Since Nelson Mandela and the ANC came to power in 1994's historic multiparty elections, South Africa has been the most keenly observed and analysed of all African countries. Its vast wealth of natural resources underpins an economy which is recovering all the time, and the political transition has been smoother than many dared hope. But high crime rates, particularly in and around Johannesburg, threaten to deter foreign investors. Control Risks' senior Africa analyst Tara O'Connor assesses how far the rainbow nation has still to travel towards its pot of gold.
The economy
President Nelson Mandela will not stand for re-election in 1999. Mandela's likely successor, current Vice-President Thabo Mbeki, is likely to take the government down a more Africanist line, forsaking traditional business interests in the cause of greater social development.
However, a closer look mitigates initial pessimism. The recently-ratified constitution is the most liberal in Africa, and will protect the rights of business and ethnic minorities alike. And, despite the sometimes negative political signals which Mbeki can throw out, he seems determined to carry through a series of economic reforms, including an initial privatisation programme, long-promised competition laws, and the lifting of some trade barriers and exchange control mechanisms.
These reforms will further improve the economic environment for foreign business in South Africa. With global economic recovery, domestic political stability and the lifting of sanctions all having a positive effect, inflation has been cut to 7% - the lowest for about 25 years - and 1996's growth rate is estimated at 3%. The government's current economic programme aims to double this growth rate by the year 2000, and create 450,000 new jobs per year - though the rand's current weakness means that there is little room for slippage.
The economy centres largely around Gauteng province, which includes Johannesburg. Gauteng's cities are built around a labyrinth of gold mines, which contribute more than a third of national output, and the province as a whole accounts for half the government's annual national revenue. Gauteng is also home to the stock exchange, and is effectively the commercial centre for all southern Africa.
Crime
Crime is the most serious problem facing foreign investors in South Africa. Crime costs South Africa more than $9bn per year - more than the total amount of foreign investment since 1991. South Africa's biggest trading partners, the UK, the US and Germany, have all pressed the government to take measures against the problem.
The World Health Organisation (WHO) maintains that, second only to Colombia, South Africa is the murder capital of the world, with 53 murders per 100,000 people (by way of contrast, Colombia has 80 and Russia 30). In 1995, almost 18,000 people were murdered, and more than 1m serious crimes were reported. Most murders take place in townships and low-income areas, but nowhere is immune: in August 1996, German businessman Erich Ellmer was shot dead in an abortive carjacking outside his high-security home in Bryanston, north of Johannesburg. Some 85% of crimes are committed in Gauteng. As a result, younger and wealthier South African executives are increasingly living in the Cape (which is much safer) and commuting to Johannesburg in the week, thereby allowing their families to live in a reasonably secure environment.
The government is belatedly taking steps to tackle crime. In July 1996, the police launched 'Operation Sword and Shield', arresting 7,000 criminals in a month. International management consultants McKinsey & Co have been reorganising the police force in order to make it more effective and less hamstrung by bureaucracy and infighting. These steps have been reinforced by private sector initiatives such as Business Against Crime (BAC), which acts as a pressure group and fundraiser to provide advice, state-of-the-art equipment and logistic support to combat crime. For example, BAC has persuaded BMW to provide 100 high-speed cars and scrambler bikes for an anti-carjacking team, and has helped establish Business Watch surveillance teams in Johannesburg's central business district.
However, success remains limited. Less than a third of those arrested during Sword and Shield were even charged (let alone imprisoned), and crime will continue to increase unless the underlying causes of the problem are addressed. These include a weak, badly paid and often corrupt police force, poor frontier controls, an overburdened criminal justice system, and chronic unemployment.
Conclusion
South Africa's potential and its problems are both set to grow. The careful guidance that the economy needs looks set to continue, but crime will remain rampant until there is real political will to tackle the causes as well as the symptoms. Since most of the problems involve physical security, however, they are perhaps more easily manageable than less tangible issues such as political instability and legal inadequacies. In this respect, South Africa should be seen as a bull market, where opportunities outstrip risks.
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