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1996 Country Reports
On Economic Policy and Trade Practices

Department of State report submitted to the Senate Committees on Foreign Relations and on Finance and to the House Committees on Foreign Affairs and on Ways and Means, January 1997.

	1994	1995	1996 1/
Income, Production and Employment
GDP (at current prices)	108.5	118.6	117.1
Real GDP Growth (pct)	2.5	2.8	2.3
GDP by Sector:
Agriculture	5.6	5.2	5.4
Mining and Quarrying	9.3	9.2	9.3
Manufacturing	25.4	28.8	28.3
Wholesale/Retail Trade	17.3	19.3	18.9
Financial Services	17.8	20.2	20.5
General Government	16.7	18.0	17.3
Per Capita GDP (US$)	1,930	1,910	1,763
Labor Force (millions) 2/	12.3	12.3	12.3
Unemployment Rate (percent) 2/	40.0	40.0	40.0
Money and Prices (annual percentage growth)
Money Supply (M2)	20.6	13.9	17.9
Consumer Price Index	9.0	8.6	6.7
Exchange Rate (rand/US$ ­ annual average) 3/
Financial	4.1	N/A	N/A
Commercial	3.6	N/A	N/A
Unified	3.6	3.6	4.1
Balance of Payments and Trade
Total Exports FOB 4/	22.9	26.4	N/A
Exports to U.S. 5/	2.0	2.2	2.3
Total Imports CIF 4/	23.5	29.2	N/A
Imports from U.S.	2.2	2.8	3.1
Trade Balance 5/	­0.6	­2.8	N/A
Trade Balance with U.S. 5/	­0.2	­0.6	­0.8
Current Account Deficit/GDP	0.3	2.1	N/A
External Public Debt 6/	27.9	32.0	N/A
Debt Service Payments/GDP (pct)4/	55.5	56.9	N/A
Fiscal Deficit/GDP (pct)	5.7	N/A	N/A
Gold and Foreign Exchange Reserves	3.1	4.2	2.3
Aid from U.S. (US$ millions)	212	187	176
Aid from Other Countries	N/A	N/A	N/A

1/ Estimates for 1996 are year­end projections based on second quarter estimates. The decline in the 1996 GDP estimate (at current prices) from the 1995 figure, which is presented in US dollar terms, is due to the almost 23 percent drop in the value of the South African rand against the US dollar over 1996.
2/ All estimates regarding population and unemployment are speculative due to incomplete censusing during apartheid era. The South African government will soon release census statistics gathered in 1996 which will greatly improve official estimates.
3/ Prior to 1995, South Africa maintained an exchange rate for non­residents' financial transactions and another for all others. The dual exchange rate was eliminated under a unified rand in mid­March 1995.
4/ All South African trade statistics include export and import data for the five member countries of the Southern African Customs Union (SACU) (i.e., Botswana, Lesotho, Namibia, South Africa, and Swaziland). Trade within the SACU is not included.
5/ Source: U.S. Department of Commerce and U.S. Census Bureau; exports FAS, imports customs basis; 1996 figures are estimates based on data available through November 1996.
6/ During the apartheid era, debt estimates were deflated by the South African Government as a matter of policy. Since late 1994 the accuracy of South African debt estimates released by the South African Reserve Bank has dramatically increased.

1. General Policy Framework

South Africa is a middle­income developing country with an abundant supply of natural resources, well­developed financial, legal, communications, energy, and transport sectors, a stock exchange which ranks among the ten largest in the world, and a modern infrastructure supporting an efficient distribution of goods to major urban centers throughout the region. With nearly three years having passed since the historic election of President Nelson Mandela in the country's first multi­racial elections, South Africa remains the most advanced, broadly­based, and productive economy in Africa, with a Gross Domestic Product (GDP) nearly four times that of Egypt, its closest competitor on the African continent.

Despite decades of apartheid­era policies which ensured the inefficient use of human resources, underinvestment in human capital, labor rigidities, large budgetary outlays for duplicative layers of government and facilities, extensive governmental interference in the economy, and a lack of foreign investment, resource inputs, and imported goods resulting from international sanctions, the South African economy is enjoying a strong period of recovery. After more than four years of negative real GDP growth from 1988­1992, the South African economy responded in 1993 with 1.1 percent real growth. Since the election of President Nelson Mandela in early 1994 the economy has posted real growth rates of 2.5 percent in 1994 and 2.8 percent in 1995. Estimates for 1996 growth hover around three percent. Most sectors of the economy have shared in this economic recovery.

The South African government recently demonstrated its commitment to open markets, privatization, and a favorable investment climate with the release of its long­awaited macroeconomic strategy in June 1996. This strategy includes the introduction of tax incentives to stimulate new investment in labor­intensive projects, the expansion of infrastructural services, the restructuring of state assets, and continued reduction of tariffs to promote greater competition and industrial revitalization. Together with South Africa's demonstrated commitment to its World Trade Organization (WTO) commitments, South Africa has moved slowly but steadily towards free market principles. Implicit in these policies is recognition of the SAG's daunting developmental problems resulting from decades of apartheid­era policies. Black economic empowerment, promotion of small, medium, and microenterprises (SMMES), the extension of telecommunications, transportation, and other infrastructural links to unserved rural areas, and extensive job creation to offset rapid population growth estimated at 2.4 percent remain the SAG's highest governmental objectives.

Recent economic news, however, has not all been rosy. In the first half of 1996, the South African rand lost 22.65 percent against the US dollar (with the exchange rate going from approximately 3.62 R/$ to 4.68 R/$)." Public opinion has credited the Rand's decline with international concern over recent cabinet shufflings, speculation on the possible lifting of exchange controls, growing labor unrest, the proliferation of crime, and concern for South Africa's future after President Mandela. As a result, South Africa's balance of payments situation worsened significantly in 1996 as the deficit on the current account soared from $551 million to $3.5 billion in mid­1996.

Still, the South African government has made steady progress in redressing many structural problems in the South African market. Over the last decade, quantitative credit controls and administrative control of deposit and lending rates have largely disappeared. The South African Reserve Bank now operates in much the same way as western central banks, influencing interest rates and controlling liquidity through its rates on funds provided to private sector banks, and to a lesser degree through the placement of government paper. In the past four years, restrictive monetary policy, through the maintenance of relatively high central bank lending rates, has curbed domestic spending on imports and reduced inflation to its lowest rates in twenty years.

The South African government primarily finances its sizable debt through the issuance of R150 denomination government bonds. To a lesser extent due to its adverse effect on reserves, the government has opted to finance some short­term debt through the sale of foreign exchange and gold reserves. As a corollary of its restrictive financial policies, the South African government has not opted for financing deficit spending through loans from either domestic or international commercial banks.

2. Exchange Rate Policy

Under South African exchange regulations, the South African Reserve Bank (SARB) has substantial control of foreign currency. Exchange controls are administered by the SARB's Exchange Control Department and through commercial banks that have been authorized to deal in foreign exchange. All international commercial transactions must be accounted for through these "authorized foreign exchange dealers." In addition, the SARB is the sole marketing agent for gold, which accounts for roughly 30 percent of export earnings. This provides the SARB wide latitudes for determining short­term exchange rates. Except for a period in 1987 when the SARB followed an implicit policy of fixing the rand against the dollar, monetary authorities normally allow the rand to adjust periodically in an attempt to stabilize external accounts.

The severe strain of international sanctions on South African gold and foreign exchange reserves caused the South African government to reimpose in 1985 comprehensive exchange controls previously lifted in 1983. Among these controls was the reinstitution of the dual exchange rate in which a more favorable exchange rate applied to foreign investment flows and outflows (the financial rand) and a less favorable one to all other transactions (the commercial rand), to attract international capital. Despite warnings from the South African reserve bank that the low level of hard currency reserves necessitated continued inflows of long­term capital, the government of national unity proceeded with its economic liberalization plans by eliminating the financial rand under a unified exchange rate on 20 March 1995. As a result, all foreign exchange transactions are now conducted through a unitary exchange rate.

Nonetheless, South Africa still maintains several capital controls to prevent large capital outflows. A cautious and gradual approach to further liberalization is the most likely scenario as current South African gold plus foreign exchange reserves provide for about only one month coverage of imports. Most salient among the remaining foreign exchange controls is the requirement that all South African nationals intending to purchase foreign exchange apply for a license to do so with the South African reserve bank. The South African government is more likely to approve foreign exchange purchases for investment abroad if the foreign partner of the South African party conducts an asset swap, whereby an equivalent amount of foreign exchange is invested in South Africa by the foreign partner as collateral. Although domestic as well as foreign business concerns have lobbied hard for the lifting of the asset swap requirement, it is unlikely that the SAG will do so until foreign reserve levels approach the three­month coverage level.

3. Structural Policies

Prices are generally market­determined with the exception of petroleum products and certain agricultural goods. Purchases by government agencies are by competitive tender for project or supply contracts. Bidders must pre­qualify, with some preferences allowed for local content. Parastatals and major private buyers, such as mining houses, follow similar practices, usually inviting only approved suppliers to bid.

The main sources of government revenue in South Africa are incomes taxes and the Value­Added Tax (VAT). Both personal and corporate income tax rates are among the highest in the world. Although the government planned to phase down both individual and corporate tax rates through year­end 1999, fiscal constraints have slowed plans to do so. In April 1993, the South African government increased the VAT rate from its previous level of 10 percent to 14 percent in an effort to cover the shortfall in government revenues and meet the increasing expenditure mandated by the socio­economic policies of the Reconstruction and Development Program (RDP). While maintaining the maximum personal income tax rate at 45 percent on incomes in excess of R80,000 (about $17,000) for married taxpayers and R56,000 (about $11,900) for single taxpayers, the government did, however, impose in 1994 a "one­time" levy of 5 percent on all income over R50,000 (about $10,600) ­­ both corporate and individual ­­ to finance overruns associated with the governmental transition. Although officials promised that this tax would be a "one­time only" assessment, rumors of a second levy have already surfaced.

On a more positive note, the South African government has undertaken some measures in the past two years to ease the tax burden on foreign investors. It reduced the corporate primary income tax rate to 35 percent from its previous rate of 40 percent in 1994. The Non­resident Shareholders Tax on foreign investors was scrapped effective 1 October 1995. In addition, the Secondary Tax on Corporate Dividends was halved to 12.5 percent in March 1996.

4. Debt Management Policies

In 1985, burdened with large capital outflows and intense pressure against the rand, and denied access to foreign capital by international sanctions, the South African government declared a unilateral standstill on amortization payments to private concerns. Interest payments, however, were continued, and amortization payments to international organizations and foreign governments were unaffected, obviating the need for a Paris Club rescheduling. The debt "standstill" was regularized in an arrangement with private creditors in 1986. In 1990, South Africa and its private creditors negotiated a third extension of that arrangement through the end of 1993. In September 1993, the government, with the consensus of South Africa's major political parties, finalized a debt agreement with major western banks on $5 billion worth of mostly private debt caught inside the "standstill net."

During the apartheid era, actual debt estimates were considered state secrets of the South African government. Those debt estimates released by the government and reported by international financial authorities during the apartheid years must, therefore, be viewed with skepticism. With the election of President Mandela, the South African Reserve Bank has sought to redress this problem and issue revised estimates of foreign and domestic debt. Although these revisions reflect a significant upward adjustment of previous estimates, they, nonetheless, indicate relative debt stability in recent years. At the end of 1995, the SARB reported that total foreign debt, including rand­denominated debt held by non­residents, amounted to approximately $32 billion. The ratio of total foreign debt to GDP has remained steady at around 25­27 percent over the past four years, while interest payments as a percentage of total export earnings have also been steadily declining slightly from 6.6 percent in 1993 to 6.3 percent in 1994 to 6.9 percent in 1995.

South Africa is a member of the World Bank and International Monetary Fund (IMF) and continues Article IV consultations with the latter on a regular basis. In December 1993, after 27 years of economic isolation, South Africa became an IMF borrowing nation with an $850 million drought relief loan, which replenished South Africa's strained foreign exchange reserves and normalized its international financial relations. South Africa is also currently engaged in technical discussions with the World Bank regarding the possibility of sizeable World Bank loans to assist with its ambitious RDP objectives.

5. Significant Barriers to U.S. Exports

Under the terms of the Import and Export Control Act of 1963, South Africa's Minister of Trade and Industry may act in the national interest to prohibit, ration, or otherwise regulate imports. In recent years, the list of restricted goods requiring import permits has been reduced, but still includes such goods as foodstuffs, clothing, fabrics, wood and paper products, refined petroleum products and chemicals.

Although the South African government eliminated the much­maligned import surcharge on all goods effective October 1, 1995, in conformance with its WTO commitments, it still maintains a complex tariff structure. Nonetheless, the South African government remains committed to the simplification and eventual reduction of tariffs within the WTO framework, and maintains active discussions with that body and its major trading partners.

6. Export Subsidies Program

The primary subsidy regime of the South African Government has been the General Export Incentive Scheme (GEIS) through which South African exporting companies received direct non­discriminatory cash subsidies based on the value of exports, the degree of beneficiation or processing, and the local content of the exported product. The South African government has shown steadfast commitment to the elimination of export subsidies despite considerable opposition from local manufacturers. The Department of Trade and Industry "revised" the GEIS in early 1995, "downsized" it again in early 1996, and is expected to eliminate the program wholesale before the end of 1997. Under the most recent revision in June 1996, all export subsidies, except for those applied to fully manufactured products were eliminated. An export subsidy of six percent of local content remains in effect for certain manufactured goods until 31 March 1997.

Instead, the South African government has focused on other, more WTO­friendly means of promoting South African exports. The Export Marketing Assistance scheme (EMA) offers financial assistance for the development of new export markets, through financing for trade missions and market research. The new Export Finance Guarantee Scheme for small exporters is the government's newest means of promoting small and medium exporters through credit guarantees with participating financial organizations. Provisions of the Income Tax Act also permit accelerated write­offs of certain buildings and machinery associated with beneficiation processes carried on for export and deductions for the use of an export agent outside South Africa.

7. Protection of U.S. Intellectual Property Rights

In May 1995, the new Trademarks Act of 1993 replaced the Trademarks Act of 1963, improving protection of internationally­known trademarks. Parliament also passed the Designs Act of 1993 which introduced a registration system providing protection for design proprietors for 10 years from the date of registration or issue, whichever is earlier. In addition, the Patent Act of 1978 was most recently amended in 1988 to provide patent protection of inventions and innovations for a period of 20 years from the date of filing, without extension. Other South African IPR laws include the Plant Breeder's Rights Act of 1976 and the Copyright Act of 1978 (amended in 1992).

The SAG attempted to pass three new IPR laws in 1996 to improve further its efforts to reach full WTO standards for IPR protection, but only managed to push one through during this parliamentary session. The "Intellectual Property Laws Rationalization Act, 1996" integrates existent intellectual property rights in the former homelands into the South African system and extends IPR rights to the former homelands.

Two other bills were submitted to committee but failed to make a floor vote due to the press of business in parliament. The "Intellectual Property Laws Amendment Bill" proposes amendments to the Patents Act of 1978, the Trademarks Act of 1993, the Copyright Act of 1978, the Designs Act of 1993, the Merchandise Marks Act of 1941, and the Performers' Protection Act of 1967. It is intended to ensure, inter alia, complete compliance with the provisions of the WTO's agreement on the Trade­Related Aspects of Intellectual Property Rights (TRIPS) and Article 6 of the Paris Convention. The "Counterfeit Goods Bill" creates for the first time in South Africa the offense of "dealing in counterfeit goods." It conveys new powers to the police, customs and excise, and DTI inspectors to exercise powers of search and seizure of counterfeit goods and store them pending outcome of a trial. It permits a court to order forfeiture of couterfeit goods even if the claim against the defender is not substantiated, and for a civil court to grant ex parte search and seizure orders to preserve evidence for civil proceedings. It also makes provision for application to customs by IPR holders to impound counterfeit goods upon importation. These two bills are expected to be passed during the first session of parliament in 1997.

In recognition of progress made on the IPR front, United States Trade Representative Charlene Barshefsky announced on October 2, 1996, that South Africa would remain off the Special 301 Watch List, from which it was provisionally removed last April.

South Africa is a member of international intellectual property treaties such as the Paris Convention for the Protection of Industrial Property, the Berne Convention for the Protection of Artistic and Literary Works, and the World Intellectual Property Rights Organization (WIPO).

8. Worker Rights

a. The Right of Association: Freedom of association is guaranteed by the constitution and given statutory effect by the recently approved Labor Relations Act. All workers in the private sector and most in the public sector ­­ with the exception of members of the National Defense Force, the National Intelligence Agency, and the South African Secret Service ­­ are entitled to join a union. Moreover, no employee can be fired or prejudiced because of membership in or advocacy of a trade union. There are 201 registered trade unions and 47 unregistered trade unions, with a total approximate membership of 3.4 million or 44 percent of the employed, economically active population.

South Africa's largest trade union federation, the Congress of South African Trade Unions (COSATU) is formally aligned with the African National Congress (ANC) and the South African Communist Party (SACP). Over 60 former COSATU members serve in national and provincial legislatures and administrations. The second largest trade union federation, the National Council of Trade Unions (NACTU), while officially independent of any political grouping, has close ties to the Pan Africanist Congress (PAC) and the Azanian Peoples Organization (AZAPO).

The right to strike is also guaranteed in the constitution, and is given statutory effect by the new Labor Relations Act. The LRA has established a simple procedure for a protected strike, with the requirement that the dispute first be referred for conciliation. If conciliation fails to resolve the dispute, then a trade union is entitled to engage in a legal strike. Such a strike is not liable to criminal or civil action. The LRA does, however, permit employers to hire replacement labor for striking employees after giving seven days notice to the striking trade union.

The LRA also accords the right to strike to public sector employees, with the exception of essential services and the three components of the security services mentioned above. While this right was first asserted in the public sector Labor Relations Act of 1993, the new LRA simplifies and rationalizes collective bargaining in the public sector and the resort to industrial action.

The International Labor Organization (ILO) readmitted South Africa in 1994. Originally an ILO member since its 1919 inception, South Africa withdrew from the ILO in 1964. Following the reinstatement, the international labor conference rescinded its declaration concerning action against apartheid. There is no South African government restriction against union affiliation with regional or international labor organizations.

b. The Right to Organize and Bargain Collectively: South African law defines and protects the rights to organize and bargain collectively. The government does not interfere with union organizing and generally has not interfered in the collective bargaining process. The new LRA statutorily entrenches "organizational rights", such as trade union access to worksites, deductions for trade union subscriptions, and leave for trade union officials, which will strengthen trade union ability to organize workers.

Several recently­created fora have served to strengthen and institutionalize the role of collective bargaining in recent months. The creation of the National Economic Development and Labor Council (NEDLAC), a tripartite negotiating forum, has served to solidify the role of trade unions as social partners with government and business in the formation of economic and labor policy. In addition, the new LRA creates workplace fora which will allow for better shopfloor communication between management and labor over issues of work organization and production. To receive statutory protection, these fora can only be initiated by trade unions in businesses with more than 100 employees. It is hoped that these provisions will be expanded in time to include workplaces with smaller workforces.

To further reduce the adversarial nature of South African labor relations, the new LRA also created a Commission for Conciliation, Mediation, and Arbitration (CCMA), which promises to play an aggressive, interventionist role in dispute resolution before parties move to full­fledged strikes or lock­outs. In those instances in which the CCMA is unable to resolve a dispute, the LRA permits its referral to the labor court. It is expected that this will be a rarely used option, however, as the intent of the LRA is to reduce judicial intervention into labor relations and encourage negotiated resolution whenever possible.

South Africa has no export processing zones.

c. Prohibition of Forced or Compulsory Labor: Forced labor is illegal under the constitution, and is not practiced.

d. Minimum Age of Children: Employment of minors under age 15 is prohibited by South African law. The LRA, however, grants the Minister of Welfare discretionary powers to permit employment of children under carefully described conditions in certain types of work, such as in the agricultural sector. Enforcement of child labor laws by the ministries of labor and justice, however, are weak and reactive, depending largely upon complaints made against specific employers. As a result, use of child labor in the informal economy is quite common.

e. Acceptable Conditions of Work: There is no legally mandated national minimum wage in South Africa. Instead, the Labor Relations Act provides a mechanism for negotiations between labor and management to set minimum wage standards industry by industry. To date, over 100 industries, including a majority of workers in the manufacturing sector, are protected by the provisions of the act. In those sectors of the economy not sufficiently organized to engage in the collective bargaining processes which establish minimum wages, the wage act grants the minister of labor the authority to set minimum wages and conditions. The Wage Act, however, does not apply to farm or domestic workers.

Occupational health and safety issues remain a top priority of trade unions, especially in the mining and heavy manufacturing industries. Although government focus on these issues has increased substantially (highlighted by the passage in 1993 of the Occupational Health and Safety Act), South African industrial and mining processes are still considered hazardous by international standards. Parliament is currently studying a mines commission of inquiry on health and safety issues in the mining sector, to determine ways to improve existing mine health and safety legislation.

Although current South African occupational health and safety laws require that an employer not place employees at unreasonable risk, they do not give employees the right to remove themselves from hazardous jobs. An employee who leaves a worksite as a result of hazardous work conditions could face disciplinary action or dismissal. It should be noted, however, that South African occupational health and safety laws do provide protection from dismissal or reduction in salary/rank for whistle­ blowing workers who report or file complaints against unsafe working conditions.

f. Worker Rights in Sectors with U.S. Investment: The workers rights conditions described above do not differ from those conditions found in sectors with U.S. capital investment.

Extent of U.S. Investment in Selected Industries -- U.S. Direct Investment Position Abroad on an Historical Cost Basis -- 1995

Category		Amount
Petroleum		(1)
Total Manufacturing		672
Food & Kindred Products	39
Chemicals and Allied Products	173
Metals, Primary & Fabricated	64
Machinery, except Electrical	126
Electric & Electronic Equipment	(1)
Transportation Equipment	(1)
Other Manufacturing	206
Wholesale Trade		123
Banking		(1)
Finance/Insurance/Real Estate		(1)
Services		(1)
Other Industries		142
TOTAL ALL INDUSTRIES		1,269

(1) Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis

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