Economic Impacts of the fall of Apartheid

Have some snippets I want to share with everyone regarding the economic impact of apartheid, scrapped from my notes.

Some may not know, but a key mechanism (besides the protests by Nelson Mandela and the ANC) contributing to the dismantling of Apartheid was the utilisation of foreign sanctions by the United Nations and several other countries.

These sanctions aimed to isolate South Africa both diplomatically and economically, with the eventual goal of ending the Apartheid regime. By the late 1980s, countries the USA and the UK had enacted various trade sanctions against South Africa, leading to a 7% decrease in South African trade.[1] Specific sanctions targeting oil and arms embargoes eventually contributed to South Africa’s economic crisis of the 1980s, and in 1985, foreign banks called in South Africa’s loans.[2] The significant impacts on the country’s internal and external investment and export effectiveness[3],[4] had a large contribution to the ending of Apartheid. However, their direct impact on South Africa’s economy was detrimental. In 1993, the government budget deficit was at an unprecedented level of 8.2% of GDP. In fact, economic sanctions, disinvestment campaigns, and the withdrawal of foreign load funds from South Africa diminished the country’s foreign reserves. In fact, in April of 1994, the reserve bank owned zero foreign reserves. (Stals)

Apartheid laws had very tangible long-term impacts on the South African economy. The underinvestment in education and skills development caused the black population to limited overall economic growth. In turn, this causes a handicapped level of human capital, resulting in limited economic productivity, as much of the population can only work in low-skill workspaces, particularly the mining and manufacturing industries.[5] In relation to Total Factor Productivity, this economic characteristic as a result of Apartheid can cause larger swings in South Africa’s TFP due to the volatility of the mining, manufacturing, and other labor-intensive sectors and South Africa’s dependence on them.[6],[7]  

A secondary economic impact of apartheid is the lack of proper access to economic facilities and services in many areas, affecting economic opportunities and the quality of life. Apartheid enforced strict spatial segregation and confined black South Africans to underdeveloped areas, known as “Bantu-stands” that were located far from economic hubs.[8] This “spatial exclusion” is still evident today, as black South Africans main source of employment lie in rural farms and mines.[9] These systems, along with the labor market rigidities that exist as a result of Apartheid’s policies of job reservation for white workers and restrictions on the mobility of black South Africans[10], lead to high unemployment rates, especially among youth. In the context of Total Factor Productivity, high unemployment levels in South Africa suggest that labor resources are unable to be used to the optimal extent, suggesting a lower TFP.[11] Furthermore, the literature posits that high levels of unemployment and relatively low levels of TFP can be correlated into a negative feedback loop.[12] In an economically uncertain environment caused by high unemployment levels, individuals, businesses, and foreign investors may be unwilling to invest expenditures into the South African economy, resulting in the lack of employment opportunity creation in the South African economy, or “jobless growth.”[13] 

[1] Hanlon, “Successes and Future Prospects of Sanctions against South Africa.”

[2] Schwartzman and Taylor, “What Caused the Collapse of Apartheid?”

[3] Mohamed and Irandoust, “A Dynamic Analysis of Financial Interruption on a Small Open Economy.”

[4] Evenett, “The Impact of Economic Sanctions on South African Exports.”

[5] Dlamini, “Breaking Barriers.”

[6] “Research on South Africa Mining and Labor Force.”

[7] Yeboah and Takács, “Does Exchange Rate Matter in Profitability of Listed Companies in South Africa?”

[8] Mokoena and Sebola, “A Multi Criteria Decision Urban Development Framework for Land Expropriation in South Africa.”

[9] Mlambo and Masuku, “Tribalism and Ethnophobia Among Black South Africans.”

[10] Lachman and Bercuson, “III The Effects of Apartheid on the Distribution of Labor Income.”

[11] Toit et al., “Contextual Factors and the Experience of Unemployment.”

[12] Bräuninger and Pannenberg, “Unemployment and Productivity Growth.”

[13] Mkhize, “The Sectoral Employment Intensity of Growth in South Africa.”