SOUTH AFRICA: Balanced Economic Policies Needed For Development

By Lahai J. Samboma Reprint | | Print |

LONDON, Jun 2 1995 (IPS) - If South Africa is to reap economic benefit from the global goodwill it has earned from hosting the rugby World Cup, analysts here say the Mandela administration must introduce more investor-friendly macroeconomic policies.

The tournament — a sporting event surpassed in global interest only by the Olympic Games and the soccer World Cup — will bring a short, sharp influx of cash into the domestic economy, but long- term rewards may elude the country.

“In the short-term, and we are talking very short-term here, it will boost foreign exchange revenues and boost retail trade,” said Gill Tudor, South Africa specialist at the Economist Intelligence Unit (EIU) in London.

“But I don’t see it spurring huge or long-term growth in the economy. For that, the new government has to make it their priority to attract more foreign investment and that obviously means putting the right economic policies in place.”

These include a reduction of corporate tax, further lowering of marketable securities tax and secondary tax on businesses, privatisation of parastatals and the easing of barriers to imports. One sector which will benefit in the long-term as a direct consequence of the tournament, says Tudor, is the tourism industry.

Rugby World Cup organisers expect about 100,000 extra foreign visitors will have been brought to South Africa by the time it ends on Jun. 24. Even if indirect earnings from the tourism sector are excluded, the tournament will bring in 150 million dollars in ticket sales, television rights and commercial sponsorship alone.

While the country has one of the most highly-developed tourism- related infrastructures on the continent — from hotels and restaurants to game reserves and scenic landscapes — the years of international isolation during the apartheid era meant that its great potential as a popular holiday destination went unrealised.

This is all bound to change with the country now under democratic rule, especially with the huge amount of international exposure the World Cup has generated. Some analysts believe that, with time, South Africa could become even more popular as a tourist destination for Westerners than Kenya, Tanzania or The Gambia.

“This sort of international exposure is very good for the tourist industry,” said Tudor. “In the long term, it would mean more tourists. But that is only one sector of the economy. The government must at all costs maintain economic growth, because people are only going to invest when the climate is good and they can get something out of it.”

However, some analysts maintain that the new government has already done much to calm initial fears by investors. They cite the fiscally-restrained budget delivered in March by Finance Minister Chris Liebenberg and several new measures to encourage investment.

They argue that while attracting investment must top South Africa’s list of priorities, the government must address the inequalities left by the apartheid era. This can only mean, they say, taxation-funded higher social expenditure.

“There has to be a balancing act between creating a favourable economic climate for domestic business and foreign investors,” says Dr Janine Aron of Oxford University’s Centre for the Study of African Economies, “while at the same time addressing the political aspirations of the majority.

“The principal positive measures for business were scrapping the import surcharge, lifting the transition levy and removing the non- residents’ shareholder tax of 15 percent on dividends. Corporate tax was left alone and no wealth or capital gains was introduced.”

The abolition of the two-tier exchange rate mechanism — introduced in the 1980s to stem capital flight in the face of anti- apartheid sanctions — is also seen here as a credibility- enhancing measure.

More concessions to big business at the expense of workers or the disadvantaged, Aron submits, is sure to further alienate labour unions already angered by pay awards’ failure to match inflation. Further labour unrest could deter foreign investment.

Ben Jackson, newly-appointed director of the London-based lobby group Action for Southern Africa (ACTSA), holds that the government has to make sure that ‘investor-friendly’ policies do not end by perpetuating the structural imbalances of the apartheid economy.

“This is the path to which the government is committed,” he said. “An integrated process of reconstruction and development, instead of depending on economic growth to make development possible.”

If South Africa’s development policy is to be successful, he argued, the international community must instead focus on ways they can boost South Africa’s economic prosperity through development cooperation and economic aid.