Discovery of diamonds and gold fuels economic development, particularly of the mining industry, which is quickly brought under monopolistic control by Britain's Cecil Rhodes. Thousands of native Africans are employed in mines alongside Afrikaners, and subjected to an oppressive race-based hierarchy. White workers receive special consideration and protection in the form of color and wage bars.
World War I interrupts economic expansion as inflation and production costs rise. Fearing competition from Africans, white workers demand improvements in wages and working conditions, launching disruptive strikes in 1913 and 1914. Spending on infrastructure improvements and social services increases, but the construction of roads, schools, and hospitals exclusively benefits the white minority.
Hurt by falling gold prices and rising wages for white workers, mine owners employ more low-cost blacks, further stirring white unrest. A 1922 strike quickly turns into an armed rebellion that ends when Prime Minister Smuts declares martial law and violently puts down the insurrection. White employees are forced to accept the partial lifting of the color bar, but the wage bar remains intact.
The government focuses on economic policies to aid its Afrikaner support base, particularly farmers, by increasing available credit through the land bank, establishing market controls, and instituting price supports for agricultural products. Hertzog establishes the state-owned Iron and Steel Corporation in 1928 and implements protective tariffs for secondary industries.
As the Great Depression sets in, and many countries abandon the gold standard and devalue their currency, Hertzog maintains it. Farmers are hard hit when the resulting spike in the cost of South African goods devastates exports, especially minerals and wool. Hertzog finally abandons the gold standard in 1932, leading to an immediate rise in gold prices and sparking a phase of economic expansion.
World War II sparks tremendous growth in the manufacturing sector, which employs 60 percent more people by war's end. The number of Africans living in townships and cities doubles, with blacks outnumbering whites in these areas for the first time. African trade organizations emerge and engage in a series of work stoppages, culminating in a 1946 gold mine action in which 60,000 demand higher wages.
Looking to capitalize on growth in the manufacturing sector and spur agriculture, the government increases its role in managing the economy. Large investments help nurture the textile, pulp, and paper industries and encourage the production of corn and wheat for exportation. The government also promotes the establishment of parastatals to produce fertilizers, chemicals, oils, and weaponry.
Foreign investment, slowed to a crawl after the Sharpeville riots, returns at an unprecedented rate as Prime Minister Verwoerd's relentless suppression of African political opposition restores confidence in the country's economic stability. Despite regulation in the form of government subsidies, agriculture accounts for just 11 percent of GDP in 1960, roughly half its 1930s contribution.
Immigration and foreign capital inflows, attracted by typical rates of return exceeding 20 percent, drive economic expansion. From 1962 to 1972, international investment doubles, and the white population increases by 50 percent. The manufacturing sector, its output exceeding that of the mining sector for the first time, benefits most, attracting 60 percent of all foreign investment by 1970.
Foreign investment becomes concentrated in short-term loans as political instability rises following Soweto. Joint ventures between public and private firms and the governmental purchase of controlling interests in private businesses increase to combat dwindling foreign participation. Gold prices peak in 1980, but the economy of the country producing 60 percent of world's gold supply stagnates.
Many international banks follow the lead of Chase Manhattan in 1985 by refusing to roll over short-term loans, and the economic impact is devastating. Inflation takes off, standards of living plummet, and the country enters a recession. Foreign companies withdraw. Agricultural deregulation fails to spark growth in the face of severe drought and loss of trading partners.
Foreign funds flow back into the economy amid tensions within the ANC between state intervention and free-market policies. The RDP calls for nationalization, but is replaced by a market-oriented Growth, Employment, and Redistribution (GEAR) strategy. The ANC commits to fiscal discipline and anti-inflationary monetary policy as well as privatization and lowering tariffs.
President Mbeki reaffirms a privatization policy with complete or partial sales of parastatals in the media, telecommunications, and aviation and airports. South Africa enters the 21st century heavily reliant on the services sector, which accounts for 65 percent of GDP, followed by the industrial (30 percent) and agricultural (5 percent) sectors.
South Africa's economy wavers in 2001 with unrest in neighboring Zimbabwe and a dramatic collapse of the rand. But steady economic management, a growing trade surplus, and a strengthened anti-HIV/AIDS policy result in increased confidence in 2002, and the year sees a resurgence of the rand and greatly improved growth prospects. Phone company Telkom is listed on the stock market with great success.
back to top