INTELLIGENCE MEMORANDUM THE REPUBLIC OF RHODESIA: ECONOMIC STATUS AND PROSPECTS FOR GROWTH

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001600030040-4
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 22
• Document Creation Date: December 22, 2016
• Document Release Date: October 31, 2011
• Sequence Number: 40
• Publication Date: March 1, 1970
• Content Type: IM

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-Seeret
DIRECTORATE OF
INTELLIGENCE
Intelligence Memorandum
The Republic Of Rhodesia:
Economic Status And Prospects For Growth
Sem at
ER IM 70-40
March ].9 70
Copy No. 42
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WARNING
This document contains information affecting the national
defense of the United States, within the meaning of Title
18, sections 93 and 794, of the LIS Code, as amended.
Its transmission or revelation of its contents to or re-
ceipt by an nnauthorived person is prohibited by law.
onovr i -~
IXC(.IITIYP ritOM AUTOMATIC
TIOWN(IIIAUIN(, AN(I
Ur:C 1.A NS119C A,nun
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S ,CRE'r
CENTRAL INTELLIGENCE AGENCY
Directorate of intelligence
March 1970
The Republic Of Rhodesia:
Economic Status And Prospects For Growth
Introduction
The British breakaway colony of Southern Rho-
desia, which had declared its independence of Great
Britain on 11 November 1965 but still maintained
some residual ties to the crown, cut the final bond
on 2 March 1970 and formally became a Republic.
The United Kingdom and the United Nations have
tried to bring down Prime Minister Ian Smith's
white minority government through economic sanc-
tions. The United Nations action taken on 18 March
1970 is the latest in a series of such moves that
began in 1965. This memorandum examines the fail-
ure of four years of sanctions to bring Smith to
terms, the changes that have taken place in the
economy, and the prospects for Rhodesia's economic
growth in the 1970s.
Note: This memorandum was produced solely by CIA.
It was prepared by the Office of Economic Research
and was eoovdinated with the Office of Current In-
teZZigence.
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1923 October Southern Rhodesia becomes a self-governing colony of the United Kingdom.
1953 September Federation of Rhodesia and Nyasaland is inaugurated.
1961 December New constitution promulgated which removes most of the remaining legal controls
held by the United Kingdom.
1963 December Federation of Rhodesia and Nyasaland is dissolved.
1964 November Predominately white electorate in a referendum approves independence.
1965 May Rhodesian Front party sweeps general election.
November Prime Minister Ian Smith issues Unilateral Declaration of Independence and abro-
gates the 1961 constitution.
United Kingdom initiates selective economic and political sanctions making vir-
tually all exports from Rhodesia nominally illegal and prohibiting the sale of
British goods to Rhodesia.
December United Kingdom includes oil embargo as part of selective economic and political
sanctions.
1966 April United Nations Security Council authorizes the United Kingdom to blockade the
Mozambique port of Beira to stop oil supplies from reaching Rhodesia.
December Prime Ministers Smith and Wilson hold unsuccessful talks aboard the H.M.S. Tiger
at Gibraltar.
United Nations Security Council invokes selective mandatory sanctions against
Rhodesia making binding on all United Nations members many of the voluntary
sanctions that had been in effect for more than a year.
1968 May United Nations Security Council invokes comprehensive mandatory sax ;tions
against Rhodesia; all United Nations members are enjoined from trading with
Rhodesia except for trade in a few selected items, primarily medically related.
October Prime Ministers Smith and Wilson hold a second unsuccessful round of talks aboard
the H.M.S. Fearless at Gibraltar.
1969 June Predominately white electorate in a referendum approves the creation of a republic
and a new constitution.
1970 March Rhodesia's republican constitution promulgated and parliamentary elections under
the new constitution set for April.
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Background
1. Rhodesia's declaration of Republic status
in March 1970 formally ended some 80 years of ties
with the British Crown. Rhodesia became a self-
governing colony of the United Kingdom in 1923.
In 1953, it formed a federation with Northern Rho-
desia and Nyasaland. Preparations for independence
by its members brought about the Federation's dis-
solution ten years later, and in 1964, Northern
Rhodesia and Nyasaland became the independent black-
ruled states of Zambia and Malawi. Unable to reach
agreement with the United Kingdom on the status of
Black Africans under a new constitution, Rhodesia
unilaterally declared its independence from Great
Britain in November 1965.
2. The United Kingdom, in retaliation against
Rhodesia's Unilateral Declaration of Independence
(UDI), attempted to force its return to British
rule by economic sanctions (see the chronology).
A sharp reduction in Rhodesia's imports and exports,
London expected, would inflict severe hardship on
the economy and force the white electorate to come
to terms -- essentially to move toward majority
rule, which meant black rule. Sanctions became
nominally more severe and comprehensive when, under
UN aegis in May 1968, they were extended to vir-
1.ually all of Rhodesia's foreign trade and other
economic ties with the outside world. On 18 March
1970, following Rhodesia's formal transition to
Republican status, sanctions were further extended
to include transport and consular relations. The
key targets of the sanction campaign were Rhodesia's
principal export commodities -- tobacco, sugar,
asbestos, copper, chrome ore, and pig iron -- and
a strategic import, oil. However, Salisbury's
success in maintaining traditional markets (except
in the United Kingdom, the United States, and
Canada), in expanding other markets, and in re-
structuring the economy has enabled Rhodesia to
ignore UK/UN political demands.
3. Because they were not universally enforced,
sanctions did not disrupt Rhodesia's economy.
Portugal, which controls strategically located
Mozambique, and South Africa openly refused to
participate (see the map). Both countries con-
tinued their trade with Rhodesia and both facil-
itated Rhodesian trade with other countries by
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i
\1` ~\-Vd. d. Mocub.
SOUTHERN AFRICA
RHODESIA
Inlrrn.tional hound.:ry
Nnllonnl rn nwt,l
Ro,d
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providing false certificates of origin or of des-
tination and by mixing Rhodesian products with
their own.
4. South Africa's economic assistance to Rho-
desia, primarily providing disguised trade channels
and a small amount of credits, has cost Pretoria
very little. The two countries have no special
trade or financial arrangements, nor has South
Africa given preferential treatment to Rhodesian
products. In fact, South Africa may have benefited
economically from UDI and the subsequent sanctions
program by the increased level of entrepot activ-
ities and by the expansion of South African exports
to Zambia and other countries seeking sources of
supply alternative to Rhodesia. Should the need
arise, however, South African authorities probably
would be willing to incur substantial costs to
maintain a white minority government in Rhodesia.
5. Although attempts were made by both the
United Nations and the United Kingdom to enforce
sanctions, most governments outside of the United
Kingdom, the United States, Canada, and Scandinr.,?,ia
merely paid lip service and did little to force
their nationals to comply. The statistics of almost
all major trading countries indicate a sharp drop in
trade with Rhodesia, but many continue to trade in-
directly. The subterfuge provided by South Africa
and Mozambique has made evasions extremely difficult
to prove, and there has been a general refusal to
act against violators without adequate proof. The
wide demand for many of Rhodesia's raw materials
and Salisbury's willingness to cut export prices
and pay import premiums have provided a remunerative
field for foreign traders under the relatively safe
guise of trading with South Africa and Mozambique.
Agricultural Exports
6. Agricultural products, principally tobacco,
sugar, cotton, corn, and meat products, accounted
for approximately 40% of Rhodesia's commodity ex-
ports prior to UDI. Tobacco, which alone accounted
for about one-half of marketed agricultural output
and for about one-third of foreign trade earnings,
and sugar have been the hardest hit by sanctions.
In part this is because of the world surplus of
both commodities. Cotton, corn, and meat products,
however, have found a ready market in South Africa,
and meat has been sold to Portugal.
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7. Tobacco sanctions have been particularly
effective. Rhodesian leaf is identified easily,
the crop was large relative to world tobacco trade,
and markets were concentrated in a few countries,
notably the United Kingdom. Prior to UDI, Rhodesia
was the world's second largest producer of flue-
cured tobacco after the United States and supplied
about one-fourth of the world'market; since UDI,
tobacco exports have declined from more than $135
million in 1965 to about $30 million in 1968. Rec-
ognizing the insurmountable odds faced by the tobacco
industry, Rhodesia has sought to divuarsify into
other crops. Salisbury has set successively smaller
quotas (see Table 1), and roughly one-half of the
growers of flue-cured tobacco have withdrawn from
production entirely. Those remaining probably will
continue to suffer hardships because of sanctions,
despite government subsidy, which has totaled some
$90 million since UDI.
8. Sugar exports, Rhodesia's second most im-
portant export crop, also fell markedly after UDI.
As a result of earlier programs, production had
been rising sharply, and this increase continued
even after sanctions were imposed -- from more than
170,000 short tons in 1965 to about 290,000 tons in
1967. Following sanctions, exports fell well below
production as markets were lost in Briten, Canada,
and Zambia and the Rhodesian governmer.,c was forced
to buy and stockpile sugar to prevent a collapse of
the industry. Exports since have expanded, however,
particularly to Portugal, now the most important
market. With a cutback in output to some 150,000
tons in 1968, stocks are no longer rising and may
be declining.
9. Rhodesia's other major agricultural ex-
ports -- cotton, corn, and meat products -- generally
have fared much better. Cotton production has risen
from an estimated 40 million pounds in crop year
1966 to 170 million pounds in 1969. Approximately
one-half of the crop is now exported, primarily to
South Africa. Corn production similarly has risen
dramatically as farmers have shifted out of tobacco.
The 1969 crop, much of which has been sold to South
Africa, was approximately one million tons, or
roughly four times the 1965 output. Cattle raising
also has increased considerably in recent years,
and foreign sales of beef, primarily to South Africa
and Portugal, are substantially above the pre-UDI
level.
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1966/67 1967/68 1968/69 1969/70 1970/71 a/ 1971/72 2/
Domestic Quotas
for Flue-Cured Tobacco, by Crop Year
Weight
(million
pounds)
Average price
(cents per
pound)
Total earnings
(thousand
Us $)
a. Scheduled.
200 132 132 132
100 100
29 33 33 3 3
66,000 43,560 38,280 43,560 33,000 33,000
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Mineral Exports
10. Chromium probably is Rhodesia's only mineral
product to be affected other than marginally by
sanctions. At UDI, Rhodosin was the world's third
largest chrome ore producer behind the Soviet Union
and South Africa. Production in 1965 was 645,500
tons of mainly high-quality metallurgical-grade ore,
most of which came from mines owned by two US com-
panies: Union Carbide Corporation and Foote Mineral
Company. The United States was the major buyer and
took about 340,000 tons in 1965. Another 200,000
tons were sold to South African companies in 1965,
but a good part of this tonnage apparently was
stockpiled in Mozambique in preparation for UDI.
11. Rhodesia's chrome industry continues to
operate at about 85% of the pre-UDI level. The
Salisbury regime, which has virtually taken over
the industry, has sought to avoid a sharp produc-
tion cutback partly because this wuuld result in
heavy unemployment at the mines. Since practically
all Rhodesia's chrome ore shipments now are moving
in disguised trade channels, exports are difficult
to estimate, but foreign sales are probably about
400,000 tons a year. South Africa probably buys
considerable amounts of ore, and reportedly Rho-
desian chrome is being marketed in Europe and the
Far East. Only the United States and the United
Kingdom among the major consumers have sought con-
sistently to enforce the chrome sanctions. As high-
quality non-Rhodesian ore is in short supply, the
Soviet Union, the principal alternative source,
has raised its price to the United States and
others from a range of $30.50 to $33.00 in 1967,
the last year of legal Rhodesian chrome exports,
to a current range of $55.10 to $59.60. The in-
crease in price, coupled with an increase in ex-
ports, has enabled the Soviet Union to nearly
double its hard currency earnings from chrome ex-
ports to approximately $55 million in 1.969.
Asbestos, the most
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valuable mined product, accounted for about one-
fifth of total mineral output and nearly 10% of
exports in 1965. Rhodesia ranked fourth in world
asbestos production in 1965, with an output of
175,000 tons, and was the leading producer of high-
quality long-staple chrysotile fiber. Production
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in 1966 reportedly was maintained at least at the
1965 level and may even have increased somewhat
since then. While asbestos exports cannot be deter-
mined with any certainty, Rhodesia almost certainly
is selling most of its output.
13. Production and sales of copper and pig iron,
two other important Rhodesian minerals, have been
little affected by sanctions. New channels now
handle Rhodesian copper sales in Europe, a function
formerly performed by British firms, and exports
probably are close to 22,000 tons annually, corn-
parei. with 19,000 tons in 1965. Pig iron exports
probably also are running close to the 1965 level
of 235,000 tons. Most exports are shipped through
South Africa, which in 1967 and 1968 reported pig
iron reexports of roughly 170,000 tons a year. In
sharp contrast, no reexports were recorded during
the three years prior to mandatory sanctions.
Japan almost certainly is the final destination.
Imports
14. The oil embargo, once the most effective
aspect of the sanctions program and the one with
greatest potential impact on the economy, has be-
come increasingly less effective. Formerly, Rho-
desia imported crude oil through the Mozambique
port of Beira, via pipeline, for its refinery at
Umtali. Following UDI, the United Kingdom stopped
most of these shipments, and the pipeline was
closed. In the first year after UDI, Rhodesia
experienced shortages of many petroleum products --
consumption declined 25%, from 3,349 million bar-
rels in 1965 to 2,506 million barrels in 1966 --
but South Africa's supply efforts prevented a
serious economic disruption. In subsequent years,
Rhodesia has obtained its oil products almost en-
tirely through South Africa, and consumption has
increased about 4% a year from the 1966 level.
15. The comprehensive import embargo has been
effective in a few specific cases. For example,
automobile assembly in Salisbury and Umtali was
halted because of difficulties in importing body
assembly kits, and Rhodesia Airways has been unable
to purchase Boeing 737s. Aside from such cases in
which the import's origin is impossible to conceal,
however, enforcement has not been very effective.
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Transport Sanctions
16. The extension of UN mandatory economic sanc-
tions to ground and water transport will have a min-
imal effect on the Rhodesian economy. Rhodesia's
railroads, which are still the backbone of the
transport network, make five international connec-
tions, one each with Zambia, Botswana, and South
Africa (through Botswana) and two with Mozambique
(see the map) . Most of Rhodesia's trade moves
through the latter three channels. As Portugal
will not enforce sanctions, the Mozambique links
are unaffected. The connection with Botswana and
through Botswana with South Africa is Rhodesian-
owned, and the Botswana are unlikely to sever this
link, given their own requirements for transport
access through South Africa. Contingency plans
for building a direct Rhodesian-South African rail
link exist in any case and could be implemented
rapidly if necessary. The Zambian link facilitates
Zambian trade more than Rhodesian trade, and its
severance would impose substantial costs on the
Zambian rather than the Rhodesian economy. Except
for petroleum, the majority of imports and much of
Zambia's copper exports still move by Rhodesia
Railways. The only important non-Rhodesian trans-
port routes now used are the Great North Road to
Tanzania's port of Dar-es-Salaam and the Lobito
rail route through Congo (Kinshasa) and Portuguese
Angola, both of which are operating at capacity.
17. The highway and air systems, which supple-
ment the rail network in international transport,
will similarly be unaffected. The highway system
has six international connections. The three that
are important to Rhodesia's trade are to South
Africa and Mozambique and will be kept open despite
sanctions. The international air transportation
system serving Rhodesia has been under economic
sanctions since 1968. Airlines owned by South
Africa, Portugal, Malawi, and Mozambique continue
to operate effectively, however, linking Rhodesia
with seven countries.
Effects on the Economy
18. Economic activity slowed appreciably in
the first year of sanctions, when real income per
capita dropped almost 10% (see Table 2). Manufac-
turing declined 11% in real terms as traditional
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1965
1966
1967
1968
1969
(Estimated)
Million US $
Agriculture
189
192
204
172
206
Mining and quarrying
67
63
68
67
77
Manufacturing
186
170
189
209
230
Construction
45
44
53
66
71
Other
505
500
526
578
618
Gross domestic product
at factor cost
992
969
1,040
1,092
1,202
Gross domestic product
at factor cost in
1965 prices
992
941
990
1,021
1,093
US $
Per capita gross
domestic product at
factor cost in 1965
prices
221
204
207
207
215
GDP Price Deflator
100
103
105
107
110
sources of intermediate industrial inputs were
denied and sales to Zambia, which in 1965 bought
roughly 20% of Rhodesia's industrial output, fell
sharply. Two major setbacks were the forced closing
of the Umtali refinery and the two automobile as-
sembly plants. Mining and quarrying output in real
terms declined 9% as a result of the initial loss
of foreign markets.
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19. Output elsewhere in the economy initially
was maintained at close to pre-UDI levels despite
sanctions. A government program of sto---kpiling
export commodit.es prevented an even sharper ini-
tial drop in income levels and permitted output in
agriculture, which otherwise would have been ex-
tremely hard hit by the cutback in tobacco and
sugar exports, to be maintained. Increases in
stocks measured as a percentage of gross domestic
product (GDP) rose from less than 1% in 1965 to
6% in 1966.
20. In 1967 and 1968 the economy recovered from
the initial shock of sanctions, and economic activ-
ity increased in real terms from the 1966 low at a
rate roughly comparable with the growth in popula-
tion. Despite tightened sanctions and a severe
drought in 1968, the economy was sufficiently reor-
ganized to maintain real income levels. The income
distribution probably shifted slightly in favor of
Europeans, however, while African per capita income
declined.
21. The early months of 1969 marked a turning
point. National income and exports began to rise,
and mine output increased by perhaps $10 million
as production began at the large new Anglo-American
nickel mines. Manufacturing output, spurred by
increasing import restrictions, grew about 10%,
while agriculture registered about a 20% gain over
the depressed 1968 level. Growth in real income
approximated 7% in 1969, a rate greater than in
any year since the Federation years of the 1950s,
and, for the first time since UDI, there was a
noticeable increase in per capita income. Invest-
ment was probably higher than in any year since the
boom years of the Federation. Employlent exceeded
pre-UDI levels, with a larger percentage of the
European population employed than in 1965. The
percentage of the African population employed de-
clined because population grew faster than employ-
ment opportunities, although in actual numbers more
Africans were employed (see Table 3). Price rises
since UDI were only slightly more than 2% a year,
as shown in the consumer price index for Europeans,
which stood at 110 at the end of 1969 (1965 = 100).
Inflation was controlled, in part, by draining off
excess funds, which arose from import restrictions,
through large-scale domestic borrowing to finance
development projects and programs to counter sanc-
tions.
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Population and Employment
H
Percent of
Paid Population
Population Employment in Paid
Year (Thousand) (Thousand) Employment
1961 221 80
1962 222 80
1963 220 80
1964 209 79
1965 210 80
1966 213 81
1967 215 82
1968 223 85
1969
Percentage
growth
1968/1961 1
38
Population
Paid
Employment
Percent of
Populatioa
in Paid
(Thousand)
(Thousand)
Employment
3,730
628
17
3,850
617
16
3,980
610
15
4,110
627
15
4,250
638
15
4,390
640
15
4,540
639
14
4,690
663
14
4,840
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S1:E,C1.J '.L'
22. Some alteration of the economy's structure
was necessary to lessen import requirements, partic-
ularly for manufactured goods, and to produce mar-
ketable export goods. Imports declined as a per-
centage of GDP from 35% in 1965 to 28% in 1968,
reflecting in part the rapid development of new
import substitution industries. These new industries
largely account for the recovery and expansion in
manufacturing during the last three years and for
the substantial rise in manufacturing income above
the pre-UDI period. Diversification also has been
extended to agriculture and, to a lesser extent,
mining.
23- Most structural changes brought on and
accelerated by sanctions probably would have been
necessary eventually. The economy is now relatively
more self-sufficient than formerly, and exports are
more varied. Some of these changes are likely to
remain, even if more normal trade should be rees-
tablished.
Prospects for the Economy
24. The economy, bolstered by a continuing sub-
stantial rise in manufacturing and mining, is likely
to grow more than 5% annually throe gh 1975, even if
present sanctions continue in force. Mining output
is expected by the government to at least triple by
1975 to more than $200 million annually as new mines
are developed and existing ones expanded. The
Gatooma and I3indura/Shomva nickel complexes, which
began production in mid-1969, will lie major contri-
butors, adding approximately $30 million annually
to mineral output when in full production. Although
mining will replace manufacturing as the fastest
growing sector, continued import controls -- only
10% of import allocations are believed to go for
finished consumer goods -- should provide the
stimulus for an almost 10% annual growth of manu-
facturing through the early 1970s.
25. Although agricultural income probably rose
sharply in 1969 because of improved weather, further
increases during 1970-75 will be moderate. While
Rhodesia is emphasizing crops less vulnerable to
sanctions, particularly cotton, wheat, and corn,
recovery will continue to be retarded by tobacco
sanctions ar.d generally poor alternative agricul-
tural export opportunities. Tobacco stockpiling
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S1.4CAOIJ, 1'
is likely to continue in the early 197013, but at
reduced levels, as tobacco output declines.
26. Rhodesia's number one economic problem in
the 1970a id likely to be a shortage of skilled
manpower. Because most skilled positions tradi-
tionally are filled by whites, economic growth is
tied to the growth rate of the white labor force.
27. In the past the demand for white workers
has been met in part through increased job partici-
pation. From 1961 through 1900, for example, a
period of slow economic growth, white employment
rose 6% while the white population increased only
1% (see Table 3). Since white participation rates
are now quite high, an increase in white employment
will be possible only if the white population is
increased substantially.
28. The Rhodesian government has sought to en-
courage immigration, and even with sanctions, has
reversed the net emmigration of the politically
uncertain nre-UDI period (see Table 4). Immigration,
howevcr, may not be large enough to meet require-
ments. Some relaxation in discriminatory practices
against black labor could well be necessary if a
shortage of skilled labor is not to become a major
economic constraint to economic gi)wth in the 1970s.
European immigration and Emmigration
Year
Immigrants
Immigrants
Net
Migration
1961
a/
6,630
8,600
-1,970
1962
a/
6,060
9,940
-3,880
1963
a/
5,090
14,320
-9,230
1964
7,000
15,410
-8,410
1965
11,130
7,670
3,460
1966
6,420
8,510
-2,090
1967
9,620
6,300
3,320
1968
11,860
5,650
6,210
1969
10,930
5,8-30
5,040
a. E'xoluuivu of miyeation wit;: Zambia and Malawi.
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II;t:Lancc_! of i'a sins i n
29. I;xpot: L!: dec.: .l.i trucl drat: L.i.c;ia..l y durincl t.llu ini-
tial porn-UM puYlUd, I:;_111l.ncl from ;460 mia_.l..iort in
:1.965 (incl.ud.i.nc_1 r(!(!xport:!: altd nt~l. clold naJ.'. n) to
y300 million in 1906 .(nuu Tnl,.i(! 'Vhu dUc.l.incl
con L.i.nuud in 1 96 7 , a l though ill it mode!: t r. ;I L(! , and
aclain in 196f, Who'll hill wu;tLhor concl.i.L.i.on-; ;tdvur'nu].y
affectod no:no expcrr.L crop!;. in .1966 LI-c, nhar.p fal.l
in (xpor.tr; :na:in.ly roilect!t the !,0', reduction in
tobacco na.1.en ;tnd it rc'cluc.cL.i.on in l:uyar coxpc,rtr:.
,
l;xpor. to of manu.l:,rc_-1.urc'(1 (hood!: t.:c, zarnb.i ;t n.l no [u]],
contribuii ny Lo Lbe 1. c.1 i or' .
i~hoc1c'n i an It,i I anc(! (d ]' ty!nc?nt.!; a/
FLi l I i on tit; .;
1 961`166 19 6 7 19613
I:xpc.,r: is .16O
l:nport!t - 3'1 1
t;ervicen (n(.t) --1O
Inventme:tt .i.nc(m(? hi(et)
'l'r.an!:far. (n(!t.) 1
Private capi t,tl (n(et_)
-270 -.1011
--2'11 -17
ILLEGIB
30. Du rinct 1916t, for the fir:.t tir..e sincce U1)1,
exports apparently increased ;ul!.tantially, prob-
ably by more than 20c%. ;nickel from the new nickel
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mine added appreclabl.y to oxl)ortri, but mot;L of tho
increane probably ronulte(I from (lr.owi.n(l tiuccotiri in
circumvent:inq aanctionn for moist exports. F xportn
are likely to Continue to Brow in the .1.970n as min-
oral production increa_lnen and nanct.i.onn become util]_
101311 effocti.ve.
31. The (1overnmo;; t rv!i tri cted import!; after of i
to love In compatible with export earn.i.n(in. Irocau11c
ithodr_ni..a, normally h.u a "-or.y lar(le trade Uur.pl.u!;,
however, imports di(1 not treed to be cut at.; much an
expor.tn, and, except For a f'ew luxury connumer i.tomn3,
mont import reyui r.ementu havv been met. 'VIic doc.l.1.ne
halted after 1966, and by 1908 imporLrr were ap-
proachinq pre-UU1. levc,in. Wi th improved f.orei(in
oxchan(fe hold.ingn and fan ter. economic (IrowLh in
1969, import renLr.icLionu were rel.axr'cl, and import.;
probably incroaned uti ll 1ur.t);r.-. Thr.ou(ih the 1070n
the level of import!, in 1.ikeely to continue to rive
with increanc.lz in income and export!:.
32. ithodenia'n net foreitin paynu nt. for u(~rvirc;;
investment income, and trans: fern. fell f r()m $7`i mil-
lion in 1965 to $40 million in 1966 but has since
been increaninq (fradually. '.1'he sharp ini tial drop
stemmed mainly from a halt in intcront and dividend
paymentr3 on the rou(lhly :100 million in Iiriti .h
investment!; in ithodr;;ia and from a (lecreane in
freight and ire;urance exprndi ture? an. a con!;r(iuence
of reduced trade. As trade expand!; and new fore i(In
investrnmitt; b-!come profitable, net torei(in service
payment3 arc: likely to continue to the i e~ic:~ The
increase probably will be only yrach.lal, however,
unless nanct:1On!i are' reiT1r+Ve'(1 clntl Ii, Le l.t_i L II1~i dlvi-
dend paymentsi t(i the- t_)ni tod Kin(id-)m re;;u;'Ie.
33. The net balance on current ae('+)unt deLe,-
riViiil_cd r+uihntanLiall', durrnoT 1`-C+`i-t'l but be(ran to
improve by 1961 ' 0. 1'I-um a :?4:' million n.urplura in
1965, the balance foil to r(~tl(ih equality in the
first year of indeprndeiice and then to deficits of
$21 million in 11167 and : 77 million in 11168 as ex-
POX-LE, and .t ? ,av!'ent
L~ ....... .. .. .. - _... ~. ~-~~ ..... _~
increased. Serious economic probler,in were avoided
by an unusually laroe.? capital inflow pr.im~arily fro.:
South Africa, a nubritantial portion of which was
diracted to the An(llo-American nickel mine n and
tho Sable fertilizer project. A riot; in exports,
in 1969, reduced or perhaps eliminated the current
account deficit, and aurplunen may be achieved
thanks to rising exports in the 1970s.
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34. The reversal in the downward trend in ex-
ports since March and April 1969 assumes special
importance for the balance of payments. Had exports
continued to decline, Rhodesia could not have main-
tained an import level compatible with economic
growth. The rise in exports was both an impetus
to growth and a source of foreign exchange for im-
ports needed to make this growth possible. If ex-
ports continue to increase through the 1970s, as
seems likely, and the deficit on current account
is ended, Rhodesian national income and imports
probably will rise.
35. The capital inflow declined in the first
year of independence but subsequently increased
substantially. A large net capital inflow, pri-
marily private capital, tock place in 1967, and
there was an even larger inflow in 1968. In both
years these large inflows more than offset the cur-
rent account deficit, resulting in some increase
in foreign exchange resources. Private capital is
attracted to Rhodesia by mining and manufacturing
opportunities, and the inflow is likely to continue
at a high level through the 1970s, although perhaps
at a lower level than in 1968. Foreign exchange
reserves, which probably amounted to some $33 mil-
lion at the end of 1968, consequently should con-
tinue to increase.
36. During Rhodesia's first three year,, of
independence, economic sanctions succeeded in cur-
tailing economic growth and in generating a growing
foreign trade deficit. The Rhodesian population
suffered little economic hardship, however, and,
with South African assistance, the economic author-
ities have been able to restructure the economy.
The downward trend has been reversed, and in 1969
both real income and exports grew substantially
as post-independence investments, particularly in
mining and manufacturing, bore fruit.
37. The trade embargo, although inducing an
initial decline in exports of more than one-third,
did not prevent a substantial rise in exports in
1969. Except for tobacco and sugar, exports of
agriculture, mining, and manufacturing have now
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essentially reached or exceeded pro-UDI levels. The
recently imposed -transport sanctions are expected to
have little jr no adverse effect. Virtually no addi-
tional economic pressure can be placed on Rhodesia
so long as the United Kingdom and others are deter-
mined to avoid measures that would result in con-
frontation with South Africa.
38. The Rhodesian economy is likely to grow at
a substantial rate in the early 1970s as mining,
manufacturing, and tertiary activities continue to
expand and agricultural diversification proceeds
sufficiently to permit some increase in agricultural
income. The structural changes brought on or accel-
erated by sanctions are likely to remain, and they
may provide a stronger base for economic growth than
has existed since the boom days of Federation.
39. Substantial problems remain in the economy,
however, the most important of which stems from
racial discrimination in employment. Discriminatory
labor practices have led to a relative shortage of
white labor and a relative surplus of black labor
since the black labor force is growing rapidly.
The continued acceptance of a dualistic employment
policy may prevent the economy from attaining the
real growth of which it is capable.
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