South Africa-Economic Distortions and Apartheid Inflation

National accounts in 1994 showed a sharp break with the past, as economic and legal data were reorganized to include citizens of all races and all jurisdictions, including former homelands. The interim constitution implemented in 1994 ended the use of racial categories to determine social and economic opportunity, but the economic system of the mid-1990s nonetheless continued to reflect some of the economic patterns that had developed during more than forty years of apartheid.

Creating the homelands and resettling people in them had drastically changed the country's population distribution and regional economic patterns in the 1970s and 1980s. Accounting for these anomalies caused confusion and obfuscation in economic data and analyses. Many homeland residents were barely able to support themselves, owing in part to the homelands' arid land, inferior roads and transportation, and overcrowding; some were therefore forced to travel great distances to work in "white" South Africa. Many of these workers were excluded from national accounts because they were not legal residents of South Africa.

It became increasingly clear in the 1980s that apartheid could not be implemented as decreed by law, and eventually many official and unofficial policies allowed some flexibility in its application. In 1986 the government called for "orderly urbanization," under which a limited numbers of blacks could live in officially "white" urban areas, as long as housing was available. Few black workers could afford to take advantage of this policy, however, and demographic trends did not change noticeably.

By the late 1980s, black poverty was so serious that the government began to take steps to alleviate some of the most dire impacts of apartheid. Government statistics then indicated that more than 16 million people were living below internationally determined minimum-subsistence levels. Using nutritional standards as an alternative measure, an estimated 2.3 million people were at severe risk from hunger and malnutrition. In 1988 the minister of national health and population development characterized the crisis as "worse than the Great Depression," and in response, the government initiated food programs and other social welfare initiatives (see Health and Welfare, ch. 2).

Data as of May 1996

Historically, South Africa's inflation rate was tied closely to that of its major trading partners. In the 1960s, annual inflation averaged about 3 percent. In line with world trends, it rose above 10 percent in 1974 and fluctuated between 11 and 14 percent through the early 1980s. During the late 1980s, however, South Africa's inflation rates did not decline along with those of its Western trading partners. Inflation reached a high of 18.6 percent in 1986, forcing a depreciation of the rand, and it continued in double-digit amounts after that. The erratic price of oil--a crucial import bought on the black market because of Organization of the Petroleum Exporting Countries (OPEC) sanctions--provided a consistent inflationary pressure.

Inflation continued to erode economic strength in the early 1990s, but declined to 9.1 percent in 1994. Inflation increased in early 1995 under pressure from new social spending, but declined to 8.7 percent by the end of the year. The lower rate of inflation resulted in part from a decline in food prices, the relative stability of the rand, and the lowering of import tariffs. Inflationary pressures persisted in the increase in credit purchases and strong labor demands.

Economic Distortions and Apartheid

National accounts in 1994 showed a sharp break with the past, as economic and legal data were reorganized to include citizens of all races and all jurisdictions, including former homelands. The interim constitution implemented in 1994 ended the use of racial categories to determine social and economic opportunity, but the economic system of the mid-1990s nonetheless continued to reflect some of the economic patterns that had developed during more than forty years of apartheid.

Creating the homelands and resettling people in them had drastically changed the country's population distribution and regional economic patterns in the 1970s and 1980s. Accounting for these anomalies caused confusion and obfuscation in economic data and analyses. Many homeland residents were barely able to support themselves, owing in part to the homelands' arid land, inferior roads and transportation, and overcrowding; some were therefore forced to travel great distances to work in "white" South Africa. Many of these workers were excluded from national accounts because they were not legal residents of South Africa.

It became increasingly clear in the 1980s that apartheid could not be implemented as decreed by law, and eventually many official and unofficial policies allowed some flexibility in its application. In 1986 the government called for "orderly urbanization," under which a limited numbers of blacks could live in officially "white" urban areas, as long as housing was available. Few black workers could afford to take advantage of this policy, however, and demographic trends did not change noticeably.

By the late 1980s, black poverty was so serious that the government began to take steps to alleviate some of the most dire impacts of apartheid. Government statistics then indicated that more than 16 million people were living below internationally determined minimum-subsistence levels. Using nutritional standards as an alternative measure, an estimated 2.3 million people were at severe risk from hunger and malnutrition. In 1988 the minister of national health and population development characterized the crisis as "worse than the Great Depression," and in response, the government initiated food programs and other social welfare initiatives (see Health and Welfare, ch. 2).

Data as of May 1996