South Africa: Paving The Fragile Road To Economic Parity

In just three months time, on Apr. 27, a general election is likely to bring the African National Congress to power in South Africa. So far, the business community, both local and foreign, isn't panicking at the prospect of rule by the black majority--even after the ANC recently issued a controversial economic policy paper.

Executives figure that the likely new president, Nelson Mandela, will be careful not to damage still-fragile business confidence in the country--though some of his colleagues still indulge in socialist rhetoric. They want a regime that "attracts foreign investment," says Michael J. Spriggs, a South Africa analyst at S.G. Warburg Securities Ltd. in London. "They are not going to kill the goose that lays the golden egg."

That doesn't mean there won't be shocks. From the time it takes power, the ANC will be under pressure from its black majority constituents to improve living standards and break down the system of apartheid that leaves nearly all South Africa's 30 million blacks in poverty and the country's major corporations in white hands. The trick will be to gradually shift economic power toward the majority without wrecking the engine that gives South Africa a far higher standard of living than its neighbors.

NEW ROADS. The ANC's first stab at an economic policy--the lengthy "reconstruction and development program" it recently put out--didn't help build business confidence. It raises the old threat of nationalization and envisions vastly increasing the economic powers of the state. The centerpiece is a massive 10-year $25 billion public-works program that aims to put 2.5 million people to work building roads and houses, putting in water, sewer, and power lines, and boosting education and training.

Critics question the ANC's contentions that most of the program can be paid for by shifting spending from the military and internal security forces and that the deficit can be held to the current 6% of gross domestic product. After rising 50% in 1993, the stock market has fallen about 3% in January, as investors fret that spending could rekindle double-digit inflation. Suggestions that the state take back unused mining rights to encourage smaller operations also sparked concern.

But on the whole the white business establishment realizes that the program is in part an election device and that the ANC had to promise jobs to lock up the crucial support of the black trade unions. Executives also know that they will have to pay a certain price up front to help the incoming government establish itself. The ANC is considering special taxes including a "reconstruction levy" along the lines of Germany's reunification tax and, perhaps, a capital-gains tax or other levies on wealth.

"AMBITIOUS." Executives hope that any tax increases will pay off many times over in terms of the greater stability only a majority government can deliver. "The goals set by the program, while overly ambitious, are not a problem," says Michael Spicer, adviser to the chairman at the giant Anglo American Corp. of South Africa Ltd. "If the new society is going to succeed, business will have to view those goals sympathetically."

Spicer and others admit they are worried about the costs and the statist tone of the ANC program. In the coming weeks, they will take up the ANC's invitation to try to work out a "national consensus" on economic policy. They will argue for a bigger private sector role and fiscal discipline. Spicer is confident a deal can be worked out. But the next few months are likely to be bumpy as the ANC struggles to deliver results to its constituents while keeping business on board.

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