Structure of the economy
Mining and agriculture formed the base of the South African economy for the past century. In the early years, the manufacturing sector grew primarily to service these two industries and provide for a growing domestic consumer base, as well as markets in developed countries. This consumer base was circumscribed by racial laws, while the emergent (white) elite relied, to some degree, on luxury imports.
State intervention – including import-substitution measures, promotion of the arms industry and large infrastructure programmes – contributed to the development of manufacturing capacity. However, the competitiveness of domestic manufacturing was undermined by growing concentration and centralisation, compounded by increased isolation. As such, the economy assumed the character of a mineral-energy complex, in a dependent relationship with Europe, North America and Japan. Exports were based mainly on primary extraction and agriculture, while the country imported much capital, intermediate and finished products.
Apartheid laws not only constrained the growth of the domestic market, but also destroyed subsistence agriculture and entrepreneurship among the African population, limiting the growth of small enterprises and the informal sector.
Because of growing international isolation, the apartheid government had an external financing constraint and was thus prevented from running a current account deficit, so investment could not be higher than savings. Government policy channelled a large proportion of national savings into large “self-sufficiency” projects such as Sasol, Mossgas, Iscor and power generation – all of which were highly capital and resource intensive. By the mid-1980s, government was spending almost half of all national savings on these types of projects. The production of surplus power allowed for cheap electricity, which gave greater incentive to investment into capital-intensive, energy-inefficient industries. Before 1994, there was limited opportunity for economic cooperation with neighbouring countries, despite the potential offered by a more diverse resource base and potentially larger market.
The South African economy used capital in an inefficient manner despite its scarcity. In addition, industrial policy was largely influenced by the availability of cheap energy, the generation of which is largely based on hydrocarbons. It is this path-dependency that the post-apartheid government has found hardest to change.
What are some of the basic trends over the recent period?
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