EA-12b

RESTRICTED

This report is restricted to use within the Bank.

11,4 1 rU n LIM II 1 34 . J1ZL, JWAXVL £N. MX Xr,% VTsJ L £XV . 1 . J 04 ^4 fL JL J r- V L,r LVLE M -i&r 11

REPORT nN THgf ECOOMnY OFT ROTTH AFRICA

August 20, 1953

Epa Afrmnt f nOApratnsEurope, Africa and Australasia

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CURRENCY EQUIVALENTS

1 South African Pound e 1 Pou d Sterling

S.A. El U.S. $2.80

S.A. L 1 million a U.S. $ 2.8 million

TABLE U UNTE1l7TS

Pae

Basic Statistics

I. Introduction . . . . . . . . . . . . . . . . . . . 1

II. The Course of Recent Economic Development . . . 4

III. Principal Problems of the Econo . . . . . . . .* . 7

Transportation . . . . . . . . * . . . . . . . . . 7

Agriculture . o . . . . . . . . 10

The Supply of Labor . . . ........ . . . 11

1) Native Farm Labor . . . . . . . . . . . . . . . 11

2) Native Labor for the Gold Mines . . . .. . . . 12

3) The Supply of Skilled Labor...... . ... . 1

Tariff Policv. Price Control and Imnort Control . 15

The Sunnly of Canital and the Balance of Payments 16

TV-~ it'h W rlniriin ---

I;rii+.h Afrjt-.At. nniiqr, Pnqj+.jrn - 20 - - -

Arn-endiA4s Tablesa

Union of Sout ÅAfric-VLIJA,.IL %J.J.L ~ U L ~.. U

ToJta~l Area' 472,000i sq. mln.Jes

Pr_ulation (Junie 30, 195) oU. l 12.6 ILlIUon

Europeans 2.6 millionNatives 8.5 millionColored 1.1 millionasians 0.4 million

National Incone (i95i/5) Total & S. a. 1,123 millionOf which:

1anufactuiring 23.6%&griculture 14.8%,ining' 13.2%

Prices (1948=100)Home Goods April 1953 140

Imnorted Goods April 1953 154

Government BudgetProvisional Estimate

19 51/52 ' 1952/53(;, s. .millions)

Current ExpDenditure 194.5 206.0Current Revenue 198.6 207.4

Surplus 4.1 1.4Loan Expenditure 62.0 70.0

Foreir,n Trade 1950 1951 1952(4 S. A. millions)

Exports (f.o.b.) 2771Net Gold Output147 148 l50

To rtali 356 42442Imports (f.o.b.) 305 467 417

Balance of Payments

Trade Balance -96 ýi91 -1434et Gol oupu 1,7 ~48 15Invisibles (net) -51 =j6 -72

Balnce on Current Account - -I09 -65

Foein E.--chenge Areserves USv miloGold Foreign Exchanel/ Total

r4.t end of year 14 939 7010

1949 128 165 293195.-17 2 %66

1951 190 1.94 384

Jun, 1953 173 129 302/ Almost all sterling.

UNION OF SLOUTH AFRICA

BALANCE nr AYVENTS fN r.URRENrT ArOOUNT(MILLIONS OF SOUTH AFRICAN POUNDS)

0 100 200 300 400 500 600

1937EXPORTS NET GOLD OUTPUT

PAYMENTS I....i...

IMPORTS NET INVISIBLES

1947RECEIPTS

PAYMENTS :8 Ipt:ti.E ili, 2 I-E 111j

RECEIPTS

PAYMENTS Wii ......- -IIIIEillt

1949RECEIPTS

RECEIPTSÝ

PAYMENTS 1

1951RECE IPTS

PAYMENTS MlE! 1::;:1: iii

1952

PAYMENTS

GOLD AND FOREIGN EXCHANGE ASSETS(BILLIONS OF U. S. DOLLARS)

. , , , , , , , , 1.0rm END OF PRtiOD

.5LJ ~~/G OLDO~AN. _ ___ _ _ _ _ _FOREIGN EXCHANGE A1SSTS:.**:*:<..

'38 '46 '48 '50 '52 D J D J D J D J D950 ~1951 9215

8/14/53No. 5'9 IBRO- Economic'Staff

UNION OF SOUTH AFRICATOTAL EXTERNAL TRADE(MILLIONS OF SOUTH AFRICAN POUNDS)

YEARLY TOTALS MONTHLY - Scale is S (f.o.b.)~i l 1/12 of annual scale ! ,oolMPORT

5 0 0 [-1 / ' W! iA 40

400[- i 1 LiA tv30

300-

200L- -/-A1EXPORTS (f.o.b.) 20

200-í

0 4,' 1 1 1ll0EXTERNAL TRADE WITH U.S.(Mii i ONS OF cOiTH AFRICAN PUNimmi

0 YEARLY TOTALS iMONTHLY - Scale is 1/12 of annual scale

ffin _ _MPORTS

100 - » 1 ' 1I 5.

50- EXPORTS

EXTEOAl TRADE WMITLJ lu..

(MILLIONS OF SOUTH AFRICAN POUNDS)

YE ARLY TOTALS MONTHLY-Scale s 1/12 of annual scale 20

2 IMPORTS

00 -

SNEXPORTS

'38 '46 '48 '50 '52 D J D J D J D J D190 1951 1952 1953

8/14/53No. 510 IBRD - Economic Staff

UNION OF ROUTH AFRICA

(BILLIONS OF SOUTH AFRICAN POUNDS)

YEARLY RESOURCES IMPORTED(NET CURRENT ACCOUNT DEFICIT)

1.5 1.5

IO s..... .INVESTMENTS 10

'"BGOVERNMENT

EXPENDITURE

.5 CONSUMPTION 5

01M [M IM IMM 1 101947 1948 1949 1950 1951 1952 1953

GOVERNMENT REVENUES AND EXPENDITURES(MIl IIONS OfF flTi-TH AFRICAN POUNDS)

FAR FNiNr MA. I 0 50 100 IO 200 250 30

lQAQ EXPENDITURES CURRENT ACCOUNT' REVENUES LOAN ACCOUNT

EXPENDITURES1949 RVNEREVENUES

EXPENDITURES

REVENUES

1953195. REVENUES(Est.)

MONEY SUPPLY AND WHOLESALE. PRICES(INDEX, 1948 =100)

200r-r-III II111 .......... 1. 11 1111 11 2 0 0YEARLY MONTHLY L

- I I I I I.Jl1 CC Al C I ltcc

ISO K-i / [-(Home-consumer oos

MONEY SUPPLY

I......... L1 [I II[I I I I I II [aL-JQ'38 '46 '48 '50 '52 D J D J D .J D J D

8/14/53 1950 1951 1952 1953No.511 iBRDu- Economic Staff

UNION OF SOUTH AFRICAGOLD PRODUCTION(MILLIONS OF FINE OUNCES)

20 >, i 1 1 1 1 1 , 20

Y E ARLY CONFDEN

5 - 15

i93i i935 940194 1950 I955 1959~- ESTIMATED -:

WOOL WOOLEXPORT1 VALUE PRODUCTION(MILLIONS OF SOUTH AFRICAN POUNDS) (MILLIONS OF POUNDS)

80-- Yj EARLY 1fYEARLY ]0

60- - - - --

40[ --- t250

............. .... .......J 1........__ _ __ _ _ _ __ _ _ __ _ _ __ _ _ __ ]' 020

193623849 '50 '51 '52 '53 1934238'50 '19 '52 '53 '54AVERAGE (Est.) AVERAGE YEAR ENDED JUNE 30

NOTE: Greasy basis

WOOL (LONDON 70s)PRICES(U.S. DOLLARS PER POUND)

YEARLY MONTHLY

2.00 -- 2.00

-01 7, l.00

1.50 [ /% .501934238'6 4 '50 '52 '54 1 D J D J D

AVERAGE (952 A95G Y934

No.512 Economic Staff

REPORT ON THE ECONOPY OF SOUTH AFRICA

1. INTRODUCTION

1. The Union of South Africa is,a Dominion in the Commonwealth ofNations. It was formed in 1910 by the union of the four self-governingcolonies of the Cape, the Orange Free State, Transvaal and Natal whichthen became provinces of the Union of South Africa. The Orange FreeState and the Transvaal had been independent Dutch Republics before theBoer War in 1899 after which they became British Crown Colonies.

2. Of the total area of the country of 472,000 square miles, onlyabout 6% is cultivated; it is estimated that 85% of the area is notarable and that of the remaining 15% only one-third can be cultivatedintensively. This is due partly to soil deficiencies but primarily toinsufficient and irregular rainfall--most of South Africa suffers froma regular six months winter drought. Agriculturally therefore, SouthAfrica is not among the more favored countries of the world. It is,however, well supplied with minerals, having substantial deposits ofcoal, iron, copper, manganese, chrome and asbestos as well as smallerquantities of many other minerals. The economic resources necessaryfor an industrial country are, in fact, readil.y available.

3. But far transcending the importance of these base metals andother minerals has been the existence of gold and diamonds. The dis-covery of diamonds in 1867 sienalled the beginning of the Union'smodern economic development, but the gold discoveries of 1886 providedthe greatest magnet for European canital and technical skill and the goldindustry has been basic to South"Africa's development and prosperity sincethat time. -

4. The economic history of South Africa since the end of the war hasbpnn marked hv s hi"h ratp of investment anA rani ennnomin devAnPmnt.In this, South African experience has merely Taralleled the general con-Ai.tiAnna nf' h1ores 4~~aidb nflnAInryresmureslwhichthabeen common to much of the world. But South Africa has been unusuallyfortunate in certain important res-r-ents V4"Frstly, )Ina

recipient of overseas capital, almost all of it sterling, which hascanOn+, A 4 1++ +a C - IV mW4114a 4= +180 M4- u,1-o 10in +in a 10C

This has enabled the economy as a whole to maintain a high level of; wrestmn wihu_n u.ter-ng SerilcuS trouble ,igt1-o.nafpy

ments crises and mounting internal inflation. Consequently, it has been

and to keep taxation at moderate levels.

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by the end of the war, together with the current production of theimpotantgoldminng idusty.eable-- ut .f.ica to avoid the p-oh

lems of a severe dollar shortage. Although South Africa is considered

sterling area dollar pool but instead maintains its own separate goldreserve ka±uuuge, LJ 4.LLr U V W . UI Wo.ls U Q(ALI O LLi. X

contribution to the sterling area central reserves). For this reasondollar goods have been Loaniore ee-- availaule n e ca nanUo AIUL L_vr LY LV±C~± Qo1UUIl tl L±J UJll

in the rest of the sterling area.

6. But although the great progress which has been made in thepost-war yeare has been carried through fairly mouthly by comparisnwith nany other economies,it has not been free of all difficulty. Inthe early post-war period (1947 an6 1948 in particular) the balance ofpayments deficits were so large that foreign exchange reserves beganto drop with alarming rapidity and the Government was forced to resortto import control in 1949. Moreover the efforts made to keep downcosts and rrices (a system of price controls, built up during the war,has never been abandoned) have only been partly successful but the risein prices that has actually occurred has probably been due much more tothe effect of rising prices for imports and exports than to internalinflation,

7. The Governmrent has tried to counter inflation by fiscal andmonetary means. Its budgetary policy has been to reduce as far aspossible the investment demands of the public services but it has notso far attempted to increase the general level of taxation. To reducepublic investment has been difficult because the war left large back-logs in the public services, just as it did in the private econom.,which it has been impossible to ignore. However, a very tight griphas been held on the Governmentts capital expenditure whichhas undoubtedly helped to keep inflation within manageable limits.But unfortunately there was no way in which a similar control couldbe placed upon private investment, with the result that the publicservices, restrained by economy measures. were not able to catch upwith the demands placed upon them by the expanding rrivate economyand tended to fall even further behind.

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U. vUUln n11.LL UL UUoMMU1 W-LJn U1el uLOUXe.Ls, UJ.UuLu1g WiU Uiteu

Kingdom and the United States, experienced a general slowing down ineconomic growth during 1752. To some exftent. ths may be due, as in othercountries, to a reaction from the boom caused by the Koraan War.But in theOPunvi 01ouou ldriari buinesmen and merchants there nave been otnerforces, internal to South Africa, which have been at work. The rise inprLces over the past two years has been more rapid than previously andthere has been much talk of "buying resistance". It is also argued thatthe effect of import control in cutting the variety of available consumergoods has an effect on the total of consumer demand. But whatever thecauses there is no doubt about the reality of the result.

9. A further factor of great importance to South Africa has been thefall in the inflow of private capital from abroad.. The import of privatecapital in 1952 is estimated to be only about & 45 million as compared toT 60 million in 1951 and & 50 and & 53 million in the two previous years.This has been accompanied by an upward movement of interest rates, a move-ment which was intended to complete and stabilize a general rise in thestructure of interest rates which has been proceeding for the past threeyears.

10. The general position of the South African economy at the presenttime is therefore one of some easing in economic activity and a considerabletightening up in the supply of capital. At the same time the lag in invest-ment in the public services has created bottlenecks in certain importantparts of the economy, specifically transport and power. Almost three quar-ters of South Africa's electric power is generated by the Electricity SupplyCommission (ESCOM). Although ESCOM has been engaged in a large program of

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expansion, the increase in the demand for electricity has been sorapid that power has become an immediate limiting factor on economicdevelopment. ESCOM has to maintain a "screening" committee on newapplications for power. Some requests on behalf of new industrial ven-tures have to be postponed for as long as two years. The new FreeState gold mines are demanding substantial quantities of power andESCOM estimates that other demands in the Free State and the Randareas in the next few years will increase by around 8% annually.The effect of the shortage of transport is discussed in more detailin Section Ill.

11. To obtain the capital necessary for its own requirements andfor those of ESCOM, the Government is seeking external assistance inthe form of foreign loans. A possible alternative to external borrow-ing is the use of existing gold and sterling exchange reserves. How-ever, since the end of 1952 the Union's foreign exchange reserves havedeclined from & 135 million to 5 108 million and will probably drop fur-ther during the second half of this year. Moreover, in view of the reso-lutions and policy recommendations emerging from the 1952 Commonwealthconference, the Government is anxious to make as little use of its re-serves as it possibly can. External borrowing from somewhere other thanthe United Kingdom is the most desirable policy from the Government'spoint of view. The Swiss market is too small to be able to meet theUnion's needs so that the United States is the only real possibility.Since the rivate capital market in the United States evinced littleinterest, the Government approached the Bank.

II. THE COURSE OF RECENT ECONOMIC DEVELOPMENT

12. The two most imortant &RnAntp rf nont-war noiomin devAlopmAnt

in the Union are the growth of secondary industry and the developmentnf nAW Vnld fields in the Orange Frak State. Althnah thA Ayrnainn

of manufacturing has been generally welcomed in South Africa as a muchrAAtjAe Myaf14nao nf thn etannmy- it han not eAn so mnh the cnn-sequence of deliberate governmental measures as a natural result ofthe phyd%al resorce of the %nn+Vtr Tho TTM4ni 41a unnually vih Inminerals and possesses very large and easily worked deposits of coal.Tho nv4^a ^f ^%anl A+ +'h im4+._haA a+ 1J4+.$n,n1 4a lmoan thavv A1 -A Va

- 0- - - - - - - - - - - V--L1 .V---'ton and consequently South Africa has steam generated electric powerWiAk4dft 4. O..a +hna dn=nsn + 4* +hJ onfl The £ A m4 J 4.An dow -I u

provided a ready market upon which the growing manufacturing industriesca- 1 A U- VasA Ma.. +Ua T-_ sInna .aan. .as ta a-4 4* +1aWLA uLO uca e . u V e , W4 uAU vLMuA oULS usJ.W4 WoAS. UOV WA LLW

industrial development took place, is a long way from the coast andu&. v.. ~ j. .=J.&.LA%7%A WAID J1=%#LUJ .L j.J.'JUW%V.V VJ.J Al . &.L U.LC&XLPkJ.L% .% % 0

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there has also been artificial protection for most industries in

been low and not the primary cause of industrial expansion. Atpresent nonr-Europen 3Au -uULM UW unu LV.Lua.Ln..LI.Ly w usouP.ughigher costs, and, because markets are small, a wide variety of pro-UUts SuDG DP ruStUjIbUreU WfeOl 'ULO 1.nnie0a 00I5t5. DUU L LUUUrbecomes more efficient and specialization becomes feasible, costs5nousu come down an- dariufs will ecome even 1ee5 ncea5ry.

13. The effevt or industrialization on the economy as a whole canbe seen in various aspects. The following table shows the contribu-tion to the net national output made by the various sectors ofeconomic activity.

Table 2

South African National Outiut(Percentage of Total)

1936/39 4%/4 1946/49 1 2U/!LU 119tL/5Z

Agriculture 12.7 11.9 12.4 17.2 14.8Mining 20.7 13.5 10.5 13.1 13.2Secondary Industry 17.7 19.9 .21.9 22.7 23.6Trade and Commerce 13.6 16.0 16.6 14.1 13.6Other -2W 38.7 JL2 M 24&

100 100 100 100 100

Total Output(S.A. & Millions) 394.8 705.4 894.5 1214.7 1123.0

14. The rise in the relative importance of secondary industry canbe clearly seen. Furthermore, the rise in the proportions contributedby both agriculture and mining in 1950/51 is the result of pricechanges only; in the first case of wool and in the second of the .ster-ling price of gold.

15. In 1951/52. the output of gold represented only 9.2% of totalnational output. This may seem at first sight to be a small amountin view of the very great role which gold mining is acknowledged toplay in the South African economy. But for purposes of comparison itmay be noted that, in 1952. the net value of agricultural output in

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the United States was less than 7% of the United States national income.ievertheless, the importance of gold mining in South arfrica is markedlyless then it was pre-war and in sPite of the new gold discoveries whichwill increase gold output by about 40 in 7 or 8 years, it is unlikelyever to regain its old predominance.

16. The decline in the relative position of gold can also be seen inits role as the principal source of South Africa's foreign exchange. In1938, gold accounted for 65% of all foreign exchange receipts but by 1946it provided only 49.5% and by 1952 its share had further declined to 35%in spite of the effect of devaluation. The effect of industrializationon the composition of exports has not yet been very marked for nearly allof it caters for the home market. But its consequences can be observedin the behaviour of imports. A rough classification of South Africa'simports into two categories, the first containing all metal manufactures,machinery, vehicles, raw materials and miscellaneous capital goods and thesecond containing textiles, miscellaneous consumer goods, foodstuffs andtobacco shows a fall in the proportion of the second group from 55% to 41%from 1946 to 1951. The effect of import control in holding down consumerstgoods imports must be borne in mind but it is nevertheless true that theimport control authorities have been able to prevent any large rise in thisclass of im:'orts during the last three years despite considerable increasesin other imnorts and in the national income. This has not produced anynoticeable shortage of consumers goods within the country, because localnroduction has been able to meet the remaining de-mand-

17-. 'liiz c?rrn ovi mnr+rtr-.P~ nf rmmifnt-r nvia in~ +.hp Unincn bi.q nrt nn fnRr

had any effect in reducing the importance of external trade to the economy.Tmninp-Iiirling rfnd) are still onal- hattronn nrel .of total-national income. Some of the reasons for this can easily be found.

which have added to the level of imports. On the other side of the picture,

particularly wool, base metals and diamonds all of which have been selling

from South Africa's position as a "dependent" economy (and in particular,Ue:In ei upo gotIU i .C11 WLtl': U'CL1,AU CA Lt LL j).L-jJUL_.L%LL %J.L ULLZ L1QU UL~1. a.L

income have often been pointed out; the question most frequently raised iswuether kwlle wil be Luu.ictu otr.ur eort wuen gulu rouucvion unaiQLteLydeclines (or if p-rices continue to rise while the gold rrice renains fiXed).Aucfn wil ae;)enu upon tne length of tie Uuring win suc ajutuments wiLLhave to be made but in this respect South Africa is now in a better positionUnan As ns ever been before. Lne new gol Uscoveri e ne uuuru Bree

State will increase the total output of gold from about 11 million ounces atpresent to around 16 million ounces in 1960 and reserves are sufficient tomaintain output at this level for at least 15 years. In the meantime, as has

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iust been shown. the economy is already becoming less denendent on gold.Also secondary industry is now reaching the stage where instead of con-qi.tirna of a limited rnmb.r of Pnnnminallv indpnndAnt n1ants imnortinapractically all of their raw materials, it begins to form a much more

,rocess, each serving each others needs. For instance, the recenter"nn^ nf +Ina a+mnl AiAia+"vrr kne he m^% * n' n"A Wqr Tha acsn'h1 ichm-

of a heavy engineering industry which will produce such things as boilerequipml-Ivt.+ ,n we Stat-in.andl. mngA.. , equij-Dila-w 1P1,_ -- ^4e-#+ P^, -- A-l,n A""

oil from coal is now going ahead and is intended to form the basis for a

LO. iler uL eS.'LCL UV vpWj Ult, Cr- u11uUr way .L1aJUQU iLneproduction of fertilizer from phosphate rock, the production of rayonpulp from locally grown eucalyptus--the pulp wil be exported but mightlater lead to the creation of a rayon industry--and the erection of aplant for producing paper and various types of wooDoard. Ine OSanuarVacuum Refining Company is setting up a refinery at Durban which willproduce gasoline, Kerosene and diesel oila.

19. Simultaneously with the growth of industry, the mining 1:inancecompanies have been investing very large sums in the development of theOrange Free State gold fields. At the present time there are thirteennew mines in the process of establishment and two have already startedproduction. It is estimated that this will lead to an output of at least

16 million ounces by 1960 but if sufficient native labour could be obtainedthisfigure could be considerably exceeded and! output might reach 20 millionounces. The labour question, however, is a difficult one. (See page 12).It has been publicly stated that the foreign exchange earnings from uraniumshould, in a few years, reach L 30 million a year.

20. The estimates of investment in the .various sectors of the economyare given in Table 1 of the Appendix. It may be noted that investmentin manufacturers durable equipment has been running steadily higher thanin mining equipment until 1951 and both together have been less thaninvestment in building and construction. There has, of course, been agreat deal of new construction necessary in the course of developing thenew mines which are situated fur from any existing urban areas. The dropin investment in the railways reflects the economy measures taken by theGovernment. Railway investment wrs higher in 1952 and will be hipher Stillin 1953.

III. PRIN7CIPAL PROBLENS OF THE ECONOMY

Transportation

21. The shortage of transport has been acting as a brake upon thedevelonment of the whole economy. Exnorts of base metals. narticularlvchrome and manganese, have been held up and port congestion has developed

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as a consequence of the inability of the railways to clear thewharves. But the most spectacular manifestation of a transportshortage was the crisis which arose in the winter of 1951 when therailways were unable to transport sufficient coal for needs ofsuch high priority as electric power stations.

22. Since 1947 the annual ton-mileage of goods carried by the rail-ways has increased by 5 or 6% per year - a very rapid rate of in-crease. The railways have had to cope with this increase at the endof the war when the normal expansion and improvement of the systemhad been suspended for the previous five years. In addition. theprogram of investment which the Railway Administration had preparedto meet the Dost-war situation was considerably slowed down by thedifficulty of obtaining equipment and materials from overseas.

23. The main causes of the 1951 crisis are fairly clear. Thegeneral strain on the railway system caused by the ranid economicdevelopment was aggravated by an unusually severe winter, a "go-slow" strike on the railways and a shortage of locomotives and coal.The Government, however, set up a Commission of Inquiry which wentinto the auestion in some detail Daving special attention to the sun-ply of different types of coal. It made a considerable number ofdetailed recommendations but it was clear that a reneral increase intransport capacity was the main requirement for the solution of theproblem.

24. To arrive at any conclusion about the general efficieneV of theSouth African Railways is not easy. The railways, being owned andoperated by the Government. are sometimes drawn into nolitical debateso that opinions about their efficiency become biased. The two pointswhich are most often discussed are the rating Policv and RailwayAdministration's statutory monopoly over all forms of transport.These two matters are, of course, closely connected.

25. There has been considerable attention paid to the auestion ofrailway rates in South Africa since the war. The Government estab-lished a commission. the Newton Commission- to make a thoronah in-vestigation of rating policy. There were two main conclusions inthe Commission's renort. One was that the mnv snAl rates whinhhad been instituted at different times in the past should be eitherabandoned or "reat1v modified. The second was that the railway wni

carrying an appreciable amount of uneconomic traffic which shouldeither nay hipher rates or he allonA to on hv 'na

26. The recommendations concerning special rates were endorsedoy the inquiry into the 1951 coal crisis and the Administrationis putting them into effect. A recent regulation has also beenissued, permitting manufacturers to haul their own goods by roadfor distances up to 150 miles though it does not permit inde-pendent road haulers to operate. The Railway Administration,however, contends that without the short-haul traffic its reve-nues would fall and to avoid deficits it would have to raiserates on the remaining traffic.

27. The Railway Administration operates road feeder services,the harbors and the airways in addition to the railways themselves.Independent road haulage contractors are prohibited by the MotorCarrier Transportation Act. Any complete removal of restrictionson long-haul road traffic would necessitate a radical alterationin railway rates since otherwise road transport would be able totake away just that high-rated traffic which brought most of therevenue to the railways. A step such as this would bring abouta profound change in the South African transport system. It wouldhave the direct result of relieving some of the present strain onthe railway system. But more important in the long run, it wouldmean the abandonment of the principle that the railway system shouldbe the only means of long-haul freight transport. The railwayswould be forced to concentrate on the carriage of low-value bulktraffic, particularlv coal and other minerals. The results of sucha change would be many and far-reaching; among them would be aconsiderable chanee in relative transport costs for differentcommodities, some repercussions, possibly unfavorable, upon therevenue earning r-ananitv of the railways. increased investmentin trucks and roads and improved transport of certain goods. Itis mnt. nlikely that. thi Snth Afrinan Government wuld non-template such a move without the most prolonged and detailed

MO

28. There has been little discussion over the control of harbors andairways although the mission found some opinion to the effect that theseactivities might well be operated independently. The Inquiry into thecoal crisis suggested that there should be a thorough investigation intoall aspects of transportation in the Union but there has as yet been noindication that this will be carried out.

A2riculture

29. There is widespread agreement that much needs to be done to improveagricultural efficiency in South Africa. Both output per acre and outputtper head are low. To some extent this is due to natural conditions. Mostof South Africa is not good farming country; the soils are often poor andrainfall over much of the area is sparse and uncertain and droughts-arecommon.

30. The principal cereal crops are wheat and maize, maize being animportant export when the crop is good. Wheat production, on the otherhand, is insufficient for the countrys needs. Fruit and wine are alsoimportant exports. Before the war, sugar was exported in considerableQ.uiantities but there is now only a smll surplus cvail,.:ble. South Africahas a large export quota in the Commonwealth Sugar agreement that she hasbeen unable to fill. Small quantities of meat, butter and cheese used tobe exported but at present production is barely sufficient to .eet theinternal demand.

31. A government White Paner on agricultural policy issued at the endof the war stated, "Today the farming industry and the country generallyare, gffAring from thA rpsnlta of systemn of land us that havA hAecarried on with apparent success as far as production is concerned, overlengthy pemioA of +.4m but h4h h.1r n-00 nnihr ran Mana g of Won.e

down all over the country. If the farming system is basically unsound,no naont+ nr n-fi^4,mn,err ein th- "ov-+ P%f th1, fz"mmv- ^n" 4+ onatrsuccessful." The results of this system have been severe soil erosion,+'er+

41-t4+. Ae,,.I .d4- i-c.A A-e4cnn+4 r- -, In--v areasa A "-".a.+ n.. n

ment report with the significant title "Report of the Desert Eneroachment1wu14-leel Arevw aue-nu tou une great changes an natual vegetat-n-uawV LIJU. LOU UL U QU VL LJ. YJ V iJL V Ll VL L~U.. L li kOU. kiAll W&IL%.9L

had occurred. as a result of European farining methods; srecifically to thereau Ote sM-artu V--------u y-----v-----uu---

tI U nd .,i 4L d±LU A010U .Vrue .Of -V-gGUt'-L.L1 OU ULUZ WAA1 01.

l.aad.

32. The need at present is for a -proper system of crop rotation andmore use 01 fertilzers. There is much grozng I sjn.La u A, gJv

much higher yields through the proper application of phosphate and nitrogenfertiiners. a sart won e n s14 w1Un the passing of the ^oil Conser-vation hct Which provides exrert assistance and sometimes subsidie.s forfarmers undertaking conservaMm.n methoI. It -lso gives the governmen

certain powers of compulsion.

-11.

33. The limitations of water supTly is one of the imrortant factorsaffecting agriculture. Not only is the rainfall deficient and uncertainover much of the country but the Dossible irrigable area is small amountingto only 2 million acres. Fowever, while it is obvious that the land wouldbe much more productive if the rainfall were higher it is not at presenttrue that economic development is held back by an overall shortage of water.So far only 600.000 acres are irriputed and much scope renains for watercontrol projects. The water rroblem effects industry as well as agriculture;the Vaaldcm. the main source of water for the industrial area of the Wit-watersrand, is being doubled in capacity. The water available from the VealRiver is enough to enable the present rate of exP&nsion to continue forabout 20 years. There has been some speculation in South Africa that thechana in vAotatinn broiaht nhoit by Euronar farraino- haa hAq mffirient

to affect the rainfall adversely and one of the prime purposes of the DesertEncacnhmnr .mmitteauA s towq nve+.at. th1 Voint T+iM Y-nA"t aninconclusive; it found no reliable evidence of a change in the climate butrecommeAded that much mor rearch sbould huertaken 4 A %+ aodefinite answers could be obtained,

34. During and since the war the output of agricultural products has

has been the rrice policy for farm products which has been followed. InL4e Ue.presseu CVundi14ou41 W1 WRI J..V*io, auaen varuv-. wmru uOvo4U."Ovou

to purchaseand dispose of farm products. Their principal purpose was tomaintain farm incomes ana in sone cases surpluses had to be exported Lt aloss. But now that prices of agricultural products have risen to remunera-tive levels, the machinery or the 1arie-ing Acts has been put into reverseand the prices paid to farmers have been kept below world market prices inthe interests of holdingudown the cost of living. That thiha n5 had adampening effect on output was admitted by officials in the Department ofAgriculture but it was held to be not serious. The effect of nigher priceswould not be conparable to the results w,hich could be obtained in the long-run by improved technical methods. Since 1946 investment in farming hasbeen running at a rate equal to between 18 and 22% of total private invest-ri;ent.

The Supnl of Labor

35. It is commonly alleged in South hfrica that economic development isheld back by a shortage of labor. This difficulty apears in three separateforms, firstly as a shortar7e of native labor on farms, secondly as a shortageof native labor for gold mining and thirdly as a sbortage of European skilledlabor.

i) Native Farm Labor

36. This aspect of the problem is at once the sitrplestend least importantof the three. The urbanization of the native porultion has been rroceedingsteadily since 1921. &t that date only 12.5% of all the Union's nativeswere classified as urban but by 1946 the Proportion had risen to 23.1%.

-12-

-T+ W LI- V w UWSLl LA-V L 4 + V wns m M ' VLI . W J V LV+kj U.LVV C Q VVVD GII%A

from the European farms. This was the normal accompaniment to thegrowh of i*utry taking place in resTne to eunuwfveuc. jSa-tistics on native earnings are not readily available but a pre-warestimamte concluded that the per capita annual incoi:e of natives onEuropean farms was about one-third of that of the urbanized natives.This is a substantial difference wnich more than makes up for theprobable difference in the cost of living between the towns and thecountry.

37. The higher earnings of urbanized natives reflect their higherproductivity so that their migration from the rural areas cannot beregarded as uneconomic. The total farming population in South Africais too large; the European farming sector accounts for roughly one-thirdof the working population but produces only about one-tenth of thenational income. Hence technical measures to increase productivity inagriculture must be accompanied by a reduction of the farming population,both European and native.

2) Native Labor for the Gold Ines

38. The shortage of native labor for the gold mining industry hasbecome a chronic condition. Native employment in the mines reached apeak in 1941/42 when it amounted to nearly 400,000. Since then it hasdeclined and is now fairly stable at around 300,000.

39. Mining labor, although it is Physically in the towns, is in nosense "urbanized". The miners are normally rural natives who come tothe mines to supplement their incomes. They come from all over south-ern Africa, some rroceeding independently but others being recruited bya special organization maintained by the mining comr,anies for thisnurnose. The natives contract to work for a neriod of at least nine

months, after.which they normally return to their homes. The availa-ilit.v of native lnor fnr .ip iAne thus deponds on cnnditAnns in many

different territories. Out of a total of 300,000 miners only aboutI10 - onm from vithin Snth Afrinn Ahnii+. 1r M0 n nme frrm Portu-

guese East &frica, nearly 60,000 from the British High CommissionTerritories (non+tlanA Bechunaland nnA mo41anAN ad +he rmaneAr

from areas further north. The progress of economic development inome P WSen r ean1 .

1 n l +h A eMaw,A fo" 4 1a+wi1 1 a-.. 4 +I'm&

Union itself affects the supply available for the mines. The minesarnow oi ng t frm Agola. orT o'nnino ael mineit Worlrang Free

now' coming in from Angola. The ol-ening of the mines in the Orange Free'J+O+l. nA~ J l~1 A1~ - ex+l. n J A --l~ . -SU'41 A -p-i. __4 .&'J -J.J l.A 'JA1.L1+ U'. r4.JL nnU (4'.J' u

-13-

rnnnder nf the I.hnT fnrnp ill he trPr.ferre from older minps on

the Rand as these cease operations). The mining companies believe

seems far from certain. The degree of success they achieve willlel'an+ tha £.1- output 1- gold

more efficient use of native labor. By the use of aptitude tests andspecial personl~ se'letiOn WZLLLILLL4 -0 ±1U .0. pJCC.J.QL=ISU aLW Lt:C10t= Vk4U-1

put per head. There may be more scope in the Orange Free State forreorganizing methous o wort but opportunities in n utu ireaion arelimited by the existence of the color bar.

41. Although the disadvantages of the whole system of migrant labor,in the form of high labor turnover, cost of retraining etc. are wellknown, the mining industry as a whole does not think that it would bepracticable to try to build up a permanent stabilized labor force. Thetwo principal objections to this policy are, firstly, its high cost,and secondly, the fact that the labor, once stabilized, would be unlikelyto remain in the mines. 1dning wages are low compared to those inindustry and once the labor became urbanized the attractions of higherrewards elsewhere would be powerful. A further factor is th.t under-ground labor would have deleterious effects on the health of the nativesif they were to continue working without long rest periods. However,one comrany, the Anglo-American Corporation, is experimentihg in thiA..direction in its new mines in the Orange Free'State. But the scope ofthe experiment is small; it is proposed to provide permanent accommo-dation for about 10% of the native labor force but it is by no meanscertain that this target will ever be reached, The natives will becarefully selected from the highest paid and most responsible grade ofnative labor.

42. It is difficult to see how all the factors influencing the supplyof labor for the mines will work out in the long run. There are signsthat the flow from within the Union is diminishing. This may be offsetfor some time by drawine imcre from other territories but these territoriesthemselves are not enthusiastic over their loss of manpower to the Unionand in the lonr run this sonurce ill nrobablv also decline. But on the

other hand, there are many over-populated native agricultural areas insouthern Afrinn thich noula releasp substantial labor if methods of nativecultivation could be inbroved. But there would have to be some considerablereorg-ni-tion in the mining industry rnr Ai.h nrmanntlv d1sp1acd wrkers

to be utilized. Also the mines ability to do this will be greatly influenced1rr +1-~ n,ran.na evp' nT

4nrv nnaka M"Ar nP nrn"Qa +h-t r74r.a nf' rnlA

j SL~.' 4 J.t4. %~14 X.'. %4 -IJ.W -&J. -k.At* - -'I4 d - - I- -' ... [of E, --

-14-

~J 1ed.U_ W.L bI A.L .L J "abo

4nL OuIJLI Jt"±Z. LL1W 01JU±IJCg U± U1~~LU c0 L ~ ±

extent this is the consequence of inflation and over-full employment...UU LU Lli U1UaL.Ly aggruvuuu Uy ln teeuence u1 CLvur ulburlmnaluonin the use of labor. As a general rule all skilled labor is performedUy Europeans, and na.tives are confined to unskilled work and, morerecently, operative or repetitive work in industry. This system is main-tained by a combination of law and custom but the recent rapid industri-alization has subjected the color bar to considerable strain. Industrialmanagement is often aware of economies that could be made by the wideruse of natives but is unable to put them into practice owing to theopposition of European Trade Unions. All the same, natives are now doingwork which they did not do previously and this pr6cess can be expected tocontinue. The growth of industry has created a demand for more and morelabor of the operative or semi-skilled type and it is in this field thatcompetition between Europeans and non-Europeans actually occurs.

44. The number of natives performing work classified as "skilled labor"is, however, very small and there is as yet no indication of any markedchange in the position. It has only just recently been made possible fornatives to be trained as artisans in the building trades in order to lowerthe cost of houses for the natives themselves. One obvious way of allevi-ating the skilled labor shortage would be a vigorous policy of Europeanimmigration. In fact, European immigration since the war has been onlymodest; from 1946 to 1949 there was a net inflow amounting to 57,000 butin 1950 and 1951 there was a net outflow of 2,000 due principally toincreased emigration from South Africa to Southern Rhodesia. Immigrationpolicy moreover, becomes a matter of political contention because the typeof immigrent may affect the electoral balance between the main politicalparties.

45. The shortage of skilled labor has undoubtedly constituted a brakeupon economic development and it has also pushed up the level of costsfor it has meant that wage rates for skilled labor reflect its scarcityvalue. A more rational use of the whole labor fore is one obvious wAyin which much secondary industry could become less dependent upon tariffnrotention- Put it will he R slnw Pnd diffinnlt nroensq to brin 4+about.

-15-

Tariff Polinv. PrieP Control and Imnnrt Control

/,A- Tbn ntnt.pd nnlinv nf flin Uninn rrwP.ernrnn. is ton rnainta4in t.hAminimum of direct controls over the private sector of the economy. But

economy completely. At the end of the war, all import controls werenV,n-aA unA +tha r e w ns A4nhn 4 n + + a +

4ma no to 1vha+a. -4nN

controls, other than those on farm products, should also be abolished.Du- 4,- -4Po -P +ke geneal 4-01s+-ow A4-t- -- 4- -4-1 am.i

were retained. In 1948, import controls had to be reimposed in order topavose uwauxu rocuve us guri uAnuu. n pronous time,

therefore, the governnent's weapons for influencing the private economyare frsty, tUrI , secondly, the ,ysem of' raeting Boards for agri-cultural products, thirdly, price control over non-agricultural productsand finally import control. The first two are mor 10-88 permunt-antfeatures of the economy but the last two are regarded as undesiraole andwill be eliminated as soon as conditions permit. The operation of theMarketing Boards was described in the section on agriculture.

47. The principal object of the government's policy in the industrialfield is to diversify the economy and to encourage the use of local rawmaterials. If a proposed new industry fulfills these requirements, itmay if necessary be granted protection but the level of tariffs is onthe average only-12% and never goes higher than 25%.. The South Africansclaim that their tariffs are lower than those of any country other thanthe United Kingdom and Holland.. The government has tried to ensure thatimport controls do not lead to the establishrent of uneconomic industriesproducing restricted imports. They believe, probably rightly, that thishas not occurred to any marked extent. ,

48. The price control system has enabled the government to exercisesome control over new industries because-commodities subject to pricecontrol had to be allocated among the different consumers. Steel,.forexample, was distributed by the Iron and Steel Corporation on the basisof priorities determined by the 1inistry of Economic Affairs. The offi-cial policy for rrice control is thL-t it should only be continued wheregoods are in short supply. M*uch depends, therefore, on how far internalprices are allowed to rise in order to cut off the excess demand. Thepolicy is based to a large extent on the hope that a sufficient declinein world prices and demand will enable most of these controls to beremoved without a large rise in local prices. At the moment the pricecontrols are fairly extensive- Somethina like 70% of the items in the

retail price index are subject to control and about half of these are

o16ow

49. The effect of these controls upon the economy should not.however, be exaggerated. It is, in fact, quite possible for well-informed persons. even government officials. to hold that both importand price controls could be immediately abolished without any dis.astrous conseauences, althouah this is not, of course, the majorityopinion.. There was, in 1951, a very considerable relaxation of importcontrol with the renilt that the value of imnorts inoreased by Over

50%; an outcome which surprised the import controllers and led to anlsmnina r1nun nn im-net li-1nn-q in 1Q5 Vmuver +hAva mAA annn4..

erable restocking and some speculative importing, particularly of+avt+Tl 1 that oo+nn a4nma n+ nm h n hand

upon this event. There is also an important complicting factor whichmna+ 4" e v%owr A^4 e,4 r +P al 4mm4 h 4m md 4v A^1+A

Africa and this is the obligation which has been undertaken to sell atlnesd I CA -4114on -P -- 1A omrl +- +I,- TT-4+-A V4--A^- Ml- 4 -- ^-+.6 G m in OW W.A. rv uwwUsun Wv UIAo u .n W Wv A u n&J1ai mes L. 4aw J.Uq/%A v P

control system has had to discrimin--.te against dollar goods in order tounIQJL ULI. A'J La Anna~

effects but they do not seei to have introduced any serious distortionsinto the econom7. TIne cice controLs nave 1robably tended to increaseconsumption at the expense of savings and possibly of exrorts. Therewere some complaInts tat price control made it difficult for firms toaccumulate reserves for further investment but this seemed to be trueonly of certain industries. The effect oj exports arises because thepolicy of holding down internal prices below world market prices necessi-totes the control of exports in order to ensure thet local demands at thelow price are fully met. This point affects chiefly agricultural productsbut also some industrial products.

The Supply of Capital and the Balance ofaymertg

51. Since the discovezrof diamonds at Kimberly in 1867 and of gold onthe Witwatersrand in 1886, British capital has played a conspicuous partin South African economic development. It has been calculated that from1870 to 1936 the total capital (private and public) invested in SouthAfrica from abroad was S.A. , 523 million. The gold mines provided themagnet and the foundation for most of this activity; the direct invest.-ment in the gold mines themselves was about S.rl. & 145 million. Invest-mient in mining absorbed some two-thirds of all the private capitalentering the Union over this period.

52. As a consequence of the dominant part played by gold mining, asneculative investment. the supply of overseas capital for South Africahas been subject to severe fluctuation. In periods of speculative boom,investment has taken nlace on a larger scale than was really 1ustified.

while at other times it has been impossible to obtain funds for clearlyeconomic ventures. Since the war there has been a movement of capitalinto South Africa on a substantial scale influenced by favorable specoulative prospects for the Orange Free State gold mines and, in the earlynostwar years. by political uncertainties in Europe and the United King-dom. Details are given in the following table:

Table'a,

Inflow of Private Capital to South Africa

arM SIA, & Million

1946 171qL7 182

1948 91101.0 I0

1950 531041 AC

1952

/ Preliminary estimate. 498

Over this period the proportion of the capital inflow which has beeninvestea ' gol --. mining n ueen mn lower tn8n it use oe e orethe war. A great part of it has gone into construction and manufacturing.

53. This capital movement, together with the large gold and foreignexchange reserves which amounted at the end of 1945 to 4 .a. t 4266.8 mion(or the equivalent of fifteen monthsl*impoits at the 1946 rates), has givenrise to a sustained investment boom which has proceedea with only minorinteriuptions ever since. From 1946 to 1949, there were substantialdeficits in the balance of payments. The aggregate deficit for these fouryears was 4 507 million and it was covered to the extent of & 340 million,or just over two-thirds, by the inflow of capital and the balance wasfinanced by a loss of reserves. In 1948 the deficit on current account was& 176 million, an amount equivalent to over 207 of the national income.(This is almost a world's record; by comparison the worst deficit in theUnited Kingdom balance of payments, that of the crisis year 1947, was onlya little over 6% of the national incorie.) In the letter part of 1948 theinflow of capital carie to a temporary halt and consequently the exchangereserves began to fall rapidly. In early 1949, it seemed as if the Unionwas heading for a severe balance of payments crisis but in 1950 the cur-rent deficit was almost completely eliminated and virtually 11 the capital inflow of that year (some & 53 million) went to increase the reserves.This extraordinary performance was the more remarkable in that it wascarried out without any fall in consumption, with only a small decline ininvestment and without any undue uiward pressure on the general pricelevel.

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54. Tie tnree factors whicn cnangea tne total picture oetween 1'84and 1950 were firstly a decline in imports by about - 50 million,secondly an increase in commodity exports by about & 75 million, andthirdly the increase in the sterling value of current gold outputwhich amounted to nearly 6 50 million. The fall in imports wasbrought about by direct import control but it was no doubt helped bythe fact that the imports of 1948 were unusually high. There was amarked rise in inventories in that year which added to the demand forimports. Also the accumulated wartime demand was probably stillexercising some influence. Of the rise in exports of just over & 75million, almost half resulted from the rise in the price of wool andsome of the remainder was due to higher prices of other commodities.

55. But the elimination of a balance of payments deficit entailseither a fall in investment or an increase in internal savings. Bothevents occurred in South Africa between 1948 and 1950. The followingtable shows the behaviour of savings and investment since the war.

Table.&Savings and Investment 1947-1952

(S.A. & millions)

1947 1948 19 9 1950 1951 1952

Net Investment

a) Public Investment 55 67 82 59 59 71b) Private Fixed Investment 87 128 119 122 173 198c) Inventories 60 25 -19 -2 51 -66

Total 202 220 192 179 283 203

MAt Aevinm

in) pr?ivn. Anic.( 12 LT 111L 134 9)0b) Current Surplus of Publio

Aethoritie 30 90 23 1A 92 31c) Net Overseas Borrowing and

Ioa 902 22 1A2 179 283 20M

56. It will be seen fro this table,that the virtual elimination ofthe defat an the bulance of payments vas reflected principan3y by arapid increase in private sevings. In 1948, it is true that savingswere abnormally low. IT seems likely that there was vtill some spendingof wartime savings in that year which would aleo partly account for theheavy imports. it is instructive to compare the changes in savings andin inventories with the behaviour of imports. At the end of the warwhen import control was abandoned the value of imports increased rapidlyand there was a rise in inventories and at the same time savings sank tolow levels. After 1948 import control brought about a reduction ofimports, inventories dropped and private savings rapidly increased.. Butafter 1950 the picture is different. In 1951 there was a large increasein imports, a considerable rise in inventories but no fall in savings.That is to say, almost all of the additional resources available from theincrease in balance of payments deficit was utilised to increase invest-ment. In 1952 the stocks accumulated in 1951 were allowed to run down(or were forced down by the restriction of imports) but this movementpermitted a higher level of fixeo investment to proceed with a lower levelof internal savings and a smaller balance of payments deficit. Throughoutthe past three years fixed investment has been increasing rapidly--4 181million in 1950, & 232 million in 1951 and & 269 million in 1952, Theseincreases have been proportionately much greater than those of the nationalincome and it appears likely that there will soon be some leveling off ordecline in fixed investment. In the immediate future, however, the demandsof public investment may take up any slack which may develop if privateinvestment were to decline. Hence an inflow of capital, either private orpublic, rem-ins important for South Africa at tho present time..

57. The Reserve Bank estimates that the private eaDital inflow in 1952was around & 45 million end it has prepared a conservative "forecast" for1953 on the assumption that the inflow drops to & 20 million. On thewhole, this would not be undesirable as it would cause a fall in privateinvestment which would ease the problem presented by the shortage of trena.port and power. But it means that the resources available for investment(anart from official external borrowing) inipht be only 190 or L 1nmilliQn. If the needs for governrment and semi-government investment hadto be met out of such a totpl. nrivqte Investmnnt won1d hPve tn he At4u.cally reduced. Such a reduction would -mrobably be very difficult to bringshout -uithaut affect.ngecanomdc aih4ty+v and even 4f 4+. Mre posadble 46is unlikely that the government would be able to obtain the releasedr _sourcn. T.ymight well maAw +.ha% +.h flow o? fm-mlen cap4+el d rA m upcompletely. The alternative would be for the government to make use ofthe Reserve Bankle of fare4rn nehange wh4k a mn+4nA efrP^it is reluctant to do. This is the situetion which has led the Union

~n mwi- + e +~4I-A,~r% 4n +nAm ONPS , ~, +1l-~ T-'"T)

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58. &t the same time, when taking a longer term view, it is possibleto envisage a situation when the present needs of the public servicesand the gold mines have been met, when external capital will play onlya marginal role in South African development. If private savings couldbe maintained at 1 130 to - 140 million, and if the government couldincrease its own savings. for instance by increased taxation. to sayL 40 or L 50 million, such a total of investment would not be altogetherout of 1inP for a ountrv with a national innomp of aroinrl 1. 1 -00million. It certainly represents a slower rate of progress than that ofthe last ( vAars Ht - One the nrAent stringent nPriod is over- itshould not be unduly difficult to settle down to a slower pace if itbeamern necsay

N. CMv_1ITWaPTT77PI1.q rOCTWLUSIOM

An, BforeCan rvroccedng ., o ar c nA.sion cO, ,n.r"in.6 - +t1h rei W.nA4nV,n4n4 ,,n

of South Africa, two specific points which have a bearing on the matter,reai to be iscussed.

UU QUUJL1 r1 UJLL r.u Iu.L, j _I_

her currency is fully convertible into sterling and capital movementsOetween the Union n tne Unieu aLngUm are no subject ou control.But South Africa maintains her own separate gold reserve instead ofparticipating in the usual dollar pooling arrangements of the othermembers of the sterling area.

61. Before the war, South Africa had a natural dollar surplus in hertrade pattern; her dollar imports were much less than her dollar exportsplus the value of current gold output. Consequently, this surplus accruedto the United Kingdom with whom South Africa normally had a trade deficit.But in the early years after the war, South Africa's dollar expenditureincreased so much thAt it exceeded her total hard currency income in theform of gold production and dollar exports and led to a rapid decline inher gold reserves. During this period there was a very large movement ofsterling capital into South Africa so that the Union received the benefitsof membership of the sterling area in the form of freedom of capital move-ments without making any contribution to the sterling area's dollar position.In 1948 when import control was reimposed this situation was rectified bylimiting dollar imports more strictly than sterling imports so that itbecame possible once again for the United Kingdom to earn some payment ingold for exports to South Africa. Since 1948 there have been a series ofinformal arrangements between the Union and the United Kingdom, the objectof which has been that South Africa's import controls will be arranged insuch a way that the United Kingdom will be in a position to earn someminimum amount of gold every year. At the present time the arrangement is

-21-

that South Africa will guarantee the accrual to the United Kingdom ofgold to the value of at least L 50 million per year and in additionthe Union has undertaken to maintain her gold reserves at a figure ofannroximatelv 1 50 million (that is, at around their present figure)and any balance available over this figure will be sold to the UnitedNinadom- Tn nrantie this will work in the following way. If SouthAfrica's total hard currency income is 1 200 million (1 150 milliononli nrnAiintAnn and . s0 millIon dollar exnorts) then dollar exnendi-tures will be limited to 1 150 million so that the other & 50 millionwill he sol for stprling and heome available for navment for sterlingcommodities. But if dollar expenditures fall below L 150 million, theunused old will not he added to rtqrvP. but will hP qol for sterlinain addition to the basic L 50 million.

62. The degree of stringency wlich has been required in South Africa+o n k^ii+ +Mo *A4mAl ^-P LSoinl+ Inoo ^+ 'kn a -trh o"N almwl. n z V r%l InVgoods are still more readily available in the Union than elsewhere in+ke s-rli e n Alo 4-a *,4 -a 4,-s an+ws+ m +h- sw1A.m+ figureof L 150 million to at least L 200 million by 1960 indicates that South

~A U~L4~n U4.U

63. te toale public external ue of the vUnon is low, t outedat the end of 1952 to only L 84.5 million ($237 million) of which J, 14.4million ( 4U.4 millon) consisted of obligations of political subdivisionsnot guaranteed by the national government. Of this total, L 35.6 million( 99.8 million) represents dollar debt and the equivalent of $13.9 millionis repayable in Swiss francs or, at the option of the holders, in U.S..dollars. There is also an amount equal to 6.4 million which is repayablein gold.

64. Service payments in hard currencies (U.S. and Canadian dollars,Swiss francs and gold) amount to $3.8 million in 1953 but in the threefollowing years they will be $32.7 million, $9.8 million, and $12.9million. Thereafter from 1957 to 1969 they fall gradually from $7.6million down to $4.4 million. But all these amounts are very small whencompared to South Africa's net current gold and dollar earnings which arenow running at about $460 million per year and are due to increase withthe rise in gold output.

65. Of more significance, in view of the Union's position as a dollarsurplus country, are the service payments on the total debt. The largestannual payment equivalent to nearly $40 million is due in 1954. Otherheavy paymnents are $29 million and $23 million in 1958 and 1959 and $33million and $35 million in 1967 and 1970. Otherwise the service payments

-22-

moderate for a country whose net foreign exchange income is now approachingw.1, 00C. million a year. Sot U AfLi- .rJLc a wo^Uld- therfore e 01we ll 11'ab10le toservice additional dollar debt of the amount she is at present contemplatingo.owJn furom th4e J uJQLuu*

UU* ILIVEVI .LO LU ro . CAL4 UU.L(au-UO UL . ULI Uw& !i)UU_LJ_u UW~UL, V.L

the Union of South Africa,

General Conclusion

67. It seems a fair judgement to say that since the war the South Africaneconomy has been proceeding in aprroximately the right drection with a con-siderable measure of success. Certainly there have been fewer economicalarms and excitements and more sensible progress than in many if not mostof the other major economies in the world. Moreover, some of the difficul-ties with which South Africa has had to deal have not been of her ownmaking. For instance, the vast inflow of capital in 1947 and early 1948added to the inflationary forces which already existed within the countryitself. Also the fact that South Africa has had to impose discriminatoryimport restrictions against dollar goods is lzrgely the result of theUnited Kingdom's inability to compete, particularly in terms of deliverydates, with the United States. It can also be argued that much of the risein prices in South Africa has been imported rather than locally generated.

68. This is not to say that, ideally, things could not have been bettermanaged. If the progress in the rrivate sector had been somewhat slowerand that in the public sector a little faster the present unbalancedsituation might have been avoided. It might have been wiser not to estab-lish thirteen new gold mines more or less simultaneously though this wouldhave involved some delicate problems of priority. Theoretically, theprivate economy could have been restrained by direct controls, by monetarypolicy or by increased taxation. The first was much against the philoso-phy of the aovernment and, indeed, of the country as a whole and thuswould probably not have been possible except in an emergency. The secondis now beine put into practice; how effective it might have been earlieris an open question. The Governor of the Reserve Bank pointed out thatit was not easy for South Africa to nursue such a -oolicv before it wasput into practice by the United Kingdom. Also in a rapidly developingeconomy whern rates of return are fairlv hiph. the effert of hinhprinterest rates might be small. The third method, tax policy, offeredmorn sonpe. A nurnhase tnr on tAhe linen of the British taxr wunld havedeterred investment in the private economy. Income tax is also low

questions were important. The government has been under continued

it is not surprising that it felt unequal to a purchase tax. Reform of

-23-

Fie income tax is at present unaer consideration. A 01-partisan polticalcommittee has been set up to examine the whole question and in this way itis hoped to minimize the political pressures.

69. There are other long-term problems to be dealt with. The localfood supply is only just equal to the demand; while food is not officiallyrationed it is not possible for a private person to purchase as much meat,butter and sugar as he desires. But it aprears that agricultural improve-ment in South Africa is more of e. technical and an educational problemthan an economic one. It is not possible, without a specific on-the-spotexamination of the agricultural conditions, to be sure whether sufficient,or indeed any, headway is at present being achieved on this front. Itseems more likely that as the immediate problems in other fields are over-come the priority assigned to agricultural output will be raised.

70. As mentioned before, the Committee of Inquiry into the coal crisiswas in favor of a broad inquiry into the whole transport position in theUnion. Any monopoly such as the South African Railways Administration isbound to have its inefficient aspects and in this case the problem isaggravated by the poltical pressures to which the railways are subject.Altogether there probably is and always has been a certain amount ofinefficiency in the railway system but, in the absence of a thorough andexpert inquiry, its extent is a matter of opinion.

71. But it is above all where the economy comes into contact withracial problems that it encounters the greatest difficulty. The nativepopulation is partly still in a sta'-e of primitive agriculture where itcontinues to wear out the soil on some of the best land in the country.part "urbanized", but rootless, over-crowded and frustrated and partDoised uneasily between the two. The Europeans find it impossible (forideological reasons) to take emphatic steps to ease the natives' transi-tion into the European economy and eauallv imnossible (for rracticalreasons) to force them out of it. This dilemma, and the whole complexof ranial nroblems connected with it. eantA a situation 'here the uorkincof the economy may possibly be impeded or even dislocated by racialconflict- There is thus some risk to the security of a Bnnk loan- Thenature and extent of this risk are not however primarily economic mattersanira 4idament nnon them Amn nnt +hnrf'nirnnm tithin tha nnnA nf thin

report.

72. But assuming that these problems can eventually be overcome withoutdisasteAr, the ecnonmin fiitmrn nf SmithAfrinnqc . ren.q fnirlv secure_ Thepresent dependence of the economy upon a wasting asset, gold, creates

that these cannot be solved and in fact some progress in this direction

provides a valuable shook absorber against forces of deflation whichmiAht c-Pafc Snu+h Afrcna other orn,+ almosn all of tham "v4marw

products such as wool, diamonds, minerals and base metals, hides and skinsandA foodstuMffS inclUd ing citruss fruits and- V4iMneso

-24-

73. At some stage, South Africa will have to make the adjustmentsnecessary on ceasing to be a capital importing country. However, therehas been some indication in the last few years of a recovery of internalsavings to a degree sufficient to warrant the conclusion that this transi-tion might be carried through, if necessary in the quite near future,without any grave dislocation of the economy.

74. At the moment, however, South Africa is et the climax of severalyears of rapid development and with certain important projects uncom-pleted. Only two of the new gold mines are producing, the oil fromcoal plant will not be completed until, at the earliest, late in 1954and both ESCOM and the Railways heve programs of expansion covering thenext four or five years. The capital for the gold mines has alreadybeen secured but it is the government's responsibility to find themoney for the others. The present creditworthiness of the economy andthe productivity and urgency of the projects can form a basis for aBank loan to South Africa of the amounts at present contemplated by thegovernment.

J. .H. Collier

APPENDIX

Table 1

96LtLLL~ k6~ U~ Q~LÅ 944;Qåg

VNt In.es+ment-

I. Gross Public Investment

1. Union Government:(a ... and nHarbour 27 32_ 36 2c4 2C. 29

(b) Other GovernmentBusiness Enterprises 6 6 9 8 7 8

(c) Ion-Business Departments 5 6 5 4 5 7

2. Provincial Administrations 8 10 13 11 14 17

3. Local Authorities:(a) Trading Departments 7 8 10 11 12 12

(b) Other Departments 16

Total Public investment .4

II. Gross Private FixedInvestment

4. Building and Construction:(a) Farming 10 12 13 16 21 17

(b) Other 53 71 64 73 106 113

5. Producers: Durable Enquipment:(a) Farming 16 24 21 19 22 17

(b) Mining 10 14 18 20 27 43

(c) Manufacturing 22 32 36 37 45 58

(d) Commercial, PrivateTransport and Other __ __13 7 8

Total Gross Private FixedInvestment 120 166 161 172 228 256

Total Gross Public and PrivateFixed Investment 182 241 244 02 J

Note: Item 1 (b) includes cepital ex,:enditure on the Post Office, the inIt,the Governrent Printing Works, etc. Expenditure on ISCOR, ESGOM, etc. isincluded with private investment.

APPENDIX

19M48/4 1951/52

L Illion $ Million

Agriculture, Forestry andFishing 1260. 14.2 184.3 14.8

Mining: gold 69.4 7.8 114.6 9.2other 24.2 2.5 49.8 4.0

Manufacturing, Private 195.4 21.9 293.8 23.6

Trade and Commerce 148.3 16.6 169.6 13.6

Transportation (includingS.A.R. & F.) 84.1 9.4 107.0 8.6

Finance 16.1 1.8 26.5 2.2

Government (Union, Provincialand Municipal) 127.4 14.3 164.4 13.2

Other 103.0 11.J D342- 10.8

Total Geographical Income 894.5 100.0 1,244.8 100.0

Minus net income accruingto non-Union factors ofproduction _65,8 121,8

Net National Income 828.7 1.123.0

Source: Bureau of Census and Statistics.

APPENDIX

Table 3

Imports by Commodity Groups(,bS.1 A.illions)J -

1948 1949 1950 1951 1952

Animals, Food, Beverages and Tobacco 24.0 22.7 25.5 27.8 33.2

Textiles 79.7 66.3 67.9 131.9 72.7

Miscellaneous Consumer Goods1/ 13.4 8.1 5.9 12.2 10.8

Metals. Metal Itnufactures, vkhchineryand Vehicles 132.8 113.3 100.2 157.9 161.0

,iscellaneous Raw Ypterials, etc.-/ 66.2 66.9 80.1 116.3 110.0

Other kerchandise 14.4 6.9 7.4 11.0 10.5

Government Stores 22.3 3 20.2 12.7 21.8

Total 352.8 315.3 307.4 469.8 420.0

1/ Books, stetionery, jewelry, timepieces6axe frae sis

waxes, resins, chemicals, leather,r1 ubber. e Lc

APFENDIX

Table I

Exprte* by flommrdity

Quantity Value - . Millioni aill i alm l68 i97 1 ,6 2 . Al i5 6.9 io.1 io

wottl Bar f, Exri milio is 262 29Q 279 259 2. l o. 6C.0 7s.4

F i ,-&u m l o b 2 - -4 _ , _ ., _-0 ' .,

Sub-.tZ al A i u l roducts 0 .,6 . _no 8

LT++e, 1..1 1. In )nii4 lirl '1i c~I~n n n ri i '

r - P. ome thu o-n 27o 4tn A53 101 -.6 1.4 1ø .7 6i

nganeseJ thousanL ons 356 C '24 646 64 J. * 2...1 .8'JIV lramet IL D J ousan-JA tjo,, '2j r.JyJOJ t+.4 7 ,J * J J-*&+ . .J. J.gt.

ilil-.. L ~ £16 fN 6 INn i 6)

Asbestos tljousand tons 40 L.U.L 126 3 .3 5.1 (. 0.7

Copper thousand tons 28 38 33 36 . 7.2 11.2

Coal (incl. bunkers) thousand tons4,272 3 ,247 2,1 1,101 .,4 ,,0 _. 4a

ouubotal - Budk 1-ineraw ' _L-9 .

Diamonds-roughL & uncut 000 carats 916 2,920 4,483 4,491 6.0 12.0 15.4 17.7- cut & polished 000 carats 81 113 116 110 6.0 8.1 9.8 9.3

Other Domestic Exports - - - - 25.6 67.6- 90.8 89.6

Re-exports - - - - _. 2396 - 33637

Total Exports (other thlan gold andgold products) 95,4 21j 278.0 267

Source: Itontbly Abstract of Trade Statistics.

APPENDIX

Table 5

Central Government Revenue and Expenditure(-, S. A. millions)

Estimate1948A 1949/5 1950/51 1951/52 1952/53

Current Expenditure 143.2 155.3 166.9 194.5 206.0

Expenditure on Loan Account 77.7 _80.0 62.0 70.0

Total Expenditure 220.9 235.3 223.2 256.5 276.0

Total Revenuer' 165.6 167.3 195.7 214.8 223.4

1/ Includes current revenue of the ordinary budaet rlus certainitems of revenue credited to the Loan Account.

Source: Renort of the Auditor and Controller General;White Paper on the Budget.

APPENDIX

Jolj and Foreign Exchange Reserves of the

South African Reserve Bank

End of Year Gold Foreign Exchangel(- S.A.iions)

1945 205.8 61.o1946 230.7 17.61947 187.1 60.71948 125.0 35.71949 45.4 59.91950 69.7 96.31951 67.4 69.31952 60.2 69.5June, 1953 62.0 46.1

1/ Almost all sterling.

2/ This figure includes the 6 80 million gold loen to the UnitedKingdom.

Source: Reserve Bank Bulletin.International Financial Statistics.

APPENDIX

Table 7

Balance of Pavments(4 S. A. millions)

198 1950 1951 2j

1. i\brchandisea) Imports f.o.b-2/ 35 35. Rnz 6A7 4.17b) Exports f.o.b.- 132 209 211 274

2. Net Gold Output 99 147 148 150

3. Freight and Insurance on Imports -39 -28 -42 )3i

4. Other Transportation4nd Insurance and )Foreign Travel (net) 11 11

). Invesme nc (n41t) -4 - -43

6Governr,enlt n.i.e. (net) j)

7. Other Services InicludLing Donations (net) -2 -3)

ø ~ ~~~ f..4 r7C0. Balance on urret' ecoun,

9. Draig on .M.. 3 --- .--4 ---

10. 4fficl Loansla) Sterling -- 10 -- --

u/ U.S. joLlars -- 4 9 1uc) Swiss Francs -- 3 -- 5

11. Short Tern Liabilities -3 1 1 -2

12. Net Private Capital 1,ove:,entMEnd Omissionsand Errors -2;1 -53 -. 4.5

13. Total (Item 8 through 12) Change in Goldand Foreign Exchange Holdings (Increase4Decrease-) -84 471 -38 -7

. I P ionaut. L L V.L J Lrv b± ~ .

Excluding gold bullion, gold products and ships' stores./ including receipts for shipsi stores./ The Gold Loan to the U.K. in 1948 !-as been omitted.

2/ V.L XwLi1 - 4 LILml(n in 1951 and 5 8 million in 1952re-resent drawings under I.B.R.D. loans.

21 Including trade eredits and dra,,ings under uranium loans.

APPENDIX

Production

åverag-eIP r. X.A u e Iv TT4 in -2- 1' 7-äo- i, c)i '- e n i r lProuc Y,4,194/3 1947/z i 19k- /, Ai 951/52-

Wool million 'bs. 2o6 2032L24wjLJj LL r_mm ý V.0p

Ma..ze I.LlJbULI - 2 2L7

wiheau juillion tuags 5.0 5. j. .

B utter Million Jb. 29.9 475 56.0 63.0

Tobacco million los. 18.9 39.7 46.0 53.0

Cattie Slaughtered thousand 610 1,û91 1,215 1,129

2) Ivneral Production

Product -nit 129 12 190 951 195I(Forecast)

Manganese thousand tons 305 722 872 844 900

Copper thousand tons 41.2 47.0 51.2 48.9 54.0

Chrome thousand tons 455 446 547 601 750

åsbestos thousand tons 45.7 70.9 87.4 104.5 250

Coal million tons 26.0 27.6 28.7 29.1 39.2

Source: Data provided for IBRD mission.

APPENDIX

Table 9

Urbanization of the Porulation

1921 1936 1946(thmr IR elA

Total Urban Population

Europeans 847.5 1,307.4 1,740.8

Natives 587.1 1,141.6 1,810.5

All Races 1,735.8 3,009.5 4,299.8

Percentage of Each Race Urbanized

Europeans 55.8 65.2 73.4

Natives 12.5 17.3 23.1

All Races 25.1 31.4 37.7

Lource. ZIusuria.L egLaLon Cou-amson Repuru.(U.G.62-1951)

SOUTH AFRICAN RAILWAYS IBULAWA,0AND HARBOURS

NDM ATE SECTION OF RHODESIARAILWAYS IN OPERATION -36GAUGE RAILItS FROM

YBURG TO BULAWAYO IS3'6" GAUGE.............. -- WORKED DY THE SOLITH

3' 6" GAUGE ELECTRIFIED. .+++ AFRICAN RAILWAYS

2' GAUGE ....... . .. . ...... =-=.. == NB RIG

PRIVATE RAILWAYS... . . . .S..T.A.IAPUNBUDREPORTUGUESE EAST AFRICABOUNDARIES -

TERRITORIAL.. ........... Z :.. g÷ T R A N S v A A L

PROVINCIAL. . .S . .

BECHUANALAND PROTECTORATE

( BRI TSH I.

SOUTH WEST AFR CA PEOSPOUIT

IOHANNESIG I LOURENCO MARQUES

LUDP I ~ RE TURAHOP J ~ -. J-~ '' SWAZhEVRYGURG LAND

u.A N G EpE-i N

ET cl . KG ARR15M N A T SL

ORANGE IVE K9 I iMER AF RYE LADYSMITIN T LLOEMPORTEIN

PORT "OLLOTH T

kASUTOLAND 1 PIE E RMAR il T2BUR Q

\ ITTERFONTEIN DE AA,Rø 1 P R S PST.IN

AT L A N T I C 0N D I A NJ~PORT ST. .0N

O, C E A N C A P E 0 F G 0 0 D H4 0 P EOCEAN

BAØ E ARST -LOEDON

SCALE TABLE BAY KNYSNA E A LFRE0

50 100 150 200 CAPE TOwn PORT ELIZAGETH

SIMONSTOWN

I.B. R.OD. DRAFTING SECTION

RAINFALL AND VEGETATION IN SOUTH AFRICA8 22° 26° 302

14024°

SOUTH WEST. AFRLl T VA

•Jo ESBU G

C I~MBER EY ATE2

ATA\ASU O-

CAPE OV lN CE

32° ANNUAL RAINFALL 32cTHORN COUNTRY

AST ]DESERT

LOl9DON KARROOGRASSLAND, PARKLAND,

•CAPE TO N MRT ELIZABETH .. AND FORESTMAIN DESERT MOVEMENTS,

. . C>MAIN KARROO MOVEMENTS'. . - - -INTERNATIONAL BOUND.. a : . .. . .- · . ------- PROVINCIAL BOUNDARJES

14° * 22° 26°

PRINCIPAL ECONOMIC RESOURCES

OF SOUTH AFRICA

SOUTH WEST AFRICA

TRANSVAAL

PRETORIA

JOHANNESBURG WA7 L

7 ORANGELEGEND FREE -NA TA L

SHEEP MBERL STATES

GOLD LAND ( DURBA -

COPPER

MANGANESECAPE PROVINCE

CHROME I M

DIAMONDS

COAL 2 AST LONDON

INDUSTRIAL CAPE TOWN b)" h IlkAREAS k k PORT ELIZABETH

.......................................