SOUTHERN AFRICA: ECONOMIC VULNERABILITIES

Created: 7/1/1986

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Central nicUigrnte

1 July

Southern Africa: Economic Vulnerabilities

South Africaegional economic network that provides significant economic benefits to all of its neighbors except Angola. Pretoria has rnade clear that it will not hesitate to use its economic muscle to retaliate against neighboring black countries should economic sanctions be imposed against South Africa by the West. In our judgment, the threat is credible and would cause considerable economic dislocationardship on regional economies while having only a niinor impact on South Africa's economy. Neighboring black states have no ready or economically feasible alternatives to their dependence on Pretoria, and almost certainly would turn to the West, particularly the US, for relief.

South African Refrional Economic Leverage

South Africa and its neighbors haveetwork of regionalthat include transportation links, trade, investment, andflow of migrant labor.official

publications and open source

outh Africa hasercent of the region's rail network and the most efficient ports making transportation Pretoria's greatest source of economic leverage over its neighbors.

orkers from the neighboring states are legally employed In South Africa. One estimate also indicates thatllegal migrants work In South Africa. Remittances from these workers are estimated to support anillion people in neighboring countries.

fficial data showed that the

foreign black workers employed in South African

and coal mines remitted0 million to

countries of origin through savings programs run by the mining companies.

ost southern African states rely on South Africa for chemicals, petroleum, machinery, finished consumer goods, grain and other foods, although trade has declined recently.

South African: ova th? bulk of foreign investment in Botswana, Lesotho, andne-toird of direct foreign investment in Zimbabweajor share of Zambia's copper mining. In recent years, however, actions by the neighboring states to cut business ties have forced South African companies to divest some of their regional holdings.

South African Regional Economic Vulnerability

Based on South African and IMF data we estimate that Pretoria earns2 billion in foreign exchange from trade and other economic ties'to neighboring countries. In our judgment, Pretoria could absorb the cost of selective economic retaliation with relatively little cost to itself.

South Africa would lose more0 million in revenue if it cut off regional rail service, but Pretoria would not be substantially affected by selective, self-imposed embargoes.

Although foreign workers make uppercent of the mining workforce the dismissal of selected worker would cause only short term disruptions. From Pretoria's perspective, high unemployment throughout the region would by and large prevent any serious long-term labor shortages.

Neighboring States Vulnerabilities

A review of trade and financial statistics shows that all neighboring states, except Angola, are vulnerable to South African economic retaliation.

Botswana

petroleum products used in Botswana come via South Africa and most are refined there.

0 Botswana miners are employed in South African mines.

three-quarters of the grain andercent of the fruits and vegetables consumed are imported from South Africa.

eceipts from the South African controlled Southern

African Customs Union (SACU) account for overercent of government revenues.

Lesotho

vereroMt ofa Sout'i Africa and all exports ere either fold tcmi's1 be transshipped through South Africa.

emittances from theasotho employed in South Africa account for aboutercent of GDP.

The Electricity Supply Commission of South Africa (ESCOM)ercent of Lesotho's electricity.

Receipts from the South African Customs Union (SACU) account forercent of government revenues.

Malawi

earlyercent of Malawi's petroleum comes from South Africa.

0 Maiawians work in South Africa and provide the government withillion in foreign exchange.

Mozambique

ore0 Mozambican miners work in South Africa and provide nearlyf the country's foreign exchange earnings.

SCOM providesercent of Mozambique's olectricity.

Swaziland

from the Southern African Customs Union (SACU) account for overercent of government reve

ore0 Swazi miners work in South Africa.

outh African firms own and operate major Swazi farms and tourist companies.

Zaire

ore thanercent of the minerals exported5 were shipped through South Africa.

of the food, petroleum, and chemicals used by Zairian mines and mills are imported through South Africa.

Zambia

Zambia's Ndola refinery receives some feedstock from South Africa.

Nearly half of Zambia's mineral exports are shipped by South African railway.

Zimbabwe

boutercent Ol Zirnlmbwc's exportmport traffic utilizes the South African transport system.

outh Africa is Zimbabwe's largest trading partner accounting forercent of total trade.

Pretoria's Likely Moves

Past actions and public statements point to the fact that Pretoria recognizes the value of maintaining and even expanding its regional economic relations. In the past the government has used its economic leverage cautiously. In the event of new Western sanctions, we believe Pretoria initially wouldeasured response designed to showcaso its regional economic muscle and indicate to the West the cost of sanctions to the region.

believe that Pretoria first would expel selected foreign workers or disrupt selected rail links. At

the same time the government likely would threaten to respond in kind to further Western economic actions.

is also possible that Pretoria will chose to engage

ampaign of economic sabotage perhaps to reinforce existing vulnerabilities, for example by attacking Zimbabwe's oil routes through Mozambique, or to strike at Angola where its leverage is limited.

Neighboring Countries Options

In our judgment, neighboring African countries have no realistic short-term options for lessening their economic dependence on South Africa or developing economically feasible alternative routes for their Imports and exports. Facedouth African squeeze, these nations almost certainly would turn to the West, and particularly the US, for relief.

Alternate transportation routes through Angola, Mozambique and Tanzania are incapable of handling substantial additional traffic because of insurgency, poor maintenance, and operating problems.

Few alternatives exist for the crude oil and refined petroleum imported from or transported through South Africa. Oil can be shipped from Dar es Salaam via the Tazara pipeline but at

a substantially higher cost. Angloan crude oil, for example, is too heavy for the region's other refineries and the Bcira-Mutare pipeline through Mozambique has been sabotaged repeatedly.

The South African Development Coordination Conference (SADCCiy ni.ie southern and eastern African nations with the goal of reducing economic dependence on South Africa and promoting greater regional economic integration is further than ever from achieving these goals, in our view. Poor economic policy choices, drought, and low world pricos for the region's major commodity exports have combined in fact to boost economic dependence on South Africa, Western donors, and policy advice from organizations such as the IMF.

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