The South African economy is facing difficult times. For almost a century it was characterized by a growth rate which was among the highest in the world. Gold remained an engine of growth until after the Second World War when, gradually, manufacturing took over, stimulated by the import-substitution process which had been begun in the 1920s. This growth process also rested on an efficient use of low-paid African labour. Racial discrimination in the labour market served to create an ‘unlimited’ supply of unskilled labour on which the modern sectors of the economy could draw.
In the 1970s, however, the growth machine began to stall. A series of international shocks, notably the oil price rises and the hardened resistance to apartheid, put pressure on the economy. Even more important was the fact that the apartheid system no longer acted as a driving force, but as an obstacle. A skills bottleneck had formed in the labour market. As the technology of the South African economy grew more complex, and as manufacturing increased its share of GDP, the demand for skilled labour increased. However, the existence of a colour bar in the labour market made it impossible to match supply and demand. Also, the rate of capital formation had begun to slow down, among other things as a result of capital flight after the independence of the Portuguese colonies and the Soweto riots in the mid-1970s. To some extent, however, this was remedied by high gold prices towards the end of the decade. 1 Finally, the import substitution process showed signs of being exhausted as the existing domestic market for consumer goods was saturated.
Thereafter, the picture has gradually become one of stagnation instead of dynamism. South Africa is suffering from an economic crisis which is further compounded by the fact that the country is in the middle of an uneasy