During the 1960s, foreign investment in mining and manufacturing grew steadily, reaching over 60 percent of total foreign investment by 1970. After that, foreign investment in South Africa stagnated and in some cases declined, increasing the governmen
t's reliance on loans rather than on equity capital to finance development. In 1984 loans constituted over 70 percent of South Africa's foreign liabilities, as compared with only 27 percent from direct investments. As a result, when most loans were cut of
f in 1985, available investment capital dropped sharply, and the economy suffered. In 1989 a substantial proportion of gross investment--R39 billion out of R49 billion--represented depreciation.
Although international opposition to South Africa eased in the early 1990s and bans on investment were lifted, investment as registered on the Johannesburg Stock Exchange (JSE) continued to decline and South African share prices on the JSE and on the
London Stock Exchange were low. Industrial shares fared better than other sectors, but even the industrial index showed only sluggish growth through 1991. The overall JSE index improved slightly in 1992, and this trend continued after that. In 1993 the in
dex rose by nearly 50 percent, although the volume of trade continued to be low by international standards. By late 1995, foreign purchases on the JSE had risen to more than R4.5 billion.
Foreign purchases were primarily in portfolio investment rather than direct investment through the mid-1990s. Most foreign direct investment was in the form of joint ventures or buying into existing enterprises. There was very little foreign direct in
vestment in new enterprises, a trend that hit hardest in the struggling black business sector in South Africa. United States direct investment in South Africa rose during this time, from about US$871 million in 1992 to more than US$1.34 billion in 1995.
South Africans invested heavily in other African countries, even during the years of declining investments in South Africa. Tourist facilities were a favorite target for South African investments during the sanctions era. South Africans invested in to
urist parks in Madagascar, for example, and in hotel development in the Comoro Islands and in Mozambique in the early 1990s. South African tourists, banned from many other tourist locales at the time, then shared in the benefits of these developments.
Balance of Payments
Before the debt crisis of 1985, South Africa's current-account position traditionally mirrored its business cycle, showing alternate surpluses and deficits. Whenever the economy grew faster than about 3 percent a year, local demand for imports increas
ed, and when the economy slowed, imports decreased. In times of growth, when current-account deficits became too large, the government implemented restrictive monetary and fiscal policies in order to slow demand. After the 1985 debt crisis, however, South
Africa had no choice but to run continuous current-account surpluses to meet repayment commitments. By the early 1990s, South Africa had become a capital-exporting nation because creditors wanted repayment on loans, and almost no new capital inflows othe
r than replacement or rollover trade credits were available.
South Africa's current-account surplus, which had averaged about 3 percent of GDP in the late 1980s, increased sharply to exceed R6 billion in 1991, before declining slightly in 1993, according to the Central Statistical Service. In 1994 and 1995, imp
ort growth forced the current account into a deficit for the first time in more than a decade and officials estimated that the current-account deficit could reach R10 billion by 1997.
South Africa's gold and foreign currency reserves were hit hard by the need to repay the nation's loans in 1985 and 1986. At that time, gold holdings were sufficient to cover only about ten weeks of imports, and by the end of 1988 the reserve position
had deteriorated to little more than six weeks of import cover. Although the capital account started to improve in 1990, and total gold and other foreign reserves rose to US$2.39 billion, this amount was still equivalent to the cost of only about six wee
ks of imports of goods and services. Net foreign currency reserves were still very low in the mid-1990s, at about R15.7 billion (about two months of import cover) in late 1995, and R10 billion (only about one month's import cover) in mid-1996.
Data as of May 1996