African Studies Seminar series. Paper presented 22 October, 1979. Not to be quoted without the Author's permissio

Dagut, M.

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UNIVERSITY OF THE WITWATERSRANDA F R I C A N S T U D I E S I N S T I T U T EAfrican Studies Seminar Paperto be presented at Seminar in RW 319 at4.00pm on Monday 22nd October 1979Title: The South African Economy into the Eighties.by: M. DagutNo.: 087This paper may not be quoted withoutthe permission of the authorOUTLINE OF PAPER TO AFRICAN STUDIES SEMINARMerton Dagut22 October 1979An interplay of the themes is likely to shape our economic environment over the mediumterm. By looking at the present, or more accurately, at the past, one can lock at thefuture.Two premises:(i) Human behaviour in aggregate changes at fastest usually only slowly.(ii) (Other than during revolutions) institutions (= arrangements for doing things) changeeven more slowly.It should be possible to guage hov/ economic developments 'carry themselves'; thuswhen which of rham will come into collision/conflict/crisls with others; and further,(if one has a feel for their relative strengths), which is likely to accommodate to which.This entails seeking to distinguish between 'cyclical' (= reversible in direction or momem-tum) and 'secular' (= long acting)forces.The sub environment in which one operates must influence both one's response to andones perception of the whole environment.Business bureaucrats arc caught continually in a crush of events. It follows that mostof the economic decisions in South Africa, and so, by the law of large numbers, mostof the important economic decisions in South Africa, are taken quickly. One needs aknowledge of what separates these into efficient (= good) decisions and inefficient (=bad decisions).A conclusion:As long as people remain reasonably competent at their work, and as long astheir implicit models continue to approximate reality, the overall system islikely to continue functioning.2 /- 2 -Further,If the models and reality come more closely to approximate each other (and ifpeople remain reasonably competent at their work) other things being equalthe economic system will become more efficient. There is every indicationthat this is likely in South Africa.The business bureaucrat's implicit, sometimes subconscious model: South Africa'seconomic system is demand pulled and capacity and institutional arrangement con-strained. The market leads, the business units respond.But the economy is a "blend" of market systems and of interacting enclaves. It ischaracterised by "imperfections" which can be seen as "challenges which offer oppor-tunities" .Diagramme 1Diagramme 2The price mechanism is the institution which holds the model together. The nub ofthe model restated: the markets lead, the business units respond. All economicsystems depend upon the tug of ultimate demand: the more efficient (which does notequate with the more moral) nurture that tug and respond to it; the less efficient donot. The problem lies in interpreting what is "discovered" in price movement signals.Business bureaucrats can handle all but 'political uncertainty1. They profit by "economicuncertainty".To test the first two conclusions it is necessary to examine whether South Africa isat present and in the 1980's is likely to remain, a market economy (to help one deter-mine the likelihood of the model and reality continuing to approximate each other).In this context what should be regarded as 'the South African economy1. While beinga were of the major differences between the 'formal' and the 'informal' economies ofthe area to be helpful the answer has to be geo-economic and must allow for the factthat other institutions impinge on and are impinged upon by, the economy. In part3 /D1AGRAMME 1 BASIC ELEMENTS AFFECTING INDUSTRY PROFITABILITYSOCIALECOLOGICALINFRA-STRUCTUREPOLITICALDEMOGRAPHiCECONOMICLEGALTECHNICALDIAGRAMME2SUPPLIERS OF . . . .NEW ENTRANTSBARRIERSSUPPLIERS OF . . . .SUPPLIERS OF . . . .GROWTHPROFITABILITYLIFE CYCLE POSITIONCOMPETITORS (DETAILS)BUYER - INDUSTRIALBUYER-WHOLESALE C O N -SUMERiBUYER- RETAIL- 3 -the answer has to be based/ therefore, on political structure facts.Slide 1 Ciskei to ZaireSlide 2 Constitutional and diplomatic frame. Economic and technical frameSlide 3 Underlying economic facts and patternsSlide A The political geographySlide 5 The transport networkSlide 6 Ten facts re economic interdependence.(Except in the war scenario) there can' be no doubt that the subregions wil l be co-operating with each other through the/1980's.Slide 7 Co-operation modes being offered to those who are exercisingtheir minds because they are de facto, or believe they are, incontrol of events.The. large themes will make us share our fate, whether jointly or severally.The energy question: The average price of OPEC crude, if next year left unchangedfrom present levels, in Calendar 1980 will be about 60 per cent higher than last year.OPEC's daily gross revenue of about >^55Q million is some £200 million (a day.1) morethan in 1978.Table 1See over- 4Table 1OPEC BALANCE OF PAYMENTS 1979 TO 1985Petroleum exports(incl. products)Balance on current accountQuantUy Value Revenue Expendi-tureBalanceCumulativebalance(since 1970)1979198019811982198319341985bn1 .1 .1 .1 .1 .1 .1 .AssumptionsOil salesOil priceOther current. t .35353535353535revenueCurrent expenditureUSS bn .1772172352542742963191205248270293318345374constant+ 8 % p.a.(commencing+ 12 % p.a.US5 bn.165206237267297328361with prices in+ 25 % / + U %(declining growth rates)+ 40+ 42+ 33+ 26+ 21+ 17+ 13July 1979)210252285311332349362There is, and is likely to remain, a major "recycling problem". Further, the ability ofthe world's private commercial banks to do the job is smaller than in the 1974/5 period.Table 11DEVELOPING COUNTRIES' EXTERNAL INDEBTEDNESSExternalindebtednessMonetary Current foreignreserves exchange r e -venueEnd of period (of fol lowing y r . )Estimates in USS b n .197019711972197319741975197C197719788292103121152193233270320192335516052637811066811171531551852172613105/SectionVII!XVIIIFurther, there is likely to be a "deterioration in the terms of trade" facing the prim-ary commodity exporters.The implications for South Africa are complex.Table 111SOUTH AFRICA'S EXPORT MIXSECTIONS OF THE CCC NOMENCLATUREChopleis_1' 11IIIIVVV IVII1 to 56 to 141516 to 2425 to 2728 to 383? to 4041 to 43IXXX!XIIXIIIXIVXVXVIXVII44 to 4647 to 4?50 to 6364 to 6768 to 7071 to 7273 to 8334 to 8586 to 8990 to 92XXXXIXXII94 to 9899DescriptionLive ortimals; onlmal productsVegetable productsAniir.al and vegetable fats and oil* and their cleovoge products;prepared edible foi l ; animal and vegetable waxes.Prepared foodstuffs; beverages, spirits and vinegar; tobaccoMineral productsProducts of the chemicot and allied industriesAriificio! resins o^d plastic materials, cellulose esters and ethers,end orticles thereof; rubber, synthetic rubber, factice, ond orticles thereofRaw hides and skins, leather, fur skins ond orticles thereof; saddlery ondharness; t'Ovet goods, handbags and the like; articles of gut (other thansilkworm-gut)V/ood ond crticlcs of wood; wood charcoal; cork ond articles of cork;monufactures of straw, of esparto ond of other plaiting materials; bosketwareond wickerworkPapcr-moking malerlol; paper ond pa per board ond orticles {hereofTextiles ond textile orticlosFoolwear, heodgeoi, umbrellas, sunshades, whips, riding-crops and partithereof; prepared feathers ond articles made therewith; artificial flowers;articles of human hair; fans.Articles of stone, of plcster, of cement, of osbestoj, of mieo and of similarmaterials; ceramic products; gloss and glasswarePecrls, precious and semi-precious stones, precious melals, rolled preciousmetals ond articles thereof; imitation jewellery; coinBase metals ond articles of base metalMachinery ond mechanical appliances; electrical-equipment; parts thereofVehicles, oircraft, ond parti thereof; vessels and certain associated IronsportequipmentOptical, phologrophic, cinematogrc-phic, measuring, checking, precision,medical ond surgical instruments and apparatus; clocks and watches;musicol instruments, sound recorders and reproducers; television imageond sound recorders and reproducers, magnetic; ports thereofMiscellaneous manufactured articlesWorks of art, collector's pieces ond antiquesOther unclassified goods (Includes umpublishcd exports such as uranium ondplatinum. Las) yeor ir.tt section contributed 5,7 per cent to totalCustoms ond Excise e.-.portsContribution of eoch section tototal Customs and Excise reported.exports In 19731 •_2,3%7,8%0.9%5,8%13,7%4,1%0,5%0,5%1,8%4,0%0,1%0,5%27,9% (K.Rands olone 13,8%)17,1%2,4%1,5%0,2%0,1%0,1%7,0%As the price of energy has changed relative to other prices, the next step of theanalysis depends upon a re-examination of the issue of the signals conveyed by re-lative prices in a period of generalised inflation. If one wishes to understand the6/...- 6 -world in which we actually live rather than the world as it may well have beenhad a different set of decisions been taken in the past, one has to accept that wehave grown accustomed to inflation. But inflation expectations vary between in-dividuals and Individuals behave inconsistently In response to their own constant in-flation expectations.Markets of the 'real world' are not all spot markets in which current prices are res-ponsive to fluctuations in demand, and In which production decisions are responsiveto changes in spot prices. Thus the price system transmits misinformation as well asuseful information. Adjustments can amplify rather than dampen disturbances. Thepresent inflation, therefore, can be cured only by a massive dose of monetary deflationThe fact that South Africa is an energy rich region becomes the basis for discerningan important secular trend. It Is a beneficiary of both the primary and secondary"substitution effects" of the OPEC oil price hikes. South Africa could be a netexporter of erode energy bv the mid 1980's.Table IVSOUTH AFRICA'S EXTERNAL CRUDE ENERGY BALANCEThe following are estimates of the value of South Africa's imports and exports ofenergy related products. The figures differ somewhat from those of the FinanceWeek in early June 1979 article, but basically reflect the same broad picture.Imported oil consumptionless Steam coai exportsless Uranium exportsless Petrol exportsNet energy exports (imports)i. or1979R2 800 mR 450 mR 500 mR 75 m1982R2 700 mR 900 mR 750 mR 800 m19P5R2 700 mRl 600 mR 860 mR 800 m775)m R( 250)m R 560 rn\979 oil imports figure made up of RSOO million for first semester (at averageprice of % 20 per barrel) and R2 000 million for setond semester (at % 40per barrel).7 /- 7 -1982 oil consumption is assumed to amount to about R 4 000 mill ion.SASOL II wi l l possibly save about Rl,3 million.1985 figures were taken to be the same as 1982. These figures could bemuch more favourable, depending on erection of further SASOL plants.2. Coal : Export in 1979 wil l amount to 20 million tons which wil l increase to about30 million tons in 1982,, and 44 million tons in 1985.The price of coal is expected to increase from % 27 per ton in 1979 to about% 35 per ton in 1982 and % 50 in 1985.3. Uranium : The uranium figures are Internal estimates which correspond closely withunofficial estimates of the industry.4 . Petrol :5. Chemicals :Because the SASOL process does not generate sufficient diesel fu«!,South Africa wil l remain a bigger importer of crude oil for the fore-s' ^able fugure than would otherwise have been necessary. FortunatelyIt w i l l , as a result, also be able to export more petrol.Although this has little io do with the energy position, the new SASOLplants w i l l , in addition, produce a significant quantity of chemicalswhich would otherwise have been Imported and will thus result inadditional foreign exchange savings.Two thirds of South Africa's "merchandise exports" have a large energy content; andthe gold price is sensitive to currency uncertainty and inflation expectations.Table VSee over8/CURRENT ACCOUNT OF THE BALANCE OF PAYMENTS PREVIEWR millionMerchandise exportsNet gold outputService receiptsMerchandise importsPayments for servicesTotal goods end servicesTransfers (net receipts)Balance on current accountsActual1978Estimate1979Forecast1980 1980'Q731-8-3141286396900888035698(17,8%)(38,2%)(22,6%)(16,4%)(14,6%)9 10059102 400-9 800-4 4803 13095(22,8%)(53,0%)(21,9%)(22%)(15,5%)9 8505 0502 760-12 050-5 28532595(8,2%)(-14,6%)(15,0%)(23%)(18,0%)9 6906 0602 725-12 250-5 350875105(6,5%)(2,5%)(13,5%)(25,0%)(19,4%) CO1 454 3 225 420 980Assumptions .The most important assumptions made for the purpose cf this forecast are that:1 . The United States has already entered a recession, which will affect the economies of Europe and Japan. This, in turn, willlead to a decline in commodity prices, although this is unlikely to be very severe.2. An average price for gold of #370 for the fourth qucrter of vNrs year, /&50 for 198CT end #30Q for 1980 .3. Restrictions on trade with and investment in South Africa will not become more vigorous over the forecasting period.- 9 -South Africa could be facing a period of chronic balance of payments surpluses.One of the reasons lies in changes which have occurred in the perception of govern-ment's 'role' in the economy. The public sector's claims on resources are planned tobecome relatively smaller. The benefits, on a technical level, will be seen in lessprice instability and in less pressure on the current account of the balance of paymentsIn one major respect, therefore, reality and the model are coming closer together.The last proviso, "as long as people remain reasonably good at their jobs" examined.Table VISOUTH AFRICA'S POPULATION - CUSTOAAARY CATEGORIES1978 estimate(units)BlocksWhitesCotouredsAsians19 462 000*4 420 0002 557 000787 000Total 27 226 000* excluding foreign bornProportionof totalper cent)71,516,29,42,9Most recent rateofnatural increase(per cent)2,91,02,32,3100,0 2,5Table VI1See over10/1 0 -Toble VUStatus Per cent of populationI . 3,4%II. 8,2III . 32,9IV. 55,5r100,0ANALYTICAL PYRAMID92( 0002 200 0 009 000 00015 100 000Natural increase per cent p a0,9%2,33.12,6(b) IF UNCHANGED, ANALYTICAL PYRAMID IN TWENTY YEARS TIMENUMERICAL RATIOS OF POPULATION (EXCLUDING FARMERS)StatusStatusStatusStatusIVIII11I2216This may lead some to think that despite huge and obvious changes which have occ-urred in relative prices, shifts in patterns of demand and production, the forma!structure of labour relationshipJwithin the South African economy cl979 is noi-markedly different from that of, say, 1965. if so, there ore mornentums tendingtowards confl ict.But 'cycl ical1 must be separated from 'secular' forces. This helps place in contextthe fact that the share of total income being distributed as wages and salaries hasdiminished as more has been appropriated as corporate income.Table VI11CHANGING SHARES OF TOTAL INCOMESee over 11/.- II -Table V111CHANGING SHARES OF TOTAL INCOMEThe contribution of remuneration of employees to (1)(1) gross operating surplus(2) and indirect taxes net of subsidies(3) to GDP at market pricesand (1) and (2) to (GDP at morket prices less (3).Contribution to GDP at m.p.(1) (2) (3)Contribution to GDP at m.p. less (3)197519761977197819781979)O2O3O4Oio.2O55,056,153,551,554,349,350,552,350,448,038,937,639,541,237,944,442,739,540,945,06,16,37,07,37,86,26,98,28,77,0(1) (2)58,559,857,555,658,952,654,257,055,251,641,540,242,544,441,147,445,843,044,848,4This, now can be understood as a recession related phenomenon rather than theunchanging operation of a long-term force.Using the diagrammes 1 and 2 type of analytical frame one can form a fairly firmidea of what the business bureaucrat's response will be: There are "bottlenecks",everywhere in the region there are shortages of skilled work power. The region ischaracterised by an economi c/demographic base (infrastructure) not adequate tocope with - or not appropriate to - the 'requirements1 of present reality. This,inter alia, is a technology choice problem (recalling always that technology is aculture related concept - a concept of human organisation as much as of what12/- 12 -'machine' or 'science' one uses). The abundant and relatively inexpensive resourcesof Southern Africa are lime, space and climate.Decisions, recall, are quickly taken. Expectations have risen: the goods must nowbe delivered. They are likely to be delivered in terms of the model. In the shorterrun there is likely to be "spending for peace and prosperity". The longer run, interms of standard post Keynsian thought, is made up of a series of shorter runs.The accommodation, therefore, is likely to be one of "immigration" from within theregion as well as from without. That, 1 believe, is what the present hectic pace ofshort term political cum economic change in South Africa is about.oONED/MBD/JT1977-10-22

The South African economy into the Eighties

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