SOUTH AFRICA: VULNERABILITY TO ECONOMIC SANCTIONS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T01058R000100280001-5
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 17
• Document Creation Date: December 22, 2016
• Document Release Date: January 22, 2010
• Sequence Number: 1
• Publication Date: June 20, 1985
• Content Type: REPORT

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Central Intelligence Agency
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20 June 1985
SOUTH AFRICA: VULNERABILITY TO ECONOMIC SANCTIONS
Summary
In our judgment, the South African economy is reasonably well
prepared to weather even comprehensive economic sanctions for several
years. The country could meet its basic needs in food, clothing,
housing, and medical care for an indefinite period, and continue to
supply many of the perquisites of high white living standards. With
some exceptions, stockpiles, spare capacity in existing industries,
and flexibility in transferring labor and capital would see the
economy through three or four years. We believe that the country has
adequate strategic oil reserves to last at least 6 years, assuming
that moderate conservation measures are implemented and a fourth
coal-to-oil facility is built. Pretoria's experience and expertise
in circumventing embargoes probably would allow it to stretch
stockpiles of oil and many other key imports even further.
Over the long haul, widespread bans on foreign loans and
investment in South Africa probably would undermine Pretoria's efforts
to diversify exports and achieve the 5 to 6 percent real annual output
growth needed to avert rising black unemployment rates, which we
believe already exceed 25 percent. An effective embargo of machinery
and equipment sales to South Africa probably would cut growth severely
since South Africa's small domestic market does not generate much
local production of capital goods. 25X1
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This paper was prepared byl (Southern African Branch, Office of
African and Latin American Analysis. Comments and queries may be directed
to the Chief, Southern Africa Branch,
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State Dept. review completed
ALA M 85-10066
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We believe that Pretoria would react to widespread economic
sanctions by blocking financial outflows to conserve foreign exchange
and by reducing economic ties to neighboring black states, causing
those countries considerable economic turmoil. We do not expect that
Pretoria would prohibit sales of strategic minerals to the West,
except under extreme duress. Although we believe that the threat of
economic sanctions has provided President Botha with an unspoken
argument for racial reform, imposition of effective sanctions
probably would slow many aspects of racial reform in South Africa by
reducing the funds available for nonwhite education, housing and
social spending.
Introduction
Pretoria has long faced economic sanctions intended to influence its
internal racial policies and end its control of Namibia. In 1962, for
example, the UN General Assembly accepted a resolution recommending
extensive economic sanctions. In 1973, the Arab members of OPEC imposed an
oil embargo against South Africa that remains officially in force, and a
mandatory arms embargo resolution was passed by the UN_General Assembly in
1977.* More recently, a new wave of racial unrest in South Africa that
began last September, an apparent stalemate in resolving the Namibian
independence issue, and the recent US imposition of economic sanctions
against Nicaragua have triggered renewed calls for sanctions against South
Africa. Sanction proposals have ranged from bans on landing rights for
South African aircraft to the total cutoff of all foreign economic
Bracing for Sanctions
In the past, Pretoria has responded to the threat of economic sanctions
by pursuing import substitution, building strategic stockpiles,
circumventing the limited sanctions imposed on imports of oil and military
supplies, and avoiding heavy foreign borrowing.
-- In our judgment, Pretoria's program of import substitution has been
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geared to diversify South African industry, promote economic
development, and create a largely self-contained system that could
weather any import cutoff for as long as 3 or 4 years. Pretoria
has employed a wide range of methods, including financing,
constructing, and operating key industries, setting local content
requirements, and applying tariff, quota, and licensing measures.
We estimate from South African data that between 1960 and 1979
Pretoria spent some $2 billion building and maintaining nonmilitary
strategic stockpiles. Oil reserves--funded partly through fuel
sales taxes--accounted for 80 to 90 percent of the cost, according
to US Embassy reports. We do not have data on the size,
composition, and quality of stockpiles of specific nonoil items.
government stocks total
about one year's consumption of spare parts and other items
considered critical to industry and commerce, according to US
Embassy sources.
South Africa has gained considerable expertise circumventing those
limited sanctions that have already been applied, especially on 25X1
imports of oil and arms. By paying premium prices, Pretoria has
clandestinely obtained sufficient oil imports to meet normal needs
and build its massive strategic reserves.
industrializing nations.
-- In our judgment, Pretoria's "pay as you go" conservative debt
management policies are motivated, in large part, by a desire to
avoid accumulating heavy obligations that might offer foreign
critics of its policies potential leverage. During times of
depressed export earnings, Pretoria has generally clamped down on
economic growth to slow consumer spending and imports, thereby
protecting gold reserves and limiting foreign borrowing. As a
result, we estimate that South Africa's ratio of debt service to
export earnings is about 15 percent--low in comparison with most
Remaining Economic Vulnerabilities
Despite years of such policies to promote economic independence, we
believe that South Africa is far from invulnerable to a total cutoff of
foreign economic relations. In our judgment, reduced access to
international financial markets and trade boycotts or selective embargoes on
sales of capital equipment, machinery, oil, or other goods would eventually
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slow economic growth. Nonetheless, the impact of any sanctions obviously
would depend on which countries apply the measures and the effectiveness
with which they are enforced.
Availability of Foreign Exchange
Export earnings play an important role in the South African economy,
providing funds to buy vital inputs, especially oil, machinery and equipment
(see table 1). Moreover, compared to most industrializing countries, South
Africa has been fairly successful in financing its economic development from
export revenues rather than relying heavily upon foreign investment and
loans. Indeed, direct foreign investment into South Africa has accumulated
at an average rate of only $1 billion annually since 1977--the equivalent of
some 9 percent of gross domestic investment over the period, according to
South African Government data. Based on our review of this data, we believe
that periodic episodes of heavier foreign investment and borrowing have
served principally either to fund major development projects or to cushion
the impact of reduced export earnings at times when the gold price has
declined unexpectedly (see table 2)*:
-- In the mid-1970s, state-run corporations undertook major
infrastructural projects that required foreign funds, including
port development and improvements, expansion of iron and steel
plants, establishment of television service, and more rapid
electrification. ~..
-- By contrast, 1981 and 1982 were years of little new investment, but
South African banks and the central government borrowed abroad
to finance current account deficits totaling $7.5 billion. Gold
prices had fallen from an average of $608 per ounce in 1980 to $460
in 1981 and $376 in 1982, according to IMF data. 25X1
We believe that the economic downturn that began last August--combined
with current account surpluses--will reduce the need for new foreign
investment and borrowing until South Africa's next economic upswing begins.
the primary investment opportunities in
South rica under current economic conditions are in improving the
efficiency and productivity of existing plant and equipment rather than
expanding capacity. In our judgment, the South African economy has ample
financial resources to make these investments without new infusions of
foreign capital. Moreover, the dominant source of direct foreign investment
in recent years has been reinvested profits of foreign firms already
according to government statistics.
* Gold accounted for 48 percent of South African export earnings in 1984,
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Financing Deficits. In our view, widespread bans on new commercial
loans to South Africa probably would have little immediate impact other than
to reinforce already restrictive economic policies, including near record
high interest rates and an austere government budget. We believe, based on
its past practices, that Pretoria would continue to clamp down hard on
economic growth to keep imports at depressed levels and accumulate foreign
reserves that could pay for future imports.
South Africa's relatively strong credit rating among international banks
makes it unlikely that bans on new commercial loans by one or two creditor
nations would seriously disrupt South Africa's ability to finance future
current account deficits.
South Africa may have become slightly more vulnerable to
limited bans on commercial loans; most of its debt now has a short maturity,
and Pretoria has fewer gold and foreign currency reserves to pay off this
debt quickly if need be:
-- The maturity of South Africa's foreign commercial debt has shifted
from 38-percent short term debt in 1979 to 66 percent in 1984,
according to Bank for International Settlements data. This trend
means that a larger fraction of the debt must be paid off or
reborrowed each year.
Pretoria has tended to
hold fewer foreign currency and gold reserves, and to rely more on
borrowing to finance trade. As a result, foreign exchange and gold
reserves are now sufficient to pay for less than 2 months of
imports, compared with 5 months in 1980.
Nonetheless, we believe
loans by US banks would have little impact other than to shift South African
borrowing to West European banks.*
South African bankers already are moving away from US banks
access to US credit markets coincided with an international loss in
confidence in the South African economy--triggered, for example, by a sharp
fall in gold prices--would we expect to see a US ban on loans to South
to West German banks as a result of the current disinvestment movement in
the United States. Only in the unlikely event that a sudden withdrawal of
* According to US Federal Reserve Bank data, South Africa owed $4.7 billion
to US banks at the end of 1984, which represented about one-fifth of total
South African debt. Moreover, we believe that more than one-third of South
Africa's short-term debt is owed to US banks, based on recent trends in
South African borrowing as reported in press accounts.
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Africa seriously hurt the country's ability to finance current account
deficits.
Another economic sanction against South Africa that has been proposed is
restrictions on IMF borrowing by Pretoria. According to US Embassy
officials, South African Reserve Bank Governor Gerhard de Kock already has
stated privately that Pretoria would avoid requesting funds from the IMF
because South Africa can obtain all of the funds that it needs from Swiss
and West German banks, and the lower cost of an IMF loan is not worth the
"political hassles" involved. In the absence of a widespread and concurrent
ban on commercial borrowing abroad, therefore, we believe that restrictions
on IMF borrowing would have little practical effect.
Investment in Export Diversification. Although we believe that a
widespread ban on foreign investment would not significantly affect the
South African economy in the short term, over the long haul such a ban
probably would hurt prospects for diversifying exports and increasing black
employment. According to South African Government economists, the country
needs 5 to 6 percent real growth to generate enough new jobs to avert
increasing black unemployment. We believe, however, based on a detailed
study of the country's long-term economic prospects, that the average growth
rate between 1985 and 1990 is unlikely to exceed 3 percent unless
significant new exports are found.* Moreover, based on our earlier study,
we believe that the prospects for expanding South Africa's traditional
mining and agricultural exports are slim. Rapid expansion of nontraditional
exports, especially finished consumer goods, probably would require
substantial new foreign investment in order to obtain the needed funds,
technical expertise, and ready markets.
probably would temporarily disrupt normal financial transactions in the
country; we believe that stock prices on the Johannesburg Stock Exchange
would fall--but domestic interest rates rise--as South African companies
Withdrawal of Foreign Companies. We believe that forcing Western
companies to sell existing operations in South Africa would not add
substantially to the long-term effects of a ban on new investment. The
divestment of these subsidiaries almost certainly would hurt current owners
more than the South African economy, which would still retain the productive
facilities.** On the other hand, a massive sell-off of foreign investments
scrambled to purchase foreign interests at bargain prices.
** Cumulative direct foreign investment amounted to $17 billion at the end
of 1983, according to South African Government data.
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Trade Boycotts. Boycotts of many of South Africa's exports would be
difficult to enforce, in our judgment. In particular, gold, diamonds, and
platinum sales would be hard to trace, given the undifferentiated character
of these goods and their high value-to-weight ratio. Even if Western
nations were willing to block South African harbors to prevent the export of
such goods, they could easily be flown to overseas markets.
Bans on sales of Krugerrand gold coins and other goods that could easily
be traced to South Africa would tend to lower export earnings slightly and
thus slow economic recovery.
-- Widespread bans on sales of Krugerrands almost certainly would
lower the world price of gold, although the magnitude of this
effect would be difficult to predict accurately. Sales of
Krugerrands to the United States, for example, accounted for about
8 percent of total South African gold exports in 1984, according to
press reports. If these sales were banned, we doubt that they
would be replaced by an equivalent increase in purchases of other
gold coins or bullion. Even a drop of only $10 per ounce in the
gold price would cost South Africa $220 million per year
-- Loss of those profits currently earned by selling gold as
Krugerrands rather than bullion would be minimal. In the case of a
ban on sales to the US, we estimate that Pretoria would lose only
about $5 million to $10 million per year in premiums above minting
Access to New Technologies and Skilled Personnel
Although direct foreign investment has been a relatively unimportant
source of funds in recent years, foreign companies do facilitate the
transfer of technology and skilled personnel to South Africa that would
otherwise be available only on a more costly commercial basis. Except for
underground mining, there are few machines, techniques or advanced
developments that are uniquely South African. South African research
efforts have focused on improving and adapting foreign processes to local
conditions rather than on pure scientific research. Even in coal
liquefaction, where South Africa is an acknowledged world leader, much of
the technology that was used is foreign, coming largely from West European
contractors. With the exception of uranium enrichment, no major
technological breakthroughs can be ascribed to South African research and
development, according to an academic study. South Africa devotes less than
1 percent of its GNP to research and development, compared to 2.5 percent in
the West, according to press reports.
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South Africa depends heavily on foreign management and training to run
its economy. The country has good higher-level technical training for
whites, but, in proportion to its entire population, the educational system
does not produce as many graduates in scientific, managerial and technical
fields as most Western countries, according to an academic study. The study
notes that major breakdowns of machinery often must be repaired by foreign
technicians. Moreover, contracts with foreign firms for technologically
advanced plant and equipment often include requirements for training of
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Despite these shortcomings, South Africa's limited research and
development base and small skilled labor pool are not particularly large
sources of vulnerability to bans on direct foreign investment, in our view.
Most technologies can be purchased commercially, and skilled labor can be
hired abroad as needed. According to US Embassy reporting, Japan has long
banned direct foreign investment in South Africa, and yet South
African-built models of Japanese cars, for example, increasingly dominate
the domestic automobile market; the companies making these cars are South
African-owned, and purchase technology and parts on a licensing basis.
Other options for acquiring foreign technologies include franchise and
contractural arrangements.
Facing Trade Embargoes
Capital Goods. We believe that if effective sanctions were imposed on
South African imports of capital equipment, economic growth would eventually
cease. Despite some 25 years of high-priority attention and substantial
progress in selected industries, in our view, South Africa's import
substitution drive has not freed the economy from heavy dependence on
foreign capital equipment and machinery. Indeed, South Africa imports
almost all of its capital equipment--with domestic industry essentially
providing only the building in which it is housed, according to an academic
study. Although facilities to produce a large variety of capital goods
could be constructed and put into operation over a period of three or four
years, there would be a sharp reduction in quantity and quality of products,
and a considerable increase in production costs. The Rhodesian experience
with sanctions suggests that although this sort of import substitution may
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South Africa's failure to substitute for imports of capital equipment
reflects the constraints imposed by a small domestic market and limited
technological innovation, in our view. Because of this small market, South
African companies lack the scale of operation enjoyed by high-volume foreign
producers, forcing increased unit costs that must be offset by government
subsidies or passed on as higher prices. In this situation, investors are
reluctant to sink money into expansion.
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I I
Based on an analysis of South African technological capabilities and
existing plant and equipment, we believe that computers and other
sophisticated electronic devices would prove difficult to replace in the
event of a widespread and effective embargo on their sale to South Africa.
Considerable progress has been made in import substitution in the
electronics field, however, and South Africa's vulnerability in this area
appears to us to be rapidly declining. Moreover, most of the vital
components not produced in South Africa are small enough to be carried in by
suitcase, which would make an effective embargo difficult, in our judgment.
Liquid Fuels. South African officials
believe that their oil reserves are adequate to cover a 5 to 7 year embargo.
We believe this to be true.
facility.
reserve of more than 230 million barrels of crude oil, which we believe
would last more than three years under normal use and at least 6 years with
moderate conservation measures and the construction of another coal-to-oil
we estimate that South Africa has accumulated a strategic oil
Pretoria has devoted considerable attention to insulating itself from
the impact of cutoffs in its oil imports. Although oil accounts for only
about 20 percent of total energy needs, liquid fuels are vital for the South
African transportation, agriculture, and petrochemicals industries, and we
estimate that South Africa must import some 60 percent of its liquid fuel
requirements. In addition to stockpiling efforts, the government has
accelerated a drive toward energy self-sufficiency. Pretoria has reduced
the growth in oil consumption through conservation, and boosted domestic
energy production by pioneering the manufacture of oil from coal, building a
nuclear power plant, and exploiting hydroelectric power. The drive for
self-sufficiency also has included exploration for offshore oilfields and
research and development of nonconventional energy sources, but these
efforts have yet to produce commercially-viable amounts of energy. Although
large off-shore deposits of natural gas have been discovered near Mossel Bay
and off the coast of Namibia, prospects for significant oil finds appear
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The best known example of South African energy import substitution
probably is its three synthetic crude oil facilities, which use domestic
coal reserves as feedstock to produce about 40 percent of South Africa's
liquid fuel needs. The first coal-to-oil plant began operation in 1955, and
has been expanded over the years to a capacity of about 14,000 barrels per
day of gasoline, diesel fuel and heavy oil. The second and third plants
started operation in 1980 and 1982, respectively, and each has a capacity of
about 45,000 barrels per day of gasoline, diesel fuel, kerosene, liquefied
petroleum gas, and several petrochemical products, according to an academic
study. The government is considering funding a fourth coal-to-oil facility,
but, pending further research,
We believe that a fourth plant could be built in as little
as two years, if needed, by using the same design as the second and third
facilities, although without foreign participation construction time might
be longer. Moreover, two private South African companies are considering
building coal-to-oil facilities, according to US Embassy reports.
Despite adequate overall liquid fuel, South Africa could face problems
achieving the right product mix because the current coal-to-oil process
produces insufficient diesel fuel to meet South African needs, according to
press reports. Moreover, the diesel fuels produced from coal have caused
operating problems in some engines, We
believe that Pretoria has placed a high priority on increasing the
production of diesel fuel. South Africa has stated publicly that it may
build a facility at Mossel Bay near Cape Town to convert off-shore natural
gas deposits to diesel fuel. If the plant is approved this year, it may be
operating by 1990, In our judgment, the
facility probably could be built without foreign participation, but at a
higher cost.
Other Key Imports. Aside from capital goods and oil, two other
categories of South African imports are somewhat vulnerable to sanctions:
vehicles and transport equipment, and chemicals and chemical products.
Virtually all other imports could be dispensed with in the event of
sanctions without causing undue hardships, according to an academic study.
South Africa's vehicle and transport equipment industry appears fairly
well positioned to weather an embargo, though at a substantial cost. Local
content rules--although requiring 60 percent local content by weight--do not
specify which parts of the vehicle are to be manufactured locally. As a
result of different approaches taken by different manufacturers, virtually
all of the components needed to produce automobiles, trucks and
light-to-medium weight tractors are produced somewhere in South Africa,.
according to an academic study. Local production of aircraft engines and
heavy weight tractors appears more problematic, according to the same study.
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Despite advances towards self-sufficiency in the chemical and chemical
products industry, many sophisticated catalysts and other compounds are used
in insufficient quantities to justify local production, according to
academic studies. We believe, however, that the South African Government
probably has made provision for stockpiles of these key chemicals.
Elsewhere in the industry, soda ash and some agricultural chemicals are
important products not produced domestically. Soda ash is used in the
manufacture of glass, in vanadium extraction, and in the production of
detergents. According to press reports, South Africa has a sizable soda ash
stockpile, and is planning to purchase its future requirements from
Ability to Retaliate
Pretoria potentially could retaliate for Western economic sanctions by
damaging the economies of neighboring black states, suspending the
remittances of foreign profits and dividends, reintroducing foreign exchange
controls, or cutting mineral sales to the West.
Holding Southern Africa Hostage
South African officials have been quick to point out that effective
economic sanctions against South Africa inevitably would hurt neighboring
states because of their close economic ties with South Africa.* Moreover,
Pretoria has threatened publicly to retaliate for sanctions by reducing rail
shipments to neighboring countries and employment of foreign workers. We
believe that these threats are credible, and that Pretoria probably would
retaliate for effective sanctions by imposing some costs on neighboring
Transport Linkages. In our view, transport linkages are South Africa's
greatest source of economic influence over its neighbors. Six of the
region's 10 countries are landlocked and therefore dependent on the regional
rail system to reach overseas markets. South Africa has 75 percent of the
region's rail network and its most efficient ports,
wring the past few years, South Africa's transport system has handled a
large proportion of foreign trade for Malawi, Zambia, Zaire and Zimbabwe
because of the impact of insurgency and poor maintenance on Mozambican and
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Angolan railways, and the operating problems of the Tanzania-Zambia railway.
Botswana, Lesotho and Swaziland consistently have depended on South Africa's
railways and roads for the bulk of their external trade. For its part,
South Africa generates only some $100 million from its regional rail and
port services, and would not be substantially affected by selective,
self-imposed embargoes.
If Pretoria chose to retaliate within the region for Western economic
sanctions through, for example, an embargo of rail shipments from South
Africa, we believe that the greatest impact would be on neighbors' oil
supplies. Few alternatives exist. The Beira-Mutare pipeline supplying
finished petroleum products to Zimbabwe traverses an area of heavy guerrilla
activity in Mozambique, and has been sabotaged repeatedly. We estimate that
the refinery at Ndola in Zambia's copper belt could produce petroleum
products for much of the region, but without access to crude oil shipments
through South Africa, feedstock would all have to be piped in at a high cost
from the Tanzanian port of Dar es Salaam. Even if the Benguela railway
through Angola were operable, Angolan crude is too heavy for use in the
Ndola refinery, according to press reports. Moreover, no matter what
arrangements were made, Pretoria could forestall shipments to Lesotho
because of the need to cross South African territory.
Zambia and Zaire also would suffer economically from a South African
rail embargo because they would be unable to maintain their current levels
of mineral exports without the use of South African rail facilities.
Zaire's combined rail-river system from Shaba to Matadi is already used to
capacity, given low levels on rivers, and the Tanzania-Zambia railway has
proved notoriously unreliable, according to press reports. Significant loss
of mineral exports would cause serious hardships for these
foreign-currency-strapped economies.
Employment. The presence of a substantial number of migrant workers
from neighboring countries in South Africa gives Pretoria another
possibility for retaliation. During 1984, official data show that the
195,000 foreign black workers employed in South African gold and coal mines
remitted over $200 million to their countries of origin through savings
programs run by the mining industry. In 1983, remittances by all 360,000
foreign workers legally employed in South Africa totaled almost $600
million, up from $400 million in 1980, according to an academic study. Most
migrant workers, if forced from South Africa, would have little choice but
to return to subsistence agriculture in their home countries. From
Pretoria's perspective, high unemployment throughout southern Africa would
by and large prevent any serious labor shortages if it sends back migrant
workers from any single neighboring country, although the loss of
semiskilled black miners from Lesotho probably would cause some initial.
hardships for South African mines.
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Blocking Capital Outflows
We believe that Pretoria probably would respond to widespread economic
sanctions by imposing restrictions on capital outflows. South Africa has
the potential to retaliate for sanctions and conserve foreign currency by
blocking profit and dividend remittances, freezing repayments of principal
and interest on foreign debt, or reintroducing foreign exchange controls
that would penalize companies disposing of assets held in South Africa by
using a disadvantageous exchange rate. The impact of such actions on any
single country would be quite modest, with the exception of the United
Kingdom, which would absorb the greatest financial loss relative to its GDP.
Some 10 percent of British foreign investment is in South Africa, according
to press reports. The impact clearly would be even more severe on
individual companies and banks.
Mineral Sales
Exports of strategic minerals are important for South African economic
growth, and we believe that Pretoria would resort to the minerals weapon
only under extreme provocation. Moreover, several South African academics
have noted that an embargo of South African mineral exports would prompt
Western countries to seek substitute materials, and thus might lower
long-run demand for the minerals. Nonetheless, South Africa is a major
force in world mineral markets and could hurt Western economies by
withholding its mineral wealth:
-- It accounts for more than 90 percent of non-Communist production of
platinum group metals, about 60 percent of vanadium, one-half of
chromium, and one-fourth of manganese, according to the US Bureau
of Mines. Chromium, manganese and vanadium are important to steel
production--particularly specialty steels for aircraft, missile,
and defense-related industries--and the space program.
The platinum-group metals are used in auto emission control systems
and chemical, petrochemical and electrical industries.
-- South Africa is the world's third largest producer of uranium.
-- South African gold sales dominate the supply of the international
gold market; output is more than double that of the USSR, the
second-ranking producer.
A cutoff for several years of South African supplies almost certainly would
cause shortages on world markets, push mineral prices up sharply, and force
the West to increase its mineral imports from the Soviet Union.
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Implications for Racial Reform
The West, including the United States, has limited but important
influence in Pretoria. Recently, for example, we believe that the Botha
government timed the announcement of several reforms--including the repeal
of the ban on interracial marriages and relations--purposely to coincide
with a major speech on South Africa by the US Secretary of State. On the
other hand, while the timing of the Botha reform program may be bent to win
US and other Western support, we believe that the content of the reform
program is almost wholly tailored by Pretoria's own political and economic
priorities. Moreover, the continued support of the majority of white South
Africans for President Botha's policies is conditioned, in our view, upon
the perception that he has control over the process of reform. We believe
that the threat of economic sanctions has provided Botha with an unspoken
argument for racial reform, but that he feels that he must not seen by white
South Africa to be yielding to either internal or external pressures to
speed the reform process.
We believe that sanctions that slow economic growth in South Africa will
also tend to slow the implementation of those reforms that matter most to
urban blacks, including higher wages, and better education, housing and
social services. Following through with reforms planned for blacks and
other nonwhites, will require substantial government expenditures. For
example, according to data reported in the press, parity in education for
all ethnic groups in South Africa would increase recurrent annual
expenditures on education by some $4 billion per year, about 16 percent of
total government expenditures. We believe that the fiscally-conservative
South African Government is unlikely to maintain the same pace of reform
with lower growth rates and reduced government revenues, especially if it
means slashing white living standards. Under these conditions, the lives of
South African blacks are unlikely to improve enough to avoid periodic
flareups of black unrest during the remainder of this decade.
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Table 1. South African Imports and Exports by Commodity Groups, 1984
Commodity Group
Exports
Percent of Imports
Agricultural Products
5
5
Crude oil (net import)--a
0
15
Gold
48
0
Base metals and metal products
9
5
Gems and jewelry
10
1
Other Mineral Products
12
3
Chemicals and Chemical Products
3
8
Pulp, Paper and Paperboard
2
3
Textiles, Footwear, Millinery
3
5
Machinery
1
29
Vehicles and transport equipment
1
12
Opticals and other instruments
0
4
Miscellaneous--b
6
10
100
100
a. Estimated.
b. Residual, probably most of which is arms sales and purchases.
Sources: South African Government data, except for oil and miscellaneous
imports; data are for January to November.
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Table 2. South African Balance of Payments, 1980-1985
Billion US $
1980
1981
1982
1983
1984
1985--a
Current Account Balance
3.6
-4.6
-3.0
0.2
-0.7
1.0
Merchandise trade balance
-5.6
-9.8
-7.3
-5.1
-5.7
-4.0
Merchandise exports,
f.o.b.
12.6
11.0
9.4
9.3
9.1
10.0
Merchandise imports,
f.o.b.
18.2
20.8
16.6
14.4
14.8
14.0
Net gold output
13.0
9.6
8.0
8.9
- 8.1
8.0
Net services and transfers
-3.8
-4.3
-3.7
-3.6
--3.1
-3.0
Total reserves, yearend--b
7.7
4.3
4.0
4.1
3.1
Long-term capital movements
-0.6
0.6
2.2
-0.4
1.9
Change in liabilities related
to reserves--c
0.0
2.1
0.3
1.0
0.4
Other short-term capital
movements--d
-2.3
0.7
0.3
0.1
-2.1
Gold valuation adjustments and
SDR allocations
1.3
-0.6
0.1
-0.4
0.9
Changes in gross gold and
other foreign reserves
1.9
-1.8
0.0
0.6
0.2
a. Estimated assuming average gold price of $345 per ounce.
b. Total reserves are not the sum of changes in reserves and the previous
year's total reserves because of year-to-year changes in exchange rates.
c. Liabilities related to reserves are short-term foreign liabilities of the
South African Reserve Bank and short-term foreign obligations of commercial
banks.
d. Includes errors and omissions and supplier credits.
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 Sanitized Copy Approved for Release 2010/01/22 : CIA-RDP85T01058R000100280001-5
Sanitized Copy Approved for Release 2010/01/22 : CIA-RDP85T01058R000100280001-5