Until the late 1960s, South Africa had a fixed exchange rate for its currency; thereafter, the rand was pegged to major foreign currencies. In 1979 the government switched to a system that formally expressed parity against the dollar. The value of the
rand followed changes in the balance of payments and moved roughly with sterling and other weaker currencies until 1985. The foreign-debt crisis of that year caused the rand to depreciate at an unprecedented rate, and it fell to an all-time low of less t
han US$0.40. The rand recovered somewhat in 1987, reaching US$0.43, but it declined steadily, with minor adjustments, after that, dipping to about US$0.26 in late 1995. Between February 1 and May 1, 1996, the rand lost roughly 16 percent of its value, fal
ling from R3.7 to R4.33 = US$1, or a value of about US$0.23.
A parallel currency, the financial rand, was used exclusively for the movement of nonresident capital during the 1980s and the early 1990s. Financial rands developed out of currency-exchange controls instituted in the early 1960s, known as the "blocke
d rand." The financial rand was available only to foreigners for investment in South Africa and was created by the sale of nonresidents' assets in the country. This two-tiered currency system insulated the country's foreign reserves from politically motiv
ated capital flight, because all divestment by nonresidents was automatically met by new investment, and the price of the financial rand varied independently of the commercial rand. Financial rands invariably stood at a discount to commercial rands, but t
he size of the discount depended on South Africa's relative attraction as an investment destination. The discount stood at almost 40 percent during most of 1992, for example, but declined to about 20 percent in late 1993.
Reserve Bank governor Chris Stals, under pressure from the banking and business communities, said that the government would phase out the financial rand in 1994 or 1995, assuming that South Africa's foreign currency reserves reached at least R20 billi
on and that the discount between the financial and the commercial rands narrowed to about 10 percent. Foreign currency reserves were precariously low in early 1994 but, in a dramatic reversal of the capital outflow of 1993, increased steadily throughout 1
994 and early 1995. In March 1995, with foreign reserves of only about R12 billion, the government abolished the financial rand. The newly unified currency traded well on international currency markets, marking a vote of confidence in South Africa's busin
Growth Trends and Potential
One sign of hope for South Africa's economic future in the mid-1990s is the black business sector, which struggled to survive during the 1980s but began to thrive in the postapartheid era. In 1994 the first major black-owned investment company to be l
isted on the Johannesburg Stock Exchange, New Africa Investment, Ltd., had 8,500 black shareholders. It holds a controlling stake in a major newspaper, a large life insurance company, and a cellular telephone company. These and other black-owned businesse
s plan to target rural communities and the poor for a substantial portion of their expansion. But they, like other enterprises in South Africa, must depend on a growing economy to finance new investment.
South Africa's businesses have been disappointed in the relatively slow increase in foreign investment since 1994, but they still hope that outside assistance will help ease the political and the economic transition of the 1990s. South Africa joined t
he African Development Bank (ADB) in 1995, in part because ADB membership offered the possibility of at least US$200 million in development aid by 1997, and because South African companies could bid for contracts on ADB-sponsored projects in other African
countries. The value of these projects was estimated at US$3.5 billion in 1995.
South Africa's economic growth has always depended on increasing gold profits and foreign investments. In the mid-1990s, these continued to be important to the country's future, and both were directly linked to the ongoing dismantling of apartheid and
political reconstruction. Yet profits were certain to drop if the government agreed to raise wages for industrial workers, as most labor leaders insisted. National earnings also would be reduced if the mining companies were to cut back on production. Thu
s, there were strong economic incentives for the government both to limit wages and to avoid serious outbreaks of labor unrest in order to attract much-needed foreign investment. But rising tensions in late 1994 and 1995 signaled the difficulty it faced i
n balancing these two goals. Neither manufacturing, which depended on foreign capital, nor agriculture, which produced erratically as a result of weather conditions, could provide sufficient independent growth to break this cycle. Furthermore, both of the
se sectors had long depended on low wage scales for labor and would experience the same difficulties as the mining sector in the 1990s.
In the long term, it appears doubtful that South Africa's economy can continue the same spectacular growth it experienced earlier in the twentieth century. But under a stable multiracial government, South Africa can gain access to many new export mark
ets for manufactured goods throughout Africa and elsewhere, and, with labor's cooperation and barring serious unrest, it can attract the investments necessary to service those markets. The country is nonetheless likely to remain dependent on foreign capit
al and to suffer from erratic agricultural production into the twenty-first century.
* * *
There is a wealth of information available on South Africa's economy and its historical development. The South African government itself publishes the most useful information, and citations for numerous reports and other publications may be found in t
he annual South Africa Yearbook
, formerly published as the South Africa Official Yearbook
. Source Material on the South African Economy: 1860-1970
by D. Hobart Houghton and Jenifer Dagut is a definitive guide to primary and secondary sources for the historical period.
Secondary sources on historical economic development are divided both on ideological grounds and by topic. The following are some of the best known: Colin Bundy, The Rise and Fall of the South African Peasantry
; D. Hobart Houghton, The South African Economy
; Frederick A. Johnstone, Class, Race, and Gold: A Study of Class Relations and Racial Discrimination in South Africa
; Shula Marks and Anthony Atmore, eds., Economy and Society in Pre-Industrial South Africa
; Shula Marks and Richard Rathbone, eds., Industrialisation and Social Change in South Africa
; and Shula Marks and Stanley Trapido, eds., The Politics of Race, Class, and Nationalism in Twentieth-Century South Africa
Initial analyses of economic change in the 1980s and the early 1990s are found in Merle Lipton and Charles Simkins's State and Market in Post-Apartheid South Africa
. Excellent sources of current information are the South African Reserve Bank Quarterly Bulletin
; Financial Mail
; Financial Times
; Africa Economic Digest
; Africa Research Bulletin: Economic, Financial, and Technical Series
; and the various publications of the Economist Intelligence Unit, in particular the quarterly Country Report
: South Africa
and the annual Country Profile: South Africa
. (For further information and complete citations, see Bibliography.)
Data as of May 1996