May 31, 1910; became sovereign state within British Empire in 1934; became a republic on May 31, 1961; left the Commonwealth in October 1968; rejoined the Commonwealth in June 1994.
Constitution: Entered into force February 3, 1997.
Branches: Executive--president (chief of state) elected to a 5-year term by the National Assembly. Legislative--bicameral Parliament consisting of 490 members in two chambers. National Assembly (400 members) elected by a system of proportional representation. National Council of Provinces consisting of 90 delegates (10 from each province) and 10 nonvoting delegates representing local government. Judicial--Constitutional Court interprets and decides constitutional issues; Supreme Court of Appeal is the highest court for interpreting and deciding nonconstitutional matters.
Administrative subdivisions: Nine provinces: Eastern Cape, Free State, Gauteng, KwaZulu-Natal, Mpumalanga, North-West, Northern Cape, Limpopo, Western Cape.
Political parties: African National Congress (ANC), Democratic Alliance (DA), Inkatha Freedom Party (IFP), Vryheidsfront Plus/Freedom Front Plus (FF+), Pan-African Congress (PAC), African Christian Democratic Party (ACDP), United Democratic Movement (UDM), and Azanian Peoples Organization (Azapo).
Suffrage: Citizens and permanent residents 18 and older.

Economy
GDP (2004): $213 billion. 2004 GDP at market prices (baseline year 2000)--1.374 billion rand (R).
Real GDP growth rate (2004): 3.7%.
GDP per capita (2004): $3,480.
Unemployment (September 2004): 27.8%.
Natural resources: Almost all essential commodities, except petroleum products and bauxite. Only country in the world that manufactures fuel from coal.
Industry: Types--minerals, mining, motor vehicles and parts, machinery, textiles, chemicals, fertilizer, information technology, electronics, other manufacturing, and agroprocessing.
Trade (2004): Exports--$36.3 billion (2003 merchandise exports R256 billion; 2003 gold exports R35 billion): gold, other minerals and metals, agricultural products, motor vehicles and parts. Major markets--U.K., U.S., Germany, Italy, Japan, East Asia, Sub-Saharan Africa. Imports--$34 billion (2003 merchandise imports R263 billion): machinery, transport equipment, chemicals, petroleum products, textiles, and scientific instruments. Major suppliers--Germany, U.S., Japan, U.K., Italy.
GDP composition (2003): Agriculture and mining (primary sector)--11%; industry (secondary sector)--24%; services (tertiary sector)--65%. World's largest producer of platinum, gold, and chromium; also significant coal production.

PEOPLE
Until 1991, South African law divided the population into four major racial categories: Africans (black), whites, coloreds, and Asians. Although this law has been abolished, many South Africans still view themselves and each other according to these categories. Black Africans comprise about 79% of the population and are divided into a number of different ethnic groups. Whites comprise about 10% of the population. They are primarily descendants of Dutch, French, English, and German settlers who began arriving at the Cape of Good Hope in the late 17th century. Coloreds are mixed-race people primarily descending from the earliest settlers and the indigenous peoples. They comprise about 9% of the total population. Asians descend from Indian workers brought to South Africa in the mid-19th century to work on the sugar estates in Natal. They constitute about 2.5% of the population and are concentrated in the KwaZulu-Natal Province.

Education is in transition. Under the apartheid system schools were segregated, and the quantity and quality of education varied significantly across racial groups. The laws governing this segregation have been abolished. The long and arduous process of restructuring the country's educational system has begun and is ongoing. The challenge is to create a single, nondiscriminatory, nonracial system that offers the same standards of education to all people.

HISTORY
People have inhabited southern Africa for thousands of years. Members of the Khoisan language groups are the oldest surviving inhabitants of the land, but only a few are left in South Africa today--and they are located in the western sections. Most of today's black South Africans belong to the Bantu language group, which migrated south from central Africa, settling in the Transvaal region sometime before AD 100. The Nguni, ancestors of the Zulu and Xhosa, occupied most of the eastern coast by 1500.

The Portuguese were the first Europeans to reach the Cape of Good Hope, arriving in 1488. However, permanent white settlement did not begin until 1652 when the Dutch East India Company established a provisioning station on the Cape. In subsequent decades, French Huguenot refugees, the Dutch, and Germans began to settle in the Cape. Collectively, they form the Afrikaner segment of today's population. The establishment of these settlements had far-reaching social and political effects on the groups already settled in the area, leading to upheaval in these societies and the subjugation of their people.

By 1779, European settlements extended throughout the southern part of the Cape and east toward the Great Fish River. It was here that Dutch authorities and the Xhosa fought the first frontier war. The British gained control of the Cape of Good Hope at the end of the 18th century. Subsequent British settlement and rule marked the beginning of a long conflict between the Afrikaners and the English.

Beginning in 1836, partly to escape British rule and cultural hegemony and partly out of resentment at the recent abolition of slavery, many Afrikaner farmers (Boers) undertook a northern migration that became known as the "Great Trek." This movement brought them into contact and conflict with African groups in the area, the most formidable of which were the Zulus. Under their powerful leader, Shaka (1787-1828), the Zulus conquered most of the territory between the Drakensberg Mountains and the sea (now KwaZulu-Natal).

In 1828, Shaka was assassinated and replaced by his half-brother Dingane. In 1838, Dingane was defeated and deported by the Voortrekkers (people of the Great Trek) at the battle of Blood River. The Zulus, nonetheless, remained a potent force, defeating the British in the historic battle of Isandhlwana before themselves being finally conquered in 1879.

In 1852 and 1854, the independent Boer Republics of the Transvaal and Orange Free State were created. Relations between the republics and the British Government were strained. The discovery of diamonds at Kimberley in 1870 and the discovery of large gold deposits in the Witwatersrand region of the Transvaal in 1886 caused an influx of European (mainly British) immigration and investment. In addition to resident black Africans, many blacks from neighboring countries also moved into the area to work in the mines. The construction by mine owners of hostels to house and control their workers set patterns that later extended throughout the region.

Boer reactions to this influx and British political intrigues led to the Anglo-Boer Wars of 1880-81 and 1899-1902. British forces prevailed in the conflict, and the republics were incorporated into the British Empire. In May 1910, the two republics and the British colonies of the Cape and Natal formed the Union of South Africa, a self-governing dominion of the British Empire. The Union's constitution kept all political power in the hands of whites.

In 1912, the South Africa Native National Congress was founded in Bloemfontein and eventually became known as the African National Congress (ANC). Its goals were the elimination of restrictions based on color and the enfranchisement of and parliamentary representation for blacks. Despite these efforts the government continued to pass laws limiting the rights and freedoms of blacks.

In 1948, the National Party (NP) won the all-white elections and began passing legislation codifying and enforcing an even stricter policy of white domination and racial separation known as "apartheid" (separateness). In the early 1960s, following a protest in Sharpeville in which 69 protesters were killed by police and 180 injured, the ANC and Pan-African Congress (PAC) were banned. Nelson Mandela and many other anti-apartheid leaders were convicted and imprisoned on charges of treason.

The ANC and PAC were forced underground and fought apartheid through guerrilla warfare and sabotage. In May 1961, South Africa relinquished its dominion status and declared itself a republic. It withdrew from the Commonwealth in part because of international protests against apartheid. In 1984, a new constitution came into effect in which whites allowed coloreds and Asians a limited role in the national government and control over their own affairs in certain areas. Ultimately, however, all power remained in white hands. Blacks remained effectively disenfranchised.

Popular uprisings in black and colored townships in 1976 and 1985 helped to convince some NP members of the need for change. Secret discussions between those members and Nelson Mandela began in 1986. In February 1990, State President F.W. de Klerk, who had come to power in September 1989, announced the unbanning of the ANC, the PAC, and all other anti-apartheid groups. Two weeks later, Nelson Mandela was released from prison.

In 1991, the Group Areas Act, Land Acts, and the Population Registration Act--the last of the so-called "pillars of apartheid"--were abolished. A long series of negotiations ensued, resulting in a new constitution promulgated into law in December 1993. The country's first nonracial elections were held on April 26-28, 1994, resulting in the installation of Nelson Mandela as President on May 10, 1994.

Following the 1994 elections, South Africa was governed under an interim constitution establishing a Government of National Unity (GNU). This constitution required the Constitutional Assembly (CA) to draft and approve a permanent constitution by May 9, 1996. After review by the Constitutional Court and intensive negotiations within the CA, the Constitutional Court certified a revised draft on December 2, 1996. President Mandela signed the new constitution into law on December 10, and it entered into force on February 3, 1997. The GNU ostensibly remained in effect until the 1999 national elections. The parties originally comprising the GNU--the ANC, the NP, and the Inkatha Freedom Party (IFP)--shared executive power. On June 30, 1996, the NP withdrew from the GNU to become part of the opposition.

During Nelson Mandela's 5-year term as President of South Africa, the government committed itself to reforming the country. The ANC-led government focused on social issues that were neglected during the apartheid era such as unemployment, housing shortages, and crime. Mandela's administration began to reintroduce South Africa into the global economy by implementing a market-driven economic plan known as Growth, Employment and Redistribution (GEAR). In order to heal the wounds created by apartheid, the government created the Truth and Reconciliation Commission (TRC) under the leadership of Archbishop Desmond Tutu. During the first term of the ANC's post-apartheid rule, President Mandela concentrated on national reconciliation, seeking to forge a single South African identity and sense of purpose among a diverse and splintered populace, riven by years of conflict. The diminution of political violence after 1994 and its virtual disappearance by 1996 were testament to the abilities of Mandela to achieve this difficult goal.

Nelson Mandela stepped down as President of the ANC at the party's national congress in December 1997, when Thabo Mbeki assumed the mantle of leadership. Mbeki won the presidency of South Africa after national elections in 1999, when the ANC won just shy of a two-thirds majority in Parliament. President Mbeki shifted the focus of government from reconciliation to transformation, particularly on the economic front. With political transformation and the foundation of a strong democratic system in place after two free and fair national elections, the ANC recognized the need to focus on bringing economic power to the black majority in South Africa. In April 2004, the ANC won nearly 70% of the national vote, and Mbeki was reelected for his second 5-year term. In his 2004 State of the Nation address, Mbeki promised his government would reduce poverty, stimulate economic growth, and fight crime. Mbeki said that the government would play a more prominent role in economic development.

GOVERNMENT AND POLITICAL CONDITIONS
South Africa is a multiparty parliamentary democracy in which constitutional power is shared between the president and the Parliament.

The Parliament consists of two houses, the National Assembly and the National Council of Provinces, which are responsible for drafting the laws of the republic. The National Assembly also has specific control over bills relating to monetary matters. The current 400-member National Assembly was retained under the 1997 constitution, although the constitution allows for a range of between 350 and 400 members. The Assembly is elected by a system of "list proportional representation." Each of the parties appearing on the ballot submits a rank-ordered list of candidates. The voters then cast their ballots for a party.

Seats in the Assembly are allocated based on the percentage of votes each party receives. In the 2004 elections, the ANC won 279 seats in the Assembly, more than a two-thirds majority and an increase of 13 seats from 1999; the Democratic Alliance (DA) won 50, the IFP 28, the New National Party (NNP) 7, the United Democratic Movement (UDM) 9, and other groups won the remaining 27. In the 2004 electoral campaign, the ANC aligned with the NNP, and the DA aligned with the IFP. On August 6, the NNP announced that it would merge with the ANC. Elected representatives of the party would, however, continue to hold their seats in the national and provincial legislatures as NNP members until the next floor-crossing period in September 2005.

The National Council of Provinces (NCOP) consists of 90 members, 10 from each of the nine provinces. The NCOP replaced the former Senate as the second chamber of Parliament and was created to give a greater voice to provincial interests. It must approve legislation that involves shared national and provincial competencies as defined by an annex to the constitution. Each provincial delegation consists of six permanent and four rotating delegates.

The president is the head of state. Following the April 14, 2004 elections, the National Assembly reelected Thabo Mbeki as President. The president's constitutional responsibilities include assigning cabinet portfolios, signing bills into law, and serving as commander in chief of the military. The president works closely with the deputy president and the cabinet. There are currently 28 posts in the cabinet. Of the 28 ministers, Mbeki appointed two from outside the ANC--one from the former NNP and one from the Azanian Peoples Organization (Azapo). On June 14, 2005, President Mbeki informed the South African Parliament that then-Deputy President Jacob Zuma was being "released" from his duties following the conviction of a close associate on corruption charges relating to monetary payments to Zuma. On June 22, Mbeki named former Minister for Minerals and Energy Phumzile Mlambo-Ngcuka to the position of Deputy President, the first woman to hold this office.

The third arm of the central government is an independent judiciary. The Constitutional Court is the highest court for interpreting and deciding constitutional issues, while the Supreme Court of Appeal is the highest court for nonconstitutional matters. Most cases are heard in the extensive system of High Courts and Magistrates Courts. The constitution's bill of rights provides for due process including the right to a fair, public trial within a reasonable time of being charged and the right to appeal to a higher court. The bill of rights also guarantees fundamental political and social rights of South Africa's citizens.

Challenges Ahead
South Africa's post-apartheid governments have made remarkable progress in consolidating the nation's peaceful transition to democracy. Programs to improve the delivery of essential social services to the majority of the population are underway. Access to better opportunities in education and business is becoming more widespread. Nevertheless, transforming South Africa's society to remove the legacy of apartheid will be a long-term process requiring the sustained commitment of the leaders and people of the nation's disparate groups.

The Truth and Reconciliation Commission (TRC), chaired by 1984 Nobel Peace Prize winner Archbishop Desmond Tutu, helped to advance the reconciliation process. Constituted in 1996 and having completed its work by 2001, the TRC was empowered to investigate apartheid-era human rights abuses committed between 1960 and May 10, 1994; to grant amnesty to those who committed politically motivated crimes; and to recommend compensation to victims of abuses. In November 2003, the Government began allocation of $4,600 (R30,000) reparations to individual apartheid victims. The TRC's mandate was part of the larger process of reconciling the often conflicting political, economic, and cultural interests held by the many peoples that make up South Africa's diverse population. The ability of the government and people to agree on many basic questions of how to order the country's new society will remain a critical challenge.

One important issue continues to be the relationship of provincial and local administrative structures to the national government. Prior to April 27, 1994, South Africa was divided into four provinces and 10 black "homelands," four of which were considered independent by the South African Government. Both the interim constitution and the 1997 constitution abolished this system and substituted nine provinces. Each province has an elected legislature and chief executive--the provincial premier. Although in form a federal system, in practice the nature of the relationship between the central and provincial governments continues to be the subject of considerable debate, particularly among groups desiring a greater measure of autonomy from the central government. A key step in defining the relationship came in 1997 when provincial governments were given more than half of central government funding and permitted to develop and manage their own budgets. However, the national government exerts a measure of control over provinces by appointing provincial premiers.

Although South Africa's economy is in many areas highly developed, the exclusionary nature of apartheid and distortions caused in part by the country's international isolation until the 1990s have left major weaknesses. The economy is now in a process of transition as the government seeks to address the inequities of apartheid, stimulate growth, and create jobs. Business, meanwhile, is becoming more integrated into the international system, and foreign investment has increased dramatically over the past several years. Still, the economic disparities between population groups are expected to persist for many years, remaining an area of priority attention for the government.

Human Rights
The 1997 constitution's bill of rights provides extensive guarantees, including equality before the law and prohibitions against discrimination; the right to life, privacy, property, and freedom and security of the person; prohibition against slavery and forced labor; and freedom of speech, religion, assembly, and association. The legal rights of criminal suspects also are enumerated, as are citizens' entitlements to a safe environment, housing, education, and health care. The constitution provides for an independent and impartial judiciary, and, in practice, these provisions are respected.

Since the abolition of apartheid, levels of political violence in South Africa have dropped dramatically. Violent crime and organized criminal activity are at high levels and are a grave concern. Partly as a result, vigilante action and mob justice sometimes occur.

Some members of the police commit abuses, and deaths in police custody as a result of excessive force remain a problem. The government has taken action to investigate and punish some of those who commit such abuses. In April 1997, the government established an Independent Complaints Directorate to investigate deaths in police custody and deaths resulting from police action.

Although South Africa's society is undergoing a rapid transformation, some discrimination against women continues, and discrimination against those living with HIV/AIDS remains. Violence against women and children also is a serious problem.

Principal Government Officials
State President--Thabo Mbeki
Executive Deputy President--Ms. Phumzile Mlambo-Ngcuka

Ministers
Agriculture & Land Affairs--Ms. Thoko Didiza
Arts & Culture--Mr. Pallo Jordan
Communications--Dr. Ivy Matsepe-Casaburri
Correctional Services--Mr. Ngconde Balfour
Defense--Mr. Mosiuoa Lekota
Education--Ms. Naledi Pandor
Environmental Affairs & Tourism--Mr. Marthinus van Schalkwyk
Finance--Mr. Trevor Manuel
Foreign Affairs--Dr. Nkosazana Dlamini-Zuma
Health--Dr. Manto Tshabalala-Msimang
Home Affairs--Ms. Nosiviwe Mapisa-Nqakula
Housing--Ms. Lindiwe Sisulu
Intelligence--Mr. Ronnie Kasrils
Justice & Constitutional Development--Ms. Bridgette Mabandla
Labor--Mr. Membathisi Mdladlana
Minerals & Energy--Ms. Lindiwe Hendricks
Provincial & Local Government--Mr. Sydney Mufamadi
Public Enterprises--Mr. Alec Erwin
Public Service & Administration--Ms. Geraldine Fraser-Moleketi
Public Works--Ms. Stella Sigcau
Safety & Security--Mr. Charles Nqakula
Science & Technology--Mr. Mosibudi Mangena
Social Development--Dr. Zola Skweyiya
Sport & Recreation--Mr. Makhenkesi Stofile
The Presidency--Dr. Essop Pahad
Trade & Industry--Mr. Mandisi Mpahlwa
Transport--Mr. Jeff Radebe
Water Affairs & Forestry--Ms. Buyelwa Sonjica

The Republic of South Africa maintains an embassy in the United States at 3051 Massachusetts Avenue NW, Washington, DC 20008; tel. (202) 232-4400.

ECONOMY
South Africa has a two-tiered economy; one rivaling other developed countries and the other with only the most basic infrastructure. It therefore is a productive and industrialized economy that exhibits many characteristics associated with developing countries, including a division of labor between formal and informal sectors, and uneven distribution of wealth and income. The formal sector, based on mining, manufacturing, services, and agriculture, is well developed.

The transition to a democratic, nonracial government, begun in early 1990, stimulated a debate on the direction of economic policies to achieve sustained economic growth while at the same time redressing the socioeconomic disparities created by apartheid. The Government of National Unity's initial blueprint to address this problem was the Reconstruction and Development Program (RDP). The RDP was designed to create programs to improve the standard of living for the majority of the population by providing housing--a planned 1 million new homes in 5 years--basic services, education, and health care. While a specific "ministry" for the RDP no longer exists, a number of government ministries and offices are charged with supporting RDP programs and goals.

The Government of South Africa demonstrated its commitment to open markets, privatization, and a favorable investment climate with its release of the crucial Growth, Employment and Redistribution (GEAR) strategy--the neoliberal economic strategy to cover 1996-2000. The strategy had mixed success. It brought greater financial discipline and macroeconomic stability but has failed to deliver in key areas. Formal employment continued to decline, and despite the ongoing efforts of black empowerment and signs of a fledgling black middle class and social mobility, the country's wealth remains very unequally distributed along racial lines. However, South Africa's budgetary reforms such as the Medium-Term Expenditure Framework and the Public Finance Management Act--which aims at better reporting, auditing, and increased accountability--and the structural changes to its monetary policy framework--including inflation targeting--have created transparency and predictability and are widely acclaimed. Trade liberalization also has progressed substantially since the early 1990s. South Africa has reduced its import-weighted average tariff rate from more than 20% in 1994 to 7% in 2002. These efforts, together with South Africa's implementation of its World Trade Organization (WTO) obligations and its constructive role in launching the Doha Development Round, show South Africa's acceptance of free market principles.

Financial Policy
South Africa has a sophisticated financial structure with a large and active stock exchange that ranks 17th in the world in terms of total market capitalization. The South African Reserve Bank (SARB) performs all central banking functions. The SARB is independent and operates in much the same way as Western central banks, influencing interest rates and controlling liquidity through its interest rates on funds provided to private sector banks. Quantitative credit controls and administrative control of deposit and lending rates have largely disappeared. South African banks adhere to the Bank of International Standards core standards.

The South African Government has taken steps to gradually reduce remaining foreign exchange controls, which apply only to South African residents. Private citizens are now allowed a one-time investment of up to 750,000 rand (R) in offshore accounts. Since 2001, South African companies may invest up to R750 million in Africa and R500 million elsewhere.

Trade and Investment
South Africa has rich mineral resources. It is the world's largest producer and exporter of gold and platinum and also exports a significant amount of coal. During 2000, platinum overtook gold as South Africa's largest foreign exchange earner. The value-added processing of minerals to produce ferroalloys, stainless steels, and similar products is a major industry and an important growth area. The country's diverse manufacturing industry is a world leader in several specialized sectors, including railway rolling stock, synthetic fuels, and mining equipment and machinery.

Primary agriculture accounts for about 4% of the gross domestic product. Major crops include citrus and deciduous fruits, corn, wheat, dairy products, sugarcane, tobacco, wine, and wool. South Africa has many developed irrigation schemes and is a net exporter of food.

South Africa's transportation infrastructure is well-developed, supporting both domestic and regional needs. The Johannesburg International Airport serves as a hub for flights to other southern African countries. The domestic telecommunications infrastructure provides modern and efficient service to urban areas, including cellular and Internet services. In 1997, Telkom, the South African telecommunications parastatal, was partly privatized and entered into a strategic equity partnership with a consortium of two companies, including SBC, a U.S. telecommunications company. In exchange for exclusivity to provide certain services for 5 years, Telkom assumed an obligation to facilitate network modernization and expansion into unserved areas. The government is evaluating a proposal to establish a second network operator to compete with Telkom across its spectrum of services. Three cellular companies provide service to over 9 million subscribers.

South Africa's GDP is expected to increase gradually during the next few years, and the government recently revised upward its 2005 estimated growth to 4.3%. Annual GDP growth between 1994 and 2004 averaged 3.0%. In 2003, real GDP growth slowed to a rate of 2.8%, but increased to 3.7% in 2004. The government estimates that the economy must achieve growth at a minimum of 6% to offset unemployment, which is estimated at 28%, although unofficial sources put it as high as 41%. In an effort to boost economic growth and spur job creation, the government has launched special investment corridors to promote development in specific regions and also is working to encourage small, medium, and microenterprise development. One of the great successes of the ANC government has been to get consumer inflation, which had been running in the double digits for over 20 years, under control. By 1998, inflation had fallen to 6.9%, and in 1999 and 2000 inflation was running at less than 6.0%. The rand's rapid depreciation in late 2001, however, led to greater inflationary pressure, causing 2002 inflation of 9.2%. The South African government cut the inflation rate to 4% in 2004, and the rand appreciated 39% from 2002 to 2004. The South African Reserve Bank increased interest rates and along with the 28% rand appreciation in 2003 led a reduced consumer inflation of 5.8%. The government also has made inroads into reducing the fiscal deficit and increasing foreign currency reserves. The government deficit was 1.1% of GDP in 2002 and 2.6% in 2003. The government's 2005 budget calls for a moderate increase in spending to promote faster growth and poverty alleviation, while curbing budget deficits.

Exports reached 28.2% of GDP in 2003, up from 11.5% a decade ago. South Africa's major trading partners include the United Kingdom, the United States, Germany, Italy, Belgium, and Japan. South Africa's trade with other Sub-Saharan African countries, particularly those in the southern Africa region, has increased substantially. South Africa is a member of the Southern African Customs Union (SACU) and the Southern African Development Community (SADC). In August 1996, South Africa signed a regional trade protocol agreement with its SADC partners. The agreement was ratified in December 1999, and implementation began in September 2000. It intends to provide duty-free treatment for 85% of trade by 2008 and 100% by 2012.

South Africa has made great progress in dismantling its old economic system, which was based on import substitution, high tariffs and subsidies, anticompetitive behavior, and extensive government intervention in the economy. The new leadership has moved to reduce the government's role in the economy and to promote private sector investment and competition. It has significantly reduced tariffs and export subsidies, loosened exchange controls, cut the secondary tax on corporate dividends, and improved enforcement of intellectual property laws. A new competition law was passed and became effective on September 1, 1999. A U.S.-South Africa bilateral tax treaty went into effect on January 1, 1998, and a bilateral trade and investment framework agreement was signed in February 1999.

South Africa is a member of the World Trade Organization (WTO). U.S. products qualify for South Africa's most-favored-nation tariff rates. South Africa also is an eligible country for the benefits under the African Growth and Opportunity Act (AGOA), and most of its products can enter the United States market duty free. South Africa has done away with most import permits except on used products and products regulated by international treaties. It also remains committed to the simplification and continued reduction of tariffs within the WTO framework and maintains active discussions with that body and its major trading partners.

As a result of a November 1993 bilateral agreement, the Overseas Private Investment Corporation (OPIC) can assist U.S. investors in the South African market with services such as political risk insurance and loans and loan guarantees. In July 1996, the United States and South Africa signed an investment fund protocol for a $120 million OPIC fund to make equity investments in South Africa and southern Africa. OPIC is establishing an additional fund--the Sub-Saharan Africa Infrastructure Fund, capitalized at $350 million--for investment in infrastructure projects. The Trade and Development Agency also has been actively involved in funding feasibility studies and identifying investment opportunities in South Africa for U.S. businesses.

HIV/AIDS
South Africa is one of the countries most affected by HIV, with 5 million HIV infected individuals. Twenty percent of the 15-49 year old population is infected, and in parts of the country more than 35% of women of childbearing age are infected. Overall, 11-12% of the population is infected. About 1,700 new infections occur each day, and approximately 40% of deaths are believed to be AIDS-related. There are approximately 660,000 children who have lost one or both parents, and by 2008 1.6 million children will have been orphaned by AIDS. Without effective prevention and treatment 5-7 million cumulative AIDS deaths are anticipated by 2010 (with 1.5 million deaths in 2010 alone), and there will be over 1 million sick with AIDS. The epidemic could cost South Africa as much as 17% in GDP growth by 2010. The extraction industries, education, and health are among the sectors that will be severely affected. A 2003 national operational plan provides the structure for a comprehensive response to HIV and AIDS, including a national rollout of antiretroviral therapy.

Environment
South Africa's Government is committed to managing the country's rich and varied natural resources in a responsible and sustainable manner. In addition, numerous South African non-governmental organizations have emerged as a potent force in the public policy debate on the environment. In international environmental organizations, South Africa is seen as a key leader among developing countries on issues such as climate change, conservation, and biodiversity. This leading role was underscored by South Africa's selection to host the World Summit on Sustainable Development in 2002.

FOREIGN RELATIONS
South African forces fought on the Allied side in World Wars I and II and participated in the postwar UN force in Korea. South Africa was a founding member of the League of Nations and in 1927 established a Department of External Affairs with diplomatic missions in the main west European countries and in the United States. At the founding of the League of Nations, South Africa was given the mandate to govern Southwest Africa, now Namibia, which had been a German colony before World War I. In 1990, Namibia attained independence, with the exception of the enclave of Walvis Bay, which was reintegrated into Namibia in March 1994. After South Africa held its first nonracial election in April 1994, most sanctions imposed by the international community in opposition to the system of apartheid were lifted. On June 1, 1994, South Africa rejoined the Commonwealth, and on June 23, 1994, the UN General Assembly accepted its credentials. South Africa served as the African Union's (AU) first president from July 2003 to July 2004.

Having emerged from the international isolation of the apartheid era, South Africa has become a leading international actor. Its principal foreign policy objective is to promote the economic, political, and cultural regeneration of Africa, through the New Partnership for African Development (NEPAD); to promote the peaceful resolution of conflict in Africa; and to use multilateral bodies to insure that developing countries' voices are heard on international issues. South Africa has played a key role in seeking an end to various conflicts and political crises on the African continent, including in Burundi, the Democratic Republic of Congo, and the Comoros. South Africa has pursued "quiet diplomacy" in its approach to the crisis in Zimbabwe.

U.S.-SOUTH AFRICAN RELATIONS
The United States has maintained an official presence in South Africa since 1799, when an American consulate was opened in Cape Town. The U.S. Embassy is located in Pretoria, and Consulates General are in Johannesburg, Durban, and Cape Town. Americans and South Africans also have many nongovernmental ties; for example, black and white American missionaries have a long history of activity in South Africa. South Africans (particularly the ANC leadership) also acknowledge support from and ties to the anti-apartheid movement in the U.S.

From the 1970s through the early 1990s, U.S.-South Africa relations were severely affected by South Africa's racial policies. However, since the abolition of apartheid and democratic elections of April 1994, the United States has enjoyed an excellent bilateral relationship with South Africa. Although there are differences of position between the two governments--for example, regarding Iraq--they do not impede cooperation on a broad range of key issues. Bilateral cooperation in counter-terrorism, fighting HIV/AIDS, and military relations has been particularly positive. Through the U.S. Agency for International Development (USAID), the United States also provides assistance to South Africa to help it meet its development goals. Peace Corps volunteers began working in South Africa in 1997.

Principal U.S. Officials
Ambassador--Jendayi Frazer
Deputy Chief of Mission--Gillian Milovanovic
Commercial Minister-Counselor--Johnny Brown
Economic Counselor--John Hartley
Political Counselor--Gayleatha Brown
Management Counselor--Elizabeth Hinson
Public Affairs Counselor--James Callahan
Defense and Air Attache--Colonel Michael Muolo
USAID Director--Carleene Dei
Agricultural Attache--Scott Reynolds
Health Attache--Gray Handley
Consul General Cape Town--Moosa Valli
Consul General Durban--Michael Thurston
Consul General Johannesburg--David Dunn

The U.S. Embassy in South Africa is located at 877 Pretorius St, Pretoria; PO Box 9536, Pretoria 0001; tel: (27-12) 431-4000; fax: (27-12) 342-2299.



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