The Good News: Growth. The Bad News: Growth

During the international embargo against South Africa, the BMW plant near Pretoria exported components to the German company's other factories around the world, mostly items such as leather upholstery. But since the embargo was lifted, BMW South Africa has been exporting finished 3-series models to the rest of Africa and to Australia, and it's eyeing other potentially big markets such as India. Exports are expected to double over two years, to an estimated $200 million in 1995. "We are very optimistic," says BMW spokesman Chris Moerdyk.

Throughout the new South Africa, manufacturers are beginning to ship out more exports. Aside from automobiles, companies are stepping up international sales of steel and aluminum as well as some electronic goods such as Siemens telephone equipment. The result is economic growth, a precious commodity for the once isolated South Africans. With the national economy growing at a 3% clip, South African businesses are snapping up foreign capital goods and components to improve factories that had degraded under nearly five decades of apartheid.

But ironically, growth is creating new challenges for President Nelson Mandela. One fear is that the South African economy will repeat the boom-and-bust cycle that has tormented the nation for decades. A cause for concern: Exports may be increasing, but the spending on foreign components has helped tip the current account into a $2.7 billion deficit for the first half of 1995.

So far, that's being offset by strong inflows of capital, mostly coming in through portfolio investment. In the 14 months since Mandela took power, a net $5.5 billion has flowed in compared with a net outflow of $3 billion during the previous 12 months. In a worst-case scenario, that could leave the country vulnerable to a Mexico-style economic crisis if investors yank their funds back out.

The task of making sure South Africa's growth remains on track falls in part to Finance Minister Chris Liebenberg, an Afrikaner and fiscal conservative. To maintain his country's credibility in financial markets, Liebenberg has resisted short-term palliatives such as huge deficit spending to improve social benefits for the country's 30 million black population. The government is also working to dismantle the tariff barriers that have made many South African businesses so inefficient. "I am actually quite gratified that our growth has taken place slowly," Liebenberg told Parliament on Aug. 23. "This gives us opportunities to make it sustainable. We should grow into it."

Mandela's comrades from the African National Congress who now hold cabinet posts are showing the same caution--despite steady pressure from the left wing. Labor Minister Tito Mboweni, overseeing the reform of labor law, in July faced down strenuous demands by the ANC's ally, the Congress of South African Trade Unions, for a rigid system of centralized collective bargaining. Mboweni opted instead for a more flexible setup that would help keep costs down for smaller businesses.

STEADY RAND. The ruling party has also resisted demands from its left-wingers to push the South African Reserve Bank to reduce real rates. The central bank has raised its key interest rate by two percentage points this year, to the current 15%. Meanwhile, Liebenberg has had the support of the entire cabinet in his efforts to keep South Africa's budget deficit below 6% of gross domestic product.

As a result, inflation--at an annual rate of 9%--is moderate by the standards of most developing nations. The abolition of the two-tier currency system effectively has ended 10 years of exchange controls on foreigners, and the rand has remained steady at around 3.6 to the dollar. "Sanity is prevailing in economic policymaking," says Rudolf Gouws, chief economist at Rand Merchant Bank Ltd. and a prominent policy strategist for the Business South Africa federation. South Africa should be able to enjoy its boomlet as long as Mandela's government can maintain its delicate balancing act.

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