1$ *

No. E 12la RESTRICTED

~ .. J, ThiS report is restricted to use within the Bank. I Public Disclosure Authorized

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

Public Disclosure Authorized REPORT ON THE ECONOMY

OF

SOUTH AFRICA

December 13, 1950 Public Disclosure Authorized Public Disclosure Authorized

Economic Department Prepared by: J. H. Collier CONTENTS PAGE Basic Statistics Summary and Conclusions ••••••••••••••••••••••••••••••••••••• i I. The structure of the South African Bconomy •••••..••••••••••• 1 1) Geographical Background •••••••••••••••••••••••••••• 1 2) Population ...... •. ,. ....•....•...... " ...... 1 J ) ~Ia-'viorlal Income •••...••• .,...... 2 II. The Postwar Position of the South African Economy ••••••••••• 4 1) Liquid Position at the End of the i:!ar...... 4 2) The Investment Boom ...... 5 J) Government Investment a~d Budgetary Policy••••••••• 7 4) and Banking Policy ••••••••••••••••••••.••• 9

III. The South African Balance of Payments.~ ••••••••••••••••••••• 10 1) The Traditional Sources of Foreign Exchange •••••••• 10 2} The Balance of Payments Effect of the Postwar Boom. 16 3.) The Hard Currency Position ••••••••••••••••••••••••• 18 4) The Need for Non-Sterling Capital •••••••••••••••••• 20

IV. The Future Ureditworthiness of South Africao ••• ~ ••••••••••• $ 21

1) The Importance of the Over-all Balan~e of Payments Positiono •••••••.•••••••••••••• 21 2) The Prospects for Over-all Current Account Balance. 21 3) The Pattern of Development and its Effect on the Dalance of Payments ••••••••••••••••••••• 22 4) The Risk Elements in a Bank Loan •••••••••••.••••••• 24

v. The External Debt ~ecord of the ••••••• 27 UNrOll OF SOUTH AFaICA Basic Statistics

Total Area 472,000 sq. miles :'opulation 12.1 million l'Iational Income (1948/49) S.A.b 831.7 million

Of which: Agriculture 124.2 II Manufacturing, private 195.4 II ulining 93.0 11 Q.urrency

Unit South African Exchange rate S.A.b 1 =U.S.~2.80 Prices Home goods 1937 =100 sept. 1950 =183 I ruport goods 1937 :: 100 sept. 1950 =250 Government Budget

(S~A.b Million) 19~9/50 1950/51 Actual Estimates Current e;::pendi ture 148.9 Current revenue -148.6 Surplus or Deficit - 0.75 - 0.3 Expenditure on Loan Account 82.0 56.0 Foreign Trade •

Exports (f.o.b. including non-monetary gold) 230.6 251!4 Imports (f .o~b.) 352.9 312.0 Balance of Payments

191:.8

Cur~ {.. receipts 263.3 287.9 Current payments 430 . ...,....399.2 ...... Balance on Current Account ...,. 166.7 - 111.3 i

~~y AND CONCLUSIONS

The de,velopment of a modern economy in South Africa dates only from the latter part of the nineteenth century but has proceeded with great rapidity. The discovery of diamonds, which signified the start of South Africa's economic revolution, came in 1867 but it was the later

gold discoveries of 1886 which provided the greatest ma~let for European capital and technical skill and which gave the Union its most important basic industry. The speed of development in mining and other occupations haa '

been made possible by the import of substantial amounts of capital main­ ly from the U.. K. As most of the private capital went into gold mining,

a speculative activity, investment has proceeded in a series of bursts characterized by optimistic over-investment at some periods and excess­ ive caution at others. Since the end of the war several factors have combinea to pro­ duce a sustained investment and consumption boom. The economy ended the war with the banking system in a very liquid conditj,on and with ample foreign exchange reserves; there was the wartime backlog of investment ano consumption demand to be made good; the discovery of a new gold min­ ing area in the Orange Free State created an altogether new demand for investment both directly in mining and in the provision of services and amenities; the general high level of activity stimulated a continuation of the wartime growth of secondary industry and demanded a general ex­ pansion of the public utilities. The boom was accelerated and facilita­ ted by an exceptionally heavy flow of capital to the Union from the U.K.

in 1947 and earj y J.'148 and by credit expansion wl~blu ~o'Utl1 AJ.·rl~D' Dur­ ing this period internel savings were very low and the high level of in- ii vestment and consumption expenditure was maintained by incurring large defi­ cits on the balance of payments covered either by capital inflow or by util­ ization of foreign exchange reserves. The total balance of payments deficits in 1946-1949 period was S.A.}, 515 million and in this period foreign exchange reserves fell from S.A.}' 266.8 million ($1160 million equivalent) to

S~A.}' 104.6 million ($293 million equivalent). South Africa is in the rather unusual position that the appraisal of its crem tworthiness, even for a doll ar loan, is dependent primarily upon its over-all balance of payments prospects rather than on its dollar balance of payments positiono In fact, the value of current gold production, presently running at S.A.b 143 million (~400 million equivalent) and expected to rise to S.A.h 200 million ($560 rrdllion equivalent) or even more, and other dollar

(exporting) earnings is expected to be substantially larger than the direct dollar payments made by South Africa for imports and service items. As a developing economy with a rate of investment larger than that 7'lhich can be financed out of local savings , it is likely that South Africa will continue for some time to run a deficit in its current balance of pay­ ments with the gap to be filled by the flow of foreign capital - primarily private capital - to South Africa. The major risk element involved in a

Bank loan to South Africa, consequently, is that the i~£low of foreign capi­ tal will not be sustained on a sufficiently high level. This is not a matter which is entirely within South Africa's own control but is dependent on international developments and on the reaction of investors to economic and political conditions within the Union. In 1948, the infloYf of foreign capital caIne to a halt and some "hot" money was withdravm from the Union.

As a result, exchange reserves and actually reached a low of the equivalent nf $219 million at the end of August 1949. It is e.;;sen- tial, therefore, that South Africa, dependent as it on uncertain move- iii

ments of foreign private capital, maintain an adequate level of foreign ex­

change reserves, and one of the major purposes of the proposed Bank loans is

to make possible desired investment in electricity and transportation under­

takings .vi thout drawing down foreign exchange reserves in payment of' imports

needed for this investment.

Another risk in the South iU'rican economic position is that exist­

ing inter-racial social tension may become so acute as to impair the economic

production of South Africa. Although this is an element which cannot be

measured statistically, it is not thought likely that this problem will

have serious econondc repercussions, at least during the life of the proposed

Bank loans. In addition, in the long run, it vdll be necessary for South

Africa to adjust its structure of production so that exports of manufactured

products VJill take the place of production of gold as sooner or later the

reserves of gold-bearing are will be depleted. However, present indications

of the size of the ore reserves atld of the probable rate of gold production

indicate that this is not an element affecting the creditwo~thiness of

South Africa for proposed 15- or 20-year loans.

On the basis of the analysis of the , the

conclusion seems clear that the proposed borrowings of ~~60 million are well vvithin South Africa' 5 present creditwQrthiness. This conclusion is rein­ forced by the excellent external debt record of the Union of South Africa .. !. The Structure of the South Afric~n Economy

The Union of South Africa is a of the Commoll':!ee1 th of Nations 8nd llB such f!hjoys full sovereil':n rights. It wps formed in 1910 by the union of the four self-governing colonies of the Cppe. the OrE'nge Free State, TrF'nsvf'pl,

C'nd Nptd ~.rt.ich then became nrovinces of the Union of South Afric8.. The Orpn~;e

Free S tate end the l'rensvael had been indenendent Dutch Re'.)ublics before the

-;oer We.r in 1899 efter vIhich they beceme J;:,ritish Crov.!Il Colonies. ::r'he St8tute of V.estminster conferred Domini0n status on the Union in 1931.

Of the tokl ['rea of the Union of 472,000 squt"re miles, only ['bout 6;J is cultivr~ted; it is estimptee. thpt 85,J of the pref' is not preble Bnd thet of the

.. ~ 5 .; rem1"J.m.ng J. jO, only one-third cnn be cultiv~ted intensively. This is due DPrtly to soil deficiences end ;;rimprily to insufficient pnd irr0gul:=-r r~infall--1JjOst of Sleuth Africa suffers from FJ regulFT six !!'Ionths lrrinter drought. iVillCh of the summer reinfell is in the form of torrential dO\OTnPours lrThieh \ol!?osh P..1JJt:'y lerge quanti ties of value.ble soil. The uossible irrigpble 8ref! is smell, Elmounting only to some t':TO million <,cres. The over-ell shortage of 1JT8ter in the Union p.ffects not -::nly egricul ture but industripl development. and the futu:c'e ex-

\ pension of secondery industry ,,1.11 at some time necessarily involve lerge-scale investment in lrlater supplies.

2) Fonulption

'Ihe totel populr-tion of the Union is 12.1 million. Only 21/~ are "Europel'lnu •

1Jrl:ich is the term applied to all members of the 1I'hi te T8ce, 68/" ere nf'tive

ll Africans, B/J are IIColoured , i ,e. people of mixed European and native descent, and 3;j pre ASietics, mainly Ir:clians. Of the '\o[hi te popull"tion, about 55/) pre

Afrikaners, the descer t1 "" + of the ear'~'y ;Outen ;:,t;:lIl.lers ar-d'ris section F',,::;eers - 2-

to be increasing more rapidly than the English speaking section.

In 1941 the tot21 flEuropean" occupied population was 8i.j.0,OOO, of

whon 23% ',vere industrial y;orkers, 20% were agricultural wo:ckers, ·16% were

engaged j n commerce, and only 77~ in mining, a figure which reflects the

restriction of white labor to skilled and semi-skilled work.. No recent

figures giving the occupational distribution of non-Europeans are available

but in 1936 the total occupied ncn-Europe~l population, excluding natives

in reserves, was 2.8 million, of whom 1. 5 million were in farming, 3:" 7,000

in mining and 265,000 in manufacturing. Since then the number employed in

agriculture has probably declined somewhat, rr~ning emploJ~ent should be

apprOXimately the same while employment in manufacturing has increased sub~

stantially.

3) National Income

In 1948/49 the Union's national income was S.li.:' 831. 7 million.

The main activi ties contributing to this total are shown in the following table:

d S.A.b Millions /0 Manui' acturing 195.4 2305 Trade and commerce 126.6 15~2 Agriculture, forestry and fishing 124.2 14.9 Mining (of ";{hich gold mining S.A.b 69.4) 93.0 11.2 TraTlsportation 74.6 9.0 Government 87.2 10.5 Finance, banldng and insurance 22.5 2.7 Otder 105.,2 13.0

Total 831. 7 100.0 - 3 -

.. National income per head works out at about S.A.b 70 per annum. This comparesv'lith b 200 per' head in the U.K., so that South Africa as a -'-fhole is

still a relatively poor country. However, this fi[;ure is of limited signifi­

cance owing to the very unequal division of the national income between

Europeans and non-Europeans. A calculation made befo:ce the war indicated

that some 70% of the national income went to the Europeans who represent

only 21% of the population.

a) Mining

The mineral resources of the Union are extensive o The gold mines are

at present the most valuable, but the exploitation of other minerals is

gaining in importance. The chief minerals resources, apart from gold and

diamonds, are coal, iron, copper, manganese, chrome and asbestos, as well

as smaller amounts of many other minerals. In fact, the essential rrd.nerals

needed for heavy industry are available in large quantiities in South Africa.

The importance of gold mining in the econor.1Y is much greater than the

3,3% direct contribution that it makes to the national income. It is a

"basic ind-Jstry" in the sense that its existence has stimulated the growth

of many ot!.Ci:" activities to supply its r,laterial requirements and to cater

to the needs of t1-lose employed in it.

b) l4anu.facturi~

The growth of manufacturing has proceeded steadily and the industrial­

ization of the econor;.y is now well advanced. The net output of manufactur­

ing industry increased almost threefold in the twenty years of the inter-war

period. iviet~l end Engineering Industries S ~A. J., 47.8 million Food. Drink pnd Tobacco 31..5 " Clothing fnd Textiles 19 •.5 " liel"t. Ligl.t Bnd POHer 13.8 n Drugs end Chemicals 13.4 II ~uilding And Contracting 12.8 II

c) Agricul tura

South Africa is ~ farminG country only in the sense that the bulk of the n8tive "Oopul!"tion is enbP~ed in I"griculture. :OUt in 1948-49. ,~gricultare 1"nd fishing contributed nnly ::c Ii tUe over cne-seventh of the net netion('l i:wome of S .,P.. t 8J1.7 million. TIlere Elre three times as :"Jen~T ueople engcged in f'Gri- cul tQre es in Australia. b-lt they ')roduce only hrlf the Austrplien cut1')ut.

Chief ex.:;ort produc ts rre high-que.1i ty 1'rool, sheepskins, I'md foods tllffs. in-- c1udinr: citrus fruits end Hines.

II. The Postt'lI'r rosl tion 0: the South Africpn Economy

1) Liquid Posl tj,on Ft the End of th<3 VJFlr

:Z'b.e Union of SO'.lth AfricP emerc;eCl. fro;n the 11J?r vi th ~ hrE;e b?cklof of 1n- vestment vnd consu.r::ntion derlend end 1:7i th the economy 8S p "'hole ::n f' very liquie. condi tion. '.iha money supply hpd incras.sed from S .A.;t. 101.7 million in 1939 to

S .A.J. 334.5 million rt the end cf 1945. r'n increese of 230;~. As a 1)l:'oportion of nfltiou1"l income, the qu~>.n.ti ty of money fwd increesed from 24.6,,, to 49 .4i~.

At the Same time cornmeY'ci""l bElnks I cesh reserves '\IJera eqc:ivf'lent to 60;0 of their lit' bili ties to the rublic pnd the Reserve Bflnk I s totl'll gold and foreign exchpuge holllin[:s 2mounted to the equi v81ent of ~1.160 million (of vhich '1"914 million

Here gold holdings) cOITrppred to .:y281 million 8t the end of 1939. 12tent in cUs 5i tU1;' tion '.Jere p11 the :::ekings of e period of haav:," €:Xpendi ture botl: for consumption E'nd investment \'ri th the inevi tpble conseque:lce5 of defiei ts in the

,)['1ance of payments and .:'.eclinine: reserves. - ;; -

2) The Investment Boom.

There was also no lack of outlets for investment expenditure even apart from the backlogs created by the war. The development of a new gold field discovered during the war in a remote agricultural area in the Orange

Free state has involved investment on an enormous scale, for it made neces- sary the construction of new towns, complete with roads and other public utilities and amenities. The direct investment in the mines alone will pro- bably be in the neighborhood of S .. A.b 100 million and the indirect investment may bring the total to something like S.A.b 200 million.

During the war there had been a very rapid growth of secondary industry in the Union. The value of private manufacturing rose from

S.A.b 69.7 million in 1938/39 to S.A.b 140 rr~llion in 1945/46, representing an increase in its re1ati ve contribution to the total national income from

18% to 21%. The increase, once under way, has continued since the end of the war as is shovm in the follo'wing table:

Percentage Contribution of Certain Industries to the Hational Income of the Union

Industry 1939/40 1945/46 1946/47 1947/48, 1948/49 l\luning 22.7 13.0 11.8 10.9 10 .. 7, J\gri cu1 ture 12.2 12.0 13.6 15.1 14.2 l!iianuf acturing 17.5 20.7 21.2 21. 7 22.3 Trade and commerce 14.1 14.9 16.2 15.5 14.6 Government 9.5 9.3 11.3 12.2 13.1

Only in part, however, are these changes the result of real changes in the structure of the economy, The fa~t that gold prices have not changed as much as prices of other products has naturally held down the share of mining in the national income.

During the war, a substantially greater proportion of investment was devoted to manufcc.v .... uring rather than to mining., Ttis treau nas continued since the end of the war and net investment in industry rose from So-A.!' 9 million in

1947 to S.A.b 19 nd,llion in 1948 and S.A.I, 30 million in 1949 •. At the same time - 6 -

many of the public services, which had not kept pace with the industrial

expansion, wished to embark on substantial investment programs. A special

committee which examined the neeas of the railways in 1948 placed their

essential capital requirements at S.A.:b 200 million. In 191~6, the South

African Iron and Steel Corporation, which is almost e'1tirely Governr:ient-

ovmed, started a large-scale expansion program involving the construction

of a continuous strip-mill a'ld engineering works, the total cost of which

will be about S.A.:b 25 million. There was also an acute shortage of resi-

dential housing and of other buildings and investment in constructl.on has

been heavy.

Even during the period of the past two years, when large invest- ments >'.rere requir-ed for the new gold fields of the Orange Free State, invest-

ment in manufacturing industry has exceeded mning investment.

Composition of Investment ,S.A.:b lUllion)

1948 1949 G::,oss ' Net -Gross--:kt Government Authorities 45 40 50 44 Building construction, private 26 17 32 22 J\'lining 24 20 28 23 Transportation 33 27 36 30 Commerce 12 7 9 3 1:anufacturing - fixed plant and machinery 28 19 40 30 Agriculture 9 4 8 3 Inventories ~ 58 3~ ---33 Total 235 192 236 188

The rate of' investment during the last, two years has been extremely heavy. In fact, if investment had bean financed locally, about 22.5% of gross national product in 19).1.8 and 21% in 1949 would have had to have been devoted to net investment, Actually, however, internal savings have been relatively small and the heavy rate of investme'1t has been possible only .... 7 - because of the availability of external resources, both in the form of' an inflow of capital and of the utilization of foreign exchange reserves. The meal1S b;y which investment was financed is shown in the following table:

Financing Investment

19~ 1948 1949 (S.A.b jilHon)--

Investment financed from domestic savings - 31 25 77 Investment finenced by recourse to external resources 179 167 III

Total i"let Investment 148 192 188

In 1947, domestic savings were nersative; that is to say,part of the import of capital was utilized to maintain the level of consamption..

Since then, however, it would. appear froHi these figures that there has been a marked increase in savings. This would not be an 1lUexpected development to occur as the wartime accumulated consumer demand is worked off. All these figures a:-e rough estimates subject to error; they indcate merely general orders of magnitude.

3) Governraent Investnent a.."1d Budgetary Policy

The South Afri:::an Budget is divided into two sections, the revenue account, or "the ordhlary budget, and the loan account, which is the invest- ment budget. Since the ':var, the revenue account has been approximately balanced '.Jut through its expenditure on loan account the Government has added to the demand for investible funds. The Governr'lent aims at keeping the revenue budget in balance and, as a consequence of this policy, taxation was reduced in 1946, 1947, and 1948, but the 194.3 reduction was reimposed in 1949. In spite of a reduction in the yield from Customs duties consequent upon import controL, total revenue is expected to O~ sJ.:.ghi.ly larger

(S.A.l: 149 million as c041pa:'ed to S.A.!, 141 million) in the current year the fiscal year in South Africa runs from April 1st to .,Larch 31st -- than it was last year. In spite 0:' the inflationary situation, the l"Iinister of Finance has not attempted to budget for a surplus on revenue account, so that efforts to economize have taken the form of attempts to reduce the loan budget. In the fina'1cial year 19h9/50, the loan program amounted to

S.A.h 75 million, but this year it has been reduced to S.A.h 56 mi.llion...

To finance the current program, approximately S.A.h lS million will be obtained from certain revenues V which are credited to the loan account,

some S.A.h 20 million will be available to be borrowed from departmental funds, e.g. unemployment insurance, workmen I s compensation, pension and other funds, and the balance will have to be borrowed either internally or from overseas. l~ooably S. l.f, 10 m..i..llion of the bal&'1ce will be raised externally.

During 19l~8, when the capital inflow from overseas temporarily

ceased, the Government encountered difficulties in financing its loan expend­ iture. In September 1948 a "S.A.b 20 million 2-7/8%, fifteen-year conversion loan was issued but brought in less than S.A.h 5 rr~llion and in Ja~uary 1949 a S.A.f, 20 willion ) ...1/4%, 1965/70 issue was floated only v!ith diffic'J.lty.

The Government, therefore, had to resort to 'i.e serve Bank credits which increased from S.A.h 12.5 million in February 1949 to S.A.h 59.1 million in August.

Shortly afterwards, the National Fina..'1ce Corporation began opera­ tions and was able to take over 30me of the Government I s liabilities from the aeserve Bank. The National Finance Co~~poration was created last year in order to fill a gap in the country1s financial structure. The Union has no organized short-term money market ru1d, conseqJently, there were no oppor~ tunities to make use of temporarily idle funds except by transferring them to London. The Corporation is) therefore, empowered to accept deposits above

S.A.I, 50,000 at call upon which it pays 7/8%. So far almost all its funds - 9 - have been invested in Government securities. By the end of March 1950, the

Reserve Bank's credits to the Government had been reduced to S.A.; 24 million, and the National Finance Corporation was holdine some S.A.; 50 rr.illion of

Government securities.

4) Curt~ency and 3ankinv Policy

In spite of the greatly increased money supply at the end of tt.e war, the demand for investn;ent and hence for imports was intensified by an increase in bank credit. During 1947 total domestic credits of commercial banks increased from S.A.h 184 million to S.A.; 220 million and there vIas a further increase in 1948 to S.A.I:, 273 million. 4S a consequence, the money supply increased during 1947 from S.I•• b 359 million to S.A.b 408 million. In 1948, hm"fever, the effect of the credit expansion was offset by the necessity to pay for the import surplus out of fo:oeign exchange reserves. Importers drew down their deposits in order to purcha.se foreign exchange fro'11 the iieserve Jankwith the result that commercial banks I balances with the :1.eserve Ba'1k were reduced. The net result of t:1ese t"NO opposing tendencies was that bank deposits and the money supply were almost the sp..me at the end of the ye<::r as the~7 were at the begirming.

At the instigation of the Reserve Bank, the cOl1mej,~cial ban.1(s embarked on a more restrictive credit policy in the first quarter of 3949,

Dank credit declined apart from a temporary increase dur:i.ng the middle of the ~7ear, probably to fin~ce heavy imports just before the imposition of restrictions on sterli~g goods.

After Septemoer 1949, how'ever, the money sUPF,ly began to increase again, primarily because of the resumption of the capital inflow. Since

P.pril and May 1950, the upward trend in business activity has been reflected by expanding banK t;J:ed~t, and commercial barucs I ca.:>cO'.mts, loan.::. and advances rose from S.A.'& 109 million in April toS.J\.; 120 million at the end of

July 1950. - 10 - III. The South African Balance of Payments

1) ~raditiona1 Sources of Foreign ExchanfSe

(a) Gold

Gold is South Africa f s most important source of foreign excha..'1ge although it does not occupy the preponderant position which it did immediately before the war. In 1937 gold production was equal to )'Jore than twice the val ue of all other exports combined, but in 1948 it was equal to only 85:~ of other exportso This yeer, even thou.gh devaluation has i!1crea.sed the value of gold production expressed in South African pounds, gold output 'will only be about 70 or 75;1, of the value of other exports.

Gold production touched a maximum in 1941 when 67.3 mil1ion tons of ore were Lilled yieldinr 14.4 million fine ounces (worth ~504 million).

This hif.!,h output wa.s produced in quite exceptional circumstances for, in order to max:Lmize gold output, the :rd.nes concentrated their operations on increasing the tonnage milled at the expense of developing their ore reservee. It is considered essential for a mine to have its 02e body aeveloped sllfficiently to provide for two to three years of future operation. This task involves mainly the cutting of tunnels through the ore in order to ascertain its quality an(: to provide points of attack for mining. At the begi:1.nin[ of the war, the ninj_ng industry as a whole was in a strong posttion, iuan;,? :ninGs having five or six year's of developed ore reserves, and it was thus I)Os3ible to secure a considerable but ternporar;y increase in output by allov;ing developm(mt v{ork to lapse. After 1941, gold mining lost the priority which it had previously had for the Viar effort; the arrears of development had to be ,:lade up and at the same time the raining :industry could not mairltain its labor force owj_ng to the heavy wartime deri:and for labor. Consequently, there was a steady dec11ne in tonnage milled w~ich had fallen to 55.3 million tons by 1948. - 11 -

This tendency was reversed in 1949, even before devaluation, o1Ali.ng mainly to

a~ easier labor position~

Although 11.7 million fine ounces of gold were produced in 1949 from

56.8 million tons of are milled, gold output in 1950 will be no larger and may

be slightly smaller even thcugh the quantity of are milled. will probably exceed

60 million tons. This result occurs because the actual output of gold is derend­

ent not only on the tonnage of 02e milled but also upon the grade of the are.

In most mines the grace of the ore mined is variable 'within limits and depends

largely on the cost-price relationships existing in the industr~h Thus, a

large change in the price of golel, 3UC~1 as resulted fron: the 1949 currency

devaluations, will :n.ake profitable the mining of larger tonnages of ore from a

given are body, provided there are adequate technic".} facilities to mine and

treat the larger quantity of ore. :\laturally, the ability to increase the total

amount of are which can be extracted profitably from any lTI:t.ne prolongs the life

of the mining enterprise. South Africa is keenly aViaTe of the fact that gold

mining is lllaking use of a lI'wasting asset!! a~d has aoopted & :,:Iystem of taxation

and royalties payment v;hich is an important incentive to the mining cOl'lpanies

to mine as !_OW grades of ore as are marginally profitable in order to maxjmize the life of the raines.

Gonseq!lently, O::le effect of devaluation or any other factor whj.ch in~

creases the profit p,:::r ounce of r'old produced may be, for a sho:ct period of time, a small decline in the total output of gold even though the tonnage of are mined has incre3.sed. This 8i tuation may result in the fact that the mi!leS,

singly or combined, have either not enough labor, milling capacity, or water reserves to treat the proportionately increa3ed amount of are required to off­ set the reduction in the average grade TI'ined, a situation which apparently occurred for a short. period after the 1932 devaluatl.on. Over the long runt of course, increased profitability of the mining operation induces further - 12 -

investment which raises the capac~ty for extracting and treating ore, thus increasing the total annual output of finished gold. To the extent to which costs of mining rise as the result of devaluation, this long-term effect is off­ set. So fm', however, the rise in mining costs since the September 1948 devalua­ tion has been relatively smallc

Over the next decade there will ~ a substantial increase in gold output as the new mines in the Orange Free State are brought to the producing stage. Total tonnage milled of all South Africa's mines will probably rise to

between 65 to 70 millio~ tons by 1953. The output of gold will continue to increase after the tonnage of are milled reaches a maximum because the new Free State mines will become more important at the expense of those on the Rand and the grade of ore milled in the Free state will be higher. Thus by 1959 the quar:tity of gold produced will probably be increased by 50% and will represent

a value of about S.A.~ 200 million or even more as compared to S.A.; 140rdllion at present. (b) Other Exp?rts 1tIercha.'1dise exports from the Union of south Africa consist very largely of primary products. Wool is by far the most important, followed by diamonds; rrdnerals and base metals; sheepskins; foodstuffs, including citrus fruits; a~d wvines.

i) V';ool south African wool is of high quality, more than 80% of the clip being merino. Since the war, there has been a very great increase in the -13-

demand for wool, prices have risen and the value of the South African wool

clip has increased from S.A9b 14 million in the 1946/47 season to S.A.b 36.9 million in 1949/50. Since 1945, world wool consumption has exceeded pro~ duct ion by approximatelY 20% and the substantial wool stocks which were acc1.$ulated during the war have now been fully liquidated. The high level of consmnption of the past few years may reasonably be expected to decline somewhat in the near future, but there seems little prospect of a decline sufficient to close the gap between production and consumption except at prices substantially higher than those of the 1949/50 season. At present, prices ::or South f\fri can wool are neC'.rly 50% above levels prevaHing before the present season opened in August. It is now expected that t~is seasonls

South African clip may bring in S.A.b 77 =illion as compared to S.A.b 38.9 million last season.

In the short run, therefore, the prospects for South African wool are very bright. ;iorld productL:m cannot be increased rapidly, and demand is likely to remain high. In the longer run, the present high prices will encourage the use of artificial fibres and neVi technical advances :nay tend to reduce d.~mand, whcre3S some increase in supply can also be expected, though probably o:L!.y "to a limited extent.

The export of diamonds since the ,var has been heavy and has been supplemented by sales from stocks. Unfortunately, South African trade statistics for 19lJ.7 and 1948 are still incomplete but for 191+9 dia.'Uond exports totalled S.A.!' 10 mllion. Stocks of diamonds are now exhausted and two mines which had been shut dovln for many :rears reopened. in 1949.

The United States is the principal market and until recently diamonds were • a favorite commoditv f0T' +~ansactions .w c heap sterling In ..tJril 1950, however, the Suuth African Government issued regulativns requiring diamond -14!:"!' exporters to sell 50% of their products against payment in hard currency.

There is also an agreement with the United Kingdom by which exports of

South African diamonds to the United States via London are paid for in dollars. By these means a very large proportion of the total diamond exports will represent dollar ear:1ings for the Union.

(iii) Other

Other important exports are hides and skins (S.4t~h 7.7 million), fruit (S.A.~ 7.2 IT~llion), copper (S.A.h 3.5 million), a~d coal and coke

(S. A.h 3 ,,) million). (Figures in parenthese.s are export values in 1949).

South Africa has very large reserves of many base netals, including manganese, chrome, platinu;n, vermiculite, and asbestos, but the total value of exports of these commodities is small. c). Inflow of Capital

South Africa has depended in the past, and still depends, upon over- seas capital for a large part of its econoTl'~c development. It has been c al- culated that from 1870 to 1936 the total capital (private fu~d public)invested in Sout~ l~rica from abroad was S.A.h 523 million. The development of the gold wines provided the magnet and the foundation for most of this activity; the direct investr..ent in the gold mines themselves 'i;as about S.A.h 145 million.

Investment in mining absorbed some two~thirds of all the private capital entering the Union over this period.

As a consequence of the dominant part played by gold mining, a spec1..l- lative investment, the supply of overseas capital for South Africa has been subject to severe fluctuations. In periods of speculative boom, investment has taken place on a much larger scale than justified, while at other times it has been impossible to obtain funds for clearl~r econorrdc ventures. Since the war, there has been an inflow of capital to the Union on a vast scale influenced not only by favorable speCUlative prospects for the Orange Free

State gold mines but also by political uncertainties in Europe and the U.K. - 15 -

P.ltogether some S. A.h 326 )]'lillian entered South Africa in the four-year period 1946-1949 inclusive, not at all in an even flow. The inflow was small during 1946 but increased enormously during 1947 ,vhen it reached

S.A.~ 180 million ruld continued at about the same rate until May 1945. In

1947, large amounts of flight capital from the U.K. entered the Union and during the latter part of 1948 much 0: this was withdrawn. Some capital continued to come in for gold-minine and other purposes, but the net inflow during this period was very • In the first half of there was a small net outfloYJ but in the second half the inflow revive..: and particularly after devaluation there V'laS an enormous increase wj th total capital import for 1.949 :ceaching S.A.b 45 mUllan. These movements are set out in che taole below:

S.A.b I.Iillion 1946 19 1941 180 1948 82-~~ 1949 (first half) - 8 1949 (second half) 53 Total 326

1'~ lUIr..ost all in first half of year.

The prCJj:ci'tion of the capi inflow in the postwar period which has been invested directl~r in gold l'1ining is much lower than prewar. A great part of it appears to have gone ~_nto construction, real estate, and manufacturing.

Some of the heavy inflow in 1947, however, seeES to have been utilized merely to maintain the level of consumption.

Of the total capital in.:.'low in the 1946-1949 period amounting to s. A.I, 326 million, all but about S.A.b2-.3 lJ1iJVon was sterling capital.

Thus the Union's Qependence upon the U.K. to supply ~ts capital needv and the U.K. 1 S desire to earn South Africat s gold in settlement of its current - 16 -

account create the elements of a bargain and, consequently, the various

payments arra.'1gements that have been made between the two countries since the war have had as their main purpose an egreement on the basis of these two reciprocal needs. The main difficulty has been that the capital inflow has at times been sufficiently great to permit South Africa to cover its

entire ste,ding deficit vu trout recourse to sales of gold at all. In 1948,

South Africa made a gold loan of S.iL'h 80 million to the U.K. By Septe:'aber lQh9, the U. K. had repaid the whole of this lOan in sterling as South Africa req'Uired sterling to meet her soft currenc~r deficit. Apart from this, the net contribution made b:.r South Africa to the sterling dollar pool from 1946

until devaluation has Pl'obably been small o But the effects of devaluation

and restrictions on dollar imports have greatly altered this situation and the present ar"'angements between South Africa and the U.K. assures gold receipts to the sterling pool of at least S • .Ii.'h 50 million per year from the union's current gold and nard currency income.

2) The 3alance.of Payments Effect o~ the Postwar Boom

The postwar consumption and investment boom resultec. in s'.lbstantiall;y increased imports. Total inports, which averaged S.h.I, 95 million frmll 1939 to 1945, rose to S.A..'h 212 million in 1946, S.A.; 302 million in 1947, and

S.A.I, 352 million in 1948. O'Ning to the incompleteness of the South A:""rican

Trade Statistics, it is impossible to give a detailed analysis of the com­ position Of imports over this period but it appears that the increase from

1946 to 1948 was fairly well distributed among capital GOocts, ra',rv' materials, and consumers I goods with only a slight increase in the rela.ti ve j.mportance of ca;:>ital goods in the total. In 19h9, however J when import control oegan to affect the composition of imports, consumers t goods imports declined much more rapidly than other catego~ies. In the first six months of 1950, consumers goods were approxirJately 15~;; of total inports and capital goods were about -17- 26%, whereas in 1946 consumers' goods had been 22% and capital goods 19% of the total. As a result of the increased imports and larger deficits on invisibles account, there were substantial balance of payments deficits during this period as shown in the following tab:'...e:

Balance of Payments Deficit (S.A.I:, Millions) -1946 1941 1948 19L9 Imports -212 -302 -353 -312 Exports 88 96 131 138 Non -monetary gal dexport s 102 97 9° 113 Other items -42 -70 -44" -50 Balance on Current Account --64 -179 -166 -111. In part these needs were covered by the inflo'w of private foreign capital

which amounted to S.A~b 326 million in the period, but,since the total current

acco'mt deficit ','fas S.A.b 520 million, there V.'aS also a substantial decline in foreign excha."1ge reserves. The movertent in foreign exchange reserves during the period is shown in the following table:

G0]d and Foreign Exchange Holdings of the South African Reserve Bank

S.A.b ~~pressed in U.S. - ~~ Equivalent (in millions) End of: December 1945 266.8' 1160 December 1946 248.) 1010 December 1947 247~3 1006 Dece::1be.:- 1948 160.6 649 December 1949 104 .. 6 293

After devaluation, foreign e~change reserves began to increase

both because of th~ 1"e'l1".:;.1 of the copital inflow ~nd becausE' vf substantial reductions in imports resulting from the import control policy of the govern- - 18 - ment. By the end of Ju!'le 1950, the total foreign exchange reserves of the

Reserve Bank stood at S.Aoh 153.2 million, of which S.A.h 62.8 million were

gold holdings and S.A.h 85.0 million were sterling. In the period from

June to October 1950, the level of reserves has chru1ged only slightly.

Sterlin~ reserves declined from S.A.b 35.0 million to S.A.:tr 74.7 million

during July but have since recovered some~~at and by the end of October

stood at S.1\.:& 78.9 million. Gold rEserves at tLe end cf October were

S.A.h 65.2 !:tillion, making a total exchange reserve of $.Aoh 143.1 million.

J) ~ar~Eency Po.!!.ti on

S::i.nce the capital inflQ1iv has been almost exclusively from sterling sources, South Africa's dollar and ~ard currency position in the ':irst part of the postwar period 'Nas tighter than bel' sterl::i.ng and soft currer..cy position.

For this reason, exchans;e restrictions and later import control wel~e intro­ duced first and w.:.th greater severity against hard currency imports. However, the South Africa."1 balance of pa.yments is now undergoing a significant change owing to the combined effect of import control, devaluation, and the Iiluch reduced inflow of sterling capital~ South Africa has, in fact, become a

IIdollar spender" in the sense that the cour.try purchases soft currency im:rorts 2.gainst payment out of current gold and hard currency income.

In 191.9, the total hard currency defictt was S.,A.:b 113 million.

Gold prodt!ction was valued at S.A.h 114 million so that almost the entire output of gold was required to meet r... ard currency needs. In 1950, the total hard currency deficit is estimated to be S. :i.. ~ 88 million at a maxir;,um, whereas the value of gold cut}:ut vnll be around S. '$:b 143 million, so that there wUl be S:lI'1€ S.A.!' 55 million of non-moneter;,/' gold available to meet the soft curr';::lCY deficit. Since, how8yer, the alTi0unt of the soft currenc;y deficit which is not covered by capital movel::ents will be much less than this, some of current gold production has been available to increase the monetary reserves -19- of South Africa,

To accomplish this reduction in the hard currency d eficit from

S.A.b 113 million to S.A.b 88 million in 1950 has primarily meant a reduc­ tion of tard currency imports fronl S.A.~ 129 million ($516 million equivalent

at pre~devaluation rate) in 1949 to S.A.~ 117 million (~328 million at the post-devaluation rate of exchange) anticipated for 1950. Nevertheless, the

South Africans have not felt that this is too drastic a cut and actual imports from the u.s. and Canada for the first eight months of 1950 in d011ar value have been only 44% of imports in the same period of 1949.

More important is the question whether the dollar deficit can be held down in 19S1,vhen the degree of discrimination against dollar imports is lessened as it is to be next year •. Under the present import control system, import permits are divided into two categories, universal and restrictedo Universal permits ffiay be used to purchase goods ~rom any currency area whereas goods imported under restricted permits must be from soft currenc:y cOtl.'1tries. Under this system, universal permits are issued in an amount equal to South Africa's hard ct:.rrency earnings in the form of gold po:-C':"iJ;'c.t,j.ou and hard currency exports. There is thus no possibility of a J:.1T_ <:. c--_-.': ~~::. arising.

n':)-,:i~ year, however, the system is to be changed and restricted permits w':"~L-" be issued only to the value of the excess of the soft currency capital inflow over the capital inflow from the dollar area, All other

:pe.lo"mits will be Ilgeneraln permits and will be valid for imports from any country. The total of II general 11 permits issued will, therefore, greatly exceed South Africa's hard ~urrency availabilities, and it would be possible for a hard currenc~r deficit to develop if a substantial proportion of the n general It import permits were captured by dol' supply sources.

Hov I.', both South Africa and the U"K. belieVE:: that Che U.l:\.. IS improved competitive positioL as a result of de~aluation will enable h~r - 20 .... to supply a sufficient proportion of South :'i.frica's import needs so that she will earn at least S.A.b 50 million of gold per year~ South Africa has, in fact, guaranteed payment in gold to the U.h.• of this arnount~ For this amount to be able to be paid to the U.K., dollar imports must be kept down to the equivalent of S.A.b 110···120 million annuallY (plus vvhatever dollar capital inflow there is) since total gold and hard currency earnings in the next fevi years will lY3 abou~, S.A,,b 160-170 million.. As the new g:)l.d mines come iYlto operation, these eurnings. should increase -:0 abo'lt CoA.l 220 million by 1959 or 19600

4. The :'Jeed for :Jon--Sterling C;:J.)i tal

The size of the invl.stment progrc:.m, both public aYld private, con­ sidered necessary by South Afr:..ca for the next few years is considerably larger than can be financed out of local savings. Consequently, cOl)tinued development of the economy at the desired rate is dependent on the continued infloy~ of foreign ca;-ital. ThE diffic'llt position in which South Africa found itself in rnic!.-:1949, with its foreign exchange position seriously depleted, "'vas the result of the cessation of the inflow of private capital during the second half of 1948 and the first helf of 1949.

In view of the many other demands on the capital resources of the

U.K., it is doubtful whether, for the next few years at least, the D.I{. will be able to supply the capital South Africa needs in order to avoid a further contraction in the rate of economic development. This applies certainly to the Flhlic sector and probably al,Jo to-the priva":,e sector. The Goyer:1ment has, therefore, been anxious to borrow dollars and other hard to

;u::;et ".IS own investment require)T,ents and has encoaraged the inflow of private -21-

rJ .. The Future Creoit1rJorthincss of South.. Africa, .

1) The Impartonce of th2 ~~erial1 Balance of Payments P9pltion

Even in terms of repayment of a dollar loan, South Africa's cred-

itwarthiness is determined more by its over-all balance of payments pros-

pects than by its bilateral dollar (including gold) position. 'vIith current

gold production taken into account, South Afrioa has at present a substan­

tial surplus in its current aocount balance of payments position with the dollar area. The hard ourrency surplus in 1950 will be about S.A.t. 55 mil­

liO'n ($154 million) and is expected to continue at a rate of at least S.A." 50 million in the next few years.. l'1oreover, as the new gold mines in

the orange Free State oome into full produotion, this surplus should be an

increasing one. The surplus on the dollar and gold aooount will be used to settle the deficit on the non ..dollar account and the strength or weakness

of the total position will depend on the relation between the two ..

2) The ProsEect~ for, .Over-all Current Acco.Y!lt ~~lance

As has been d;tscussed earlier, output of gold is expected to in-

crease from the level of S,A.t. 143 million at present ·to ,.. beloit S,.A,} 200 rnil-

lion by 1959 and to continue at -that rate for probably another decade.•

More subject to fluotuation, however, are South Africa's other exports and

its demand for imports~ As a result of the spectacular increase 'tn world wool prices and the great demand tor industrial diamonds and other primary prodUcts exported by South Africa, exports other than gold ill 1950 are

ourrently rttnning at the rate of S.A.+" 19()"'200 million. At the present lev~l

of imports, the trade and services deficit will certainly be lesa·than .the

amount of current gold production. However,~ it is unlikely that "the price

factors responsible for the high level cf Sout~~ Afriean export, ... will con....

tinue for an 1, .. '::..:.fillite period and the value of exports .of products other -22- than gold is likely to fall. Imports are held down at :Pliesent by rather rigorous restrictions and the volume of imports is more likely to increase in the next few years than to deoline. The most probable development in the South African balance of payments 1 at least for the next decade, is a position with a ourrent ac­ count defioit not fully covered by gold production, but with the gap filled by the flow of foreign capital to South Africa. This, it should be noted, is the typical position of a oountry whose developmental investment is proceeding more rapidly than can be financed out of domestic savings.

3) The Pattern of Development and its,Effect on the Ba1anc~ of Payments

The pettern of South African development, as exemplified by the activities in which investment is made, wUl be one of the elements su~ stantially affecting the balanqa of payments position of the country in the long run. If investment goes largely into industria s which import raw materials and process them into consumerst goods for sale on the South Africa,n domestic market and, at the same time, the increased domestic pro­ duction of consumption goods merely increases. the level of consumption rather than replacing imports, the net effect will be a worsening of the balance of payments position of the country. Imports wUl increase and consumption w111 increase but the increased production will not be import saving or export earning. There is some evidence, in fact, that this has actually happened during the past decade. If this result is not to occur in the future, it is essential that investment be.made in fields wh~re South African production can be sufficiently efficient .tobe able to compete on an economio basis on world l!-<3j.'kets. This need will beoome increasingly acute in the long run Bathe output of gold declines because of depletion of ore reserves. Of the poss­ ible avenues open to the Union's seoondary industry to reduce its costs in -23- order better to withstand overseas competition and eventually to establish

an export trade, the most promising appears to lie :in a betteruti11zetion of the available labor supply. At present the division between skilled and unskilled Ie bor correspond s very closely with the division of the pop- I ulation between Europeans and non-Europeans. As a consequence, the spread between skilled and unskilled wages is far greater in the Union then it is elsewhere, skilled wages being higher and unskilied wages· eonsiderably lower then in countries with a homogeneous' population. According to esti­

mates by the South African Board of Trade and Industries, the predominant wage rate per hour for skilled labor in 1938 was 5:3% higher in South Africa

than in the U.K., 44% higher than in Australi?,. and 36% higher than in New . Zealand. In March 1950, skilled Europeans in the eng ineering and metal working industries in South Africa earned 210 per week while in

~",he U.K. average earnings in these industries were 156 shillings (the U.K. figure .includes aU workers but skilled rates ·are not usually more than 20% above the average). The high rate of skilled wages originated in the necessity to attract skilled workers to the Rand in the days of the early development of gold mining. \tlhen secondary industry began to develop, these high wage levels were a handicap since a labor force of a different composition was required, containing a higher proportion of skilled labor and later, with the progress of mechanization, a large supply of semi-skilled labor.

The present artifioial wage structure is maintained by monopol­ istic actions on the part of the European trad& unions coupled with the op- eratton of the industr~al color-bar. The trade unions have tended to cre-

ate a sharp division between .skilled and unskilled labor and many semi- skilled jobs have been C".assified as ",;:,killed labor" end hav ... Lhus been brought with.Ll.I ehe orbit or- the apprenticeship system ",'ith the inevittlble result that the growth of a semi-skilled labor force is retarded.

4} =:;"';'=_'0_The Risk Elements in a Bank __Loan The economic risks inherent in the South African economy consist of two separate element s, one of wh ich may ar ise in the near future while the other is a long term risk.

The analysis of South African balance of payments prospects tn- dicated that, for the next few years at least, it was unlikely that thera wou:_d be a balanced position on cUl'rent account, even taking account of gold production. Rather, it was felt that the pace of South African devel- opment meant that the inflow of foreign caoital - and primarily private capital - would have to continue in order to make possible the desired rate of investment. It is on the sustained inflow of capital that South Africa will depend, for, say, the next ten years, to balance its international accounts and to service its forej.gn dividend and debt repayment obligations. Although the inflow of capital has revived since devaluation, this is not a matter which is entirely within South hfrica's own control but is dependent on international developments and on the reaction of invest- ors to economic and political conditions within the Union. In May 1948, the

inflow of capital to South Africa came to a halt as a consequence, it is generally felt, of political developments in the Union and it is not poss- ible to be certain that a similar situation might not recUT. In such cir~ cumstancdS, foreign exchange rese~ves would show a marked downward tendency and very strict controls on imports and investments would become necessary.

For this reason it is essential that South Africa maintain an adequate level of foreign exchange reserves, It is, however, the very purpose of the proposed Bank loan to make possible the desired investment in alectriu.p6wer 8~d transport without' -25- impairing the foreign exohange reserve position. Thus, the Bank loan helps

to eliminate this element of risk in the South African economy and the risk appears to be one which the Bank can reasonably undertake.

1 b) Dep_ ... etion; of Gold The long run risk is that, at sometime in the future, the re­ serves of gold bearing are in South Afrioa will be sufficiently depleted so that this presently important source of exchange earnings will have to be replaced. Ii. deoade ago, it was thought that this adjustment wc,uld be re- quired sooner rather than later. Now, however, with the discovery of rather extensive and rich fields in the Orange Free State as well as new reserves in the West Rand area,. gold output for. the next decade will be inoreasing. Official estimates for a longer run period are not available, but it seems reasonably oertain that,. at least for the life of the pro- posed Bank loan, there will be no problem of depletion' of gold ore bearing reserves. At some time, of course, gold production will have to be replaced by other output. This problem is a fundamental one affeoting the future economio development of South Africa but it does not affect the oredit- worthiness of· South Africa for a 15 or 20 year loan.

0) §ooial Urt:t!2st and' ~Q1.i~.f.£al. Distyrpances In addition to the economio risks, there exists in South Africa a non-economic factor whlohmlght have important economic repercussions. Il:i a mUti-raoiel society such as South Africa where a European minority of

21% of the total population is determined to maintain effective political power securely in its own hands; inter-racial friction' and social unrest become almost inevitable. Conceivably political and social unrest might be- come sufficiently' intense that the economiC' prc~uctive capacity of the

Union would l ' art·e.o'\i~d ano there ~re some differences 'of 'opinion ar. to the ... 26 -

imminence of social conflict. Nevertheless, most informed persons are ar~eed that, in view of the difference in the degree of social organization between the European and non-European groups, this problem is not likely to become so acute, at least within the tir!l8 period of the proposed Ba.'1k loans, as to affect South f.frica l s creditworthiness. - 27 -

v. The External Debt Record of the Union of South Africa

The external debt record of the Union of South Afr~ca is excelJ..ent with no record of default. Borrowing abroad began in 1822 when the CaPe received a loan of I, 125,000 in London. By the time of the establishment of the Union in 1910, the external debt had risen to I, 100 rrdllion. By 1932 the external debt was :h 166 million, which was the prewar peak. From that time on, however, the external debt ''.Cas reduced. In 1941 and 1942, residents in. the U.K. holding South Africa'1 obligations turned them in to the British

Treasury and South Africa redeemed these obligations by selling gold to the

U.K. in the amount of I, 70 rrdllion.

As a result of these Vari01,lS :r:easures, the external debt of the

Union was reduced to I, l3Q4 million by l'!Iarch 1949. At present, the total external direct debt of the Union of South Africa S.ApI, 37.2 million

(the equivalent of ,»104.2 million). Of this amount, external sterling bonds total I, 27 million (the equivalent of." 76 million). Thet'e is a $1.3 million debt to the UoS. Government incurred in purchase of surplus property and a

.,~20 million obligation to a group of U.S. banks in the form of a three-year revolving credit. The remainder of the debt consists of a loan from a group of Swiss Banks amou.'1ting to Swiss francs 36.5 million.

In addition to the direct Union of South Africa debt, there are externally held sterling debts of the provinces and municipalities amounting to I, 18.7 million. The total of the direct Union debt and the non-guaranteed provincial municipalities debts amounts to S.A.I, 55.9 million.

Interest paJwents on this debt involve an expenditure orS.A.I, 1.8 million in 1950 a~d will inc~easeto S.A.I, 2.2 million by 19~2. Since both t. , . , the Swiss franc credit af'4 the ~p20 mill..l.un U.S. private barLl( ¥d~dit are fixed maturity loans, ~here will be heavy principal &~damortization payments - 28 - required in 1953 and 1954 when these loans fall due ..

The service of South Africa's foreign debt at its present level represent.s only a small fradion of the country's total payments in its inter ...

national accounts~ But substantially more important than payments on account

of bOf'ded indebtedness are the reid ttances overseas for dividend payments which form the greater part of the Union's net deficit for invisibles. These

vary from year to year according to internal conditions in 30uth Africa bUt

in 1949 they amounted to approximately S. A.:b 30 million.. UNION OF SOUTH AFRICA BALANCE OF PAYMENTS ON CURRENT ACCOUNT (MILLIONS OF SOUTH AFRICAN POUNDS)

0 100 200 300 400 I I 1937 NONMONETARY GOLD EXPORTS TOTAL RECEIPTS

PAYMENTS

1946 NET INVISIBLES TOTAL RECEIPTS

PAYMENTS 1947 TOTAL RECEIPTS

PAYMENTS

1948 TOTAL RECEIPTS

PAYMENTS 1949 TOTAL RECEIPTS

PAYMENTS

GOLD AND FOREIGN EXCHANGE ASSETS (BILLIONS OF U.S. DOLLARS) I. 5 -~--,---,~-'--' r-I,r-Ir-1,rT,-r,-rI-r, -'1 -,--,-...... r-r-r-r-r-r-r,..-,--,--,-,-,-,..-,-,,....-r..,....,--,--,-.,...., 1.5 END OF PERIOD TOTAL FOREIGN EXCHANGE 1.0 I- 1.0

.5 - .5

xx x: xxx 9 xxx'38 '39 '45 '46 '47 '48 '49 '50 D~lmJ~t~D~~~J~~·:~;:·~:'O~·:~:·;·:~);~·?~{·:~'~~/~/:~/i~(UD 0 37 1948 1949 1950

No. 509 LB.R.D. - Economic Dept. UNION OF SOUTH AFRICA USE OF RESOURCES (BILLIONS OF SOUTH AFRICAN POUNDS) 1.5 r------.------,-~------____, I. 5 YEARLY

'--__....,.,."""""'==:;jNET INVESTMENTS 1.0,- 1.0 GOVERNM ENT ,.,.....,,.,...... ,..,..,..,.,.j EXPENDITURES

. 5 AVAILABLE A------l.5 RESOURCES

RESOURCES IMPORTE-O.__ --L.""""~""_'I ___...!.... ___"_'_'_'_"~;..;L., _____J 0 O '----~"""""..... "'"""'-.&- (NETl- 1947 1948 1949

GOVERNMENT REVENUES AND EXPENDITURES (MILLIONS OF SOUTH AFRICAN POUNDS)

a 50 100 150 200 250

1947 EXPENDITURES ~~~~~~:--;-;::;:;;;,;-;:;";~~~?z:t"4~ REVENUES I CAPITAL ACCOUNT (NET)

1948 REVENUESEXPENDITURES 'iiiiiiiilliP9~

1950 EX PEN DITURES to<'X'XX"X><'5C~OOOO<5:XJO<:5tR>o<;~<::x?::>r:~0~::::::::-s:.~ (Prelim.) REVENUES

1951 E XPENDITUR E S txx'X'X5?X)O(';~OOC50~:x'X::~R5i000~~rr:~:::::::::::l (Est.) REVENUES

Year ended March 31.

MONEY SUPPLY AND WHOLESALE PRICES (INDEX, 1937= 100) 500 , ! 500 I I I I ,,"'';-;'''l...' ...... I I --- ' .... .".-... ",. " " .. - ...... '" ~ ... --...... "", 400 - ,,'" - "'- ...... ~v,., - 400 ,. MONEY SUPPLY

300 - - I- - 300 WHOLESALE PRICES (Home produced goods) ~ 200 - - - I- - 200 100 - 100

MONTHLY AVERAGES MONTH~Y , o I I ~( __~I __~I __~ __L-~ I , I o '37 '38 '39 '45 '46 '47 '48 '49 '50 D J D J D J D 1948 1949 1950 No. 511 LB. R.D. - Economic Dept.