This resource is hosted by the Nelson Mandela Foundation, but was compiled and authored by Padraig O’Malley. It is the product of almost two decades of research and includes analyses, chronologies, historical documents, and interviews from the apartheid and post-apartheid eras.
14 Aug 1990: Du Plessis, Barend
POM. Minister, you said the African economy has been on the slide for most of the 1980s. To what do you attribute this?
BDP. We were shielded from the very dramatic adjustments which had to be effected in the economies of countries dramatically affected by the world crises of the 1970s and so on. We were shielded by the fact that the gold price rose to extremely high levels in 1980-81. In other words, we did not make those adjustments at that time but ultimately it caught up with us and those adjustments entail restructuring of the economy in terms of interest rates and so on. So those adjustments were forced on us as it were in the 1980s. That made us very vulnerable and reduced our growth rate very substantially. On top of it, trade sanctions came. And I only had a briefing again this morning on sanctions, so what I say to you now is fresh and verified, technically answerable information. It confirmed what I personally and other spokesmen of government have said many times in public: that trade sanctions did not really hurt the South African economy. In fact, when trade sanctions really became a topic world-wide something dramatic happened in South Africa. And the computer models that we ran show that we performed exceptionally well export-wise. So it encouraged the development of an export culture in South Africa much better than before. What we lost, for instance in the United States, overnight we replaced almost as quickly elsewhere which was a grave frustration for us as Ministers because why didn't we have those markets in the first place? But nevertheless, trade sanctions did not hurt us, but it did have an effect on the utilisation of a very sizable amount of capital in terms of stockpiling of strategic materials. That meant the stabilisation of paid-for assets belonging to the nation which is equivalent to under-utiliaation of capital which contributed, albeit in a modest way, to the overall pattern of an under-utilisation of capital which is a factor in our inflation equation.
. In September 1985, end of August 1985, financial sanctions came about; the American banks withdrew, began withdrawing credit lines, and the U.S. Congress, after the Gramm amendment in 1983, made it impossible for South Africa without American Congress approval to access IMF funding. That caused us to land ourselves into a debt standstill situation. We were not a country with a debt problem from the point of view of an insurmountable volume of debt, but our debt problem at that stage was one relating directly to the maturity profile of the debt, the total country debt, $24 billion. That was only 176% of one year's export earnings, so it was not dramatic. If you compare it with comparable countries in the western hemisphere, ours was very, very favourable indeed. Yet the maturity profile was bad. Just over half of the $24 billion was owed by the private sector, the rest by the public sector, central state only 10%.
. Now, having been classified then as a country with a debt problem, although as I say it was a maturity problem, and not being able to access IMF facilities to tide us over a cash flow problem as it were, that meant that banks wanting to do business with South Africa, the international banking community, had to make additional deposits with their central banks because of the fact that South Africa was classified unfairly as a country with a debt problem. Now, that immediately translated into a situation where South Africa had to run its economy on a cash basis, measured quarterly, where on a quarterly basis we had to export more than import, which we've consistently achieved since 1985 with the exception of one quarter. But that meant that, on account of the fact that along with more than 70 other IMF member countries, we are a country at the stage of development where we have a high import propensity commensurate with our growth pattern, we had to suppress the growth in the economy every time the economy started an upswing in order not to embarrass ourselves as far as the balance of payments is concerned because we had to meet these commitments in terms of capital. We never stopped paying interest and dividends but we had a rescheduling of capital payments. So that meant that we had to artificially suppress the economy. But that was not purely a South African problem. We are part of the whole developing world problem where you had a dramatic shift in the 1980s, in the middle or later 80s, of the international capital flow, with the exception that, on account of the Americans having politicised our position at the IMF, we were denied IMF facilities so we couldn't tide ourselves over like comparable countries could do.
POM. So, would it be an accurate assessment to say that while trade sanctions didn't hurt, the financial sanctions have had an impact?
BDP. It had an impact, but remember one thing, that we are not out of line with more than 70 other countries, so it had an impact as well on their growth rate as the result of becoming net exporters of capital. But they could better manage the situation, because our economy as per definition, measured in terms of imports and exports as a percentage of GNP etc., is a much more open economy relatively speaking than that of the U.S. So, not being able to access that kind of facility rendered us very vulnerable and very difficult to manage. In line with other African countries, it reduced our growth rate, perhaps even more accentuated in our case because we couldn't access international funding. But it also forced us over a very much shorter period of time to begin to adjust our economy and to make the necessary structural changes which I referred to at the beginning of our conversation. Now, toward the end of the 1980s we were beginning to move out of that ceiling because we changed our whole economic strategy in South Africa from whatever it was, forget that now for the moment, and we based it on two parameters. One, a massive export drive; and we succeeded tremendously because regardless of sanctions there is always a market for a good product, regularly delivered, at a good price and the depreciation of our currency, that policy made sure that we could sell our stuff. And the second leg on which we based economic growth in terms of restructuring, why we could increase our growth rate again despite the financial sanctions, was inward industrialisation, the massive urbanisation of blacks and so on, and an investment in infrastructure, low cost housing and so on is a tremendously important drive for growth in our economy. So what I am saying to you is that without the lifting of trade sanctions, without the lifting of financial sanctions, we were capable as we are here today of continuing for a very, very long time. And sincerely, it is fundamentally incorrect to argue that we were forced into the negotiation process as a result of any combination of sanctions.
POM. I'm not suggesting that. I want to get away from that.
BDP. I'm not suggesting you're suggesting that.
POM. There appears from a number of people we've talked to, including businessmen and economists at some universities, to be an assumption that in a post apartheid era, in the new South Africa, there would be a large inflow of foreign investment. Now, what, given the competition for capital, particularly in Eastern Europe and the Soviet Union, and the fact that South Africa has a relatively high wage, unit cost of production, what are the grounds for believing that there would be this substantial inflow of capital or is it merely a wish?
BDP. It's a wish. South Africa's future growth is not primarily dependent on the lifting of sanctions in order to facilitate the free-flow of capital to South Africa. South Africa's future growth is dependent on our ability to compete in the international markets, to make it profitable for companies to come here and put their factories here, on the basis of higher productivity than elsewhere, to be able to export at competitive prices.
POM. But you are already in a situation where the rate of growth in wages has been exceeding the rate of growth of productivity.
BDP. And that's a matter of very grave concern.
POM. If you could relate that to some remarks you made yourself recently, you talked about strikes which are politically motivated being the biggest threat to the economy. If you have a post apartheid government, obviously the trade union movement, the black trade union movements in particular, are going to look for a larger slice of the pie, are going to try to achieve parity with white wage levels in general - what are the constraints that a future government will have and how can it deal with the huge level of expectations that exists particularly in the African community?
BDP. Well, all the black leaders currently believing that they have a future role in the executive will have to make sure that at this moment in time they begin to scale down the expectations to what is affordable in this country. Because, if trade unions, on the basis of the preposterous demands that they make now, gain the upper hand in decision making we will see this country killed in no time economically. Because, whether you're in South Africa or anywhere else in the universe, when a country consumes more than it produces it goes one way and that is down. And right now, our productivity figures are alarming when measured against the increases in wages and salaries. So, no future government of whatever persuasion, can avoid bringing home to the trade unions the fundamental economic realities and the sooner that begins the better.
POM. Are you suggesting that any future government is going to be on a collision course with the trade union movement unless the trade union movement immediately begins to lessen its demands?
BDP. Well, that's what I'm saying. Whoever aspires to a place in the future government will not be able to satisfy those demands, so the bringing back to reality of the thinking of the trade unions is so urgent that it cannot wait for the political negotiation process to conclude itself. And the sooner there can be a consensus on restoring South Africa's capability to grow at a rate that will be able to absorb the demands of a very rapidly growing population and at the same time be able to address some of the backlogs, the sooner that restoration takes place, the better economic reality will support the negotiation process.
POM. It is my understanding, and it may be wrong, that your department has had some meetings with the ANC to discuss financial and economic matters.
BDP. Yes, we have had contact.
POM. Have you made these concerns of yours very, very clear to them?
POM. Have there been members of the trade union movement that took part in those meetings?
BDP. Not to my knowledge. No, no. The contact on that issue is only in its infancy.
POM. Well, again, one economic report, the Sanlam report, from June said the South African economy is moving toward or is in a full blown recession. Given that, even though you said interest rates might be lowered a little in the foreseeable future and the rate of inflation still is unacceptably high so there will be tight monetary policies, again, looking over the next four to five years, what are the prospects for South Africa coming out of this recession and beginning to grow at a rate which must exceed 5% a year if there is to be an increase in the per capita level of income? What kind of policies? It's almost as if some magic is called for. I don't see where the magic comes from.
BDP. There is no magic, there is only fundamental economic logic. And that is that you must adhere to the proper package of fiscal measures and monetary measures and to balance these two with each other throughout this period of adjustment. And that's why I made the point earlier that some people see this magic in the lifting of sanctions. That will not solve the problem unless we get a tax system that in terms of its overall load doesn't destroy initiative. Secondly, that is equivalent or it leads to a proper discipline over government expenditure. That goes hand in hand. And on the other hand, while you have a fiscal monetary policy mix that you would like to see reducing the inflation rate from that point of view, at the same time with what we see happening, unit labour cost tendencies are becoming a feature in our inflation equation. So, there again, it is terribly important to bring that down. And, then, just another point, where we see light at the end of the tunnel is the fact that in many respects the South African economy is well placed between now and the end of the century. We have made dramatic adjustments in restoring the relative costs of money and of capital and of labour except for these danger signs we see now as far as labour is concerned because we have the particular situation, and that is one of the bad legacies of apartheid. Shortage of capital, yet it was cheap. Abundance of labour, yet it was very expensive, which was a direct result of job reservation, where a small number of highly skilled whites had the monopoly and as they got themselves penetrated by blacks coming on to the bandwagon, you have a lot of people now on a bandwagon of overpaid wages and so on. But while we are restoring certain fundamentals in the economy, we have an overcapacity in electricity generation capability.
POM. Yet townships are without electricity.
BDP. Yes, but that's a matter of cost. We went through a period where our electricity costs were exorbitant. Because it was parallel with a totally ridiculous capital expenditure programme. So having cured that, you now see a definite downward trend in the real cost of electricity. So now you are also in a better position to address that because what you need also is as wide a basis of the use of electricity as possible. Anyway, overcapacity, so we can generate much more without major capital investment. Number two, overcapacity as far as railroads are concerned. We have overcapacity in terms of certain roads, not all. We have overcapacity in telecommunication facilities. Overcapacity in cement production capability. And so on, quite a few of them. So if you have a combination of utilising this advantage between now and the end of the century in terms of betterment of material-intensive exports and that you have a good strategy to do that, you look after your export markets and your unit labour costs, you have a lot of hope.
POM. Say a new government comes in tomorrow morning, a post apartheid government, it wants to address this huge backlog in housing, 1.5 million units needed just to catch up. It needs to equalise expenditures between whites and blacks, which is really a matter though of health and education. I noted the remark of the Minister of Education that if parity in expenditures between blacks and whites were to be undertaken today it would be economic suicide. Expenditure in education would have to move from 3.5% to 12.3% of GNP.
BDP. Yes, but there is something else there. I must address you on that point please. We have a division between various language groups in our education system. It is not unique in Africa, certainly not. It obtains in a place like Ghana, it obtains in Nigeria, where in your first number of years you are taught in your mother tongue. Now having separate operational education departments and the imperative to share curriculum development, etc., to save overheads and so forth, what happens in the case of expenditure per capita, which is an arithmetic exercise, is that you divide the number of pupils into what it costs to teach them. And what it costs to teach them in white education is much higher because the qualification profile of white teachers is very substantially higher than the qualification profile in black education. And there are a number of reasons for that and not all of it ascribable to apartheid. In other words what I am saying to you is, please, it is not a matter of policy to spend less so much as it is the result of an arithmetic exercise.
POM. I'm only quoting what the Minister of Education said.
BDP. Sure, but you have made an economic statement which is ridiculous really.
POM. No, the Minister of Education made the statement. Anyway, what I want to get to is that there are these huge demands on taxes and a relatively small tax base. And where can the resources come from?
BDP. The resources can only be earned. And any government in its right mind will understand that, whoever governs the country. You cannot address those imbalances overnight by spending more money, or even borrow money, and print money in the Reserve Bank over the short term to buy brick and mortar to build all the classrooms, the 13 thousand classrooms that are short in black education. You can't build black teachers that are properly qualified. So there are certain constraints, imperatives that you have to address, whoever governs.
POM. So if I am, say, an average family living in a township or in a squatter's camp, and there is a new government elected by universal franchise tomorrow morning, a government dominated by blacks, that government and possibly the next two or three governments, are really going to make no substantial difference to the quality of my life, the way I live?
BDP. That's a loaded question and it's not a yes/no question. Because an awful amount is already in the pipeline. Government expenditure has shifted very dramatically to social expenditure and that will continue. And outside of the budget, 3 billion rand was only this year earmarked for certain purposes. The private sector is increasingly accepting a great deal of responsibility for black housing. But we shouldn't be talking about housing. You know, we are not a first world country. We should talk about shelter. And for thousands of years, black people housed themselves very comfortably on this continent. A different definition of housing doesn't change their basic ability when you have massive urbanisation which is a phenomenon not only in South Africa but in the rest of the world, but very much so in Africa. That you have, call it squatter camps, but let's call it informal housing, a site and service arrangement. On that basis we will be able to provide the fundamentals for shelter for a lot of people because we don't have resources in this country to provide a house for every family in the short term.
POM. There seems to be a huge level of expectations out there. That things are going to change dramatically and a new government will be under pressure to show that it does in fact make a difference. I suppose my question is, are the resources there so that an average family, living in a township, will be able to say after four or five years, my political freedom has been accompanied by some measurable change in the quality of my life?
BDP. I think if you take a view over four or five years, and early in that cycle of time you assume that South Africa's international situation is normalised, and that you can also have in South Africa a restoration of industrial peace as it were, then over a period of four or five years together with a commitment in government spending shifting toward social economic expenditure, a commitment to address between government various authorities and the private sector the issue of upliftment, access probably to developmental facilities maybe from the World Bank and so on because although we are a donor country as a result of the depreciation of our currency I believe we now are qualifying for some assistance. I believe that over a period of four or five years with the restoration of a higher level of economic growth and all the other things that I mentioned, the average township family will be able to say that the quality of my life has increased markedly.
POM. One of the statements that we run into frequently from spokespeople for the black community is that when we talk about nationalisation, they say they don't understand really the government's opposition to it, especially since when the National Party came to power in 1948 it used either the creation of state industries or nationalisation in a broad sense to uplift the Afrikaner people.
BDP. It's an incorrect statement. It's a totally incorrect statement. It wasn't a policy to develop large industries in South Africa. It simply wasn't. But in the 1930s, ISCOR was begun as an industry to provide for a particular need. At that point in time, there wasn't either the will or the ability perhaps in the private sector or the culture to do that on a private basis. That deals with ISCOR. We've never had a policy of nationalisation. So ISCOR came about as a government corporation. If you look at the post office, if you look at the railways, then what you see is that we've, with our kind of country and water supply, that it really only was government that was capable of doing that. Even broadcasting. I can address you on that one also. We are only now beginning to have metropolitan areas that support individual viable broadcasting stations. So, really, the railways and everything, I think that's a silly argument. Not a silly argument, let me not be derogatory. It's an artificial argument.
POM. Two very quick questions. What is your understanding of the ANC's present position on nationalisation?
BDP. I think the ANC gave out a message to everybody that, look what we need is dramatic action over the next number of years to improve the quality of life of our people. And Mr. Mandela has openly said, also Sunday evening, show me a better way and we will opt for that one. So it is fundamentally a message that we are desperate to develop. And that's why I said in Cape Town, when I addressed the President's Council, what is important in the negotiation process when it comes to the economics of the future and the system is that we define our objectives and then deduce from that the best method in present circumstances to achieve it. And not start from an ideological point of view.
POM. The last question is kind of ideological. To you, what is the difference between, how do you distinguish between, a member of the ANC and a member of the South African Communist Party?
BDP. I haven't had that much contact with them to be able to distinguish.
POM. Do you know any?
BDP. Joe Slovo is the prime example. We have the ridiculous situation in South Africa that the right wing parties say apartheid, total separation, is the answer: the Nationalists only didn't apply apartheid properly. And you have on the other side Joe Slovo saying Communism is the answer: Eastern Europe just didn't manage it properly. So it's a ridiculous situation. And the only way I can distinguish Joe Slovo from the rest of the ANC is that he wears red socks. I don't know. And the fact that he has said, of course, on various occasions that he is a socialist ideologue, whatever that English word is, whereas I seem to perceive, and I qualify this because I haven't had that much exposure, I seem to perceive a much greater flexibility in the minds of the non-Communist ANC people, saying that, along the lines of what I've just mentioned, like Mr. Mandela, that's our objective. Let's find the right way. Let's not decide, let's not opt to make a success of socialism, let's opt to make a success of the improvement of the quality of life of the people of South Africa and let's use the best vehicle towards that end. That's how I perceive them. Whereas Joe Slovo, he'd like to see socialism succeed and he's the arch Communist.
POM. One quick last one. There have been reports lately that in the coming decade, into the twenty-first century, AIDS is going to have a severe impact on the economy. In terms of plans that are made, planning for the future that goes on in your department and the plotting and charting of trends, is this taken into account?
BDP. We're not taking it into account at all. And to my knowledge, nowhere else in government is it taken into account physically. There is a lot of talk about it, the possibilities of devastations that can be brought about, and we saw statistics the other day pertaining to Zimbabwe, but as far as we're concerned it is not a factor that we have taken into account in terms of our planning.
POM. Do you think it's a factor that should be taken into account? Our discussions in Zimbabwe last year with businessmen was when they were first being briefed on this by health people and they were astounded to find out, given the economic planning that was going forward both by government and the private sector, and the businessmen were saying why didn't we know about this, it would have severely altered what we were doing.
BDP. Yes, but you know, already top medical people are talking about the possibility of a natural immunity. So if we should now embark on building into our planning these widely diverging views and we end up with total under-planning, what do we do then? So we'd rather go steady and plan on present trends and hopefully one thing will reduce our growth numbers and that is the whole question of urbanisation. But that's a universal phenomenon, so that we build into our equations. And if we then end up with a little over-planning in terms of an over-provision in two decades time, well, that's a much better side to err than the opposite one. So, there are cynical people, particularly you find them in the right wing fringes, placing total hope and trust in AIDS to solve the numbers problem; it's ridiculous.