Real gross domestic fixed investment (GDFI) has risen sharply in recent years, with growth rates of 8,7% in 1994 and 10,4% in 1995. This has been a major contributing factor to the higher rates of economic growth experienced in that period. However, as Figure 10 shows, the private sector was largely responsible for this upturn. Public investment declined steadily from 1989 until 1994, and investments by public authorities declined further in 1995. However, investment by public corporations increased in 1995.

Taken as a whole, GDFI now stands at 16,9 per cent of GDP. This is well below the levels of the mid-1980s, as is illustrated in Figure 11 .

Along with the recent improvements in GDFI, there has been an improvement in the level of fixed capital stock in manufacturing, which increased by 4,2% in 1995. However, in mining and agriculture, capital stock has declined in recent years. This is illustrated in Figure 12 .

The recent upturn in investment has been largely funded by foreign capital inflows, which have far exceeded the increase in net domestic investment. There has been a decline in domestic savings, and in 1995 the ratio of gross domestic savings to GDP has declined from over 24% in the mid-1980s to 16,7% in 1995. Similarly, the ratio of personal saving to personal disposable income has decreased sharply, from 6,3% in 1985 to barely 2,0% in 1995.

In 1994, the current account of the balance of payments recorded a deficit for the first time in 10 years as the value of imports outstripped that of exports. By 1995, rapid import growth resulted in a widening of the deficit to R12,7 billion despite the fact that the value of non-gold exports increased markedly in 1994 and 1995, by 14,9% and 24,7% respectively. The balance of payments has, however, been supported by substantial inflows of foreign capital. The sharp change in the direction of short-term capital flows since 1993 has been marked, reflecting renewed confidence in the economy and high real interest rates (Figure 13) . These inflows of foreign capital have supported rising imports (including imported capital equipment necessary for fixed investment). However, the need to attract continued inflows of foreign capital makes the economy increasingly sensitive to foreign sentiment, and contributes to pressure to maintain high real interest rates. High real interest rates, in turn, have the effect of dampening investment and raising the cost of government debt and housing bonds. If current levels of imports are to be retained or increased, it will be necessary to achieve higher levels of exports, especially of manufactured goods which are less susceptible to the fluctuating prices of commodity markets.

The deficit on the current account of the balance of payments reflects a worsening balance of trade. Figure 14 illustrates that imports of goods and services have been rising faster than exports in recent years.

At present our exports are still largely concentrated in commodities. The sectors with the best export performance in recent years have been either those producing or processing primary products, or those operating in high-technology and high-skill niches. Gold is still a major source of foreign-exchange earnings, accounting for 17% of exports of goods and services in 1995. Some sectors of manufacturing have, however, seen rapid increases in the level of exports. Figure 15 illustrates the shares of selected sectors in the exports of the SACU in 1995. Although the data reflect exports of the entire SACU, South Africa accounts for some 95% of the total.

Figure 15 illustrates that the unclassified category (which in this data includes gold) is the largest segment of exports. Other manufacturing (which in this data include unmounted diamonds and precious stones) is the second-biggest category. When these figures are added to mining we see the importance of this sector in South Africa's exports. Other mineral-related products account for a significant share of total exports. These include basic iron and steel and non-ferrous metal products.

Figure 16 illustrates the destinations of SACU exports, and shows that the southern African region is a very important export destination. Altogether 9% of all SACU exports are destined for other countries in the SADC, with Zimbabwe alone accounting for 4%. Trade flows within the SACU have traditionally not been recorded in the trade data. However, recent calculations done by the IDC indicate that in 1993 South Africa's exports to SACU countries amounted to over R10 billion, or some 12%, of the value of South Africa's goods and services. This makes the SACU an extremely important destination for South African exports. Apart from southern Africa, South Africa's most important trading partners are the large western economies of the United Kingdom, the United States of America, Japan and Germany.

Figure 17 illustrates the shares of selected sectors in SACU imports. Electrical machinery and machinery and equipment together comprise 15% of imports, highlighting the importance of machinery and capital equipment in the SACU's import profile. Vehicles, parts and accessories (comprising mostly motor-vehicle components) and other transport equipment together comprise 24% of imports. Industrial chemicals make up another 14%.

Since 1992, the rate of inflation has fallen substantially ( Figure 18 ). By February 1996, overall inflation was 6,5%, less than half the rate recorded in 1991. While tighter fiscal and monetary discipline has undoubtedly had an impact, much of the decrease in 1995 was due to lower food prices after the drought, and lower rates of increase in the prices of imported goods. The impact of a relatively strong rand in 1994 and 1995, coupled with import-tariff reductions, dampened the prices of imported goods such that their rate of increase has been around two percentage points below that of South African produced goods, as measured by the producer price index.

Although inflation has slowed down, nominal interest rates are only slightly lower than the levels prevailing at the end of the 1980s-the commercial bank real prime overdraft rate currently exceeds 10%. Long-term interest rates have, however, fluctuated. The high average real rates of interest have undoubtedly contributed to the large foreign capital inflows recorded since 1994, but have not induced greater domestic savings. High interest rates have increased the cost of borrowing to finance investment, and have also pushed up the cost of servicing government debt. Figure 18 illustrates the trends in inflation and interest rates.

Figure 19 illustrates the change in the value of the rand. Given the depreciation of the nominal value of the rand and the inflation differential between South Africa and its major trading partners, the real effective exchange rate remained relatively stable. However, during 1995 large capital inflows and the consequent strengthened nominal exchange rate made imports relatively cheaper and South Africa's exports less competitive in international markets.

During February, March and April 1996, a combination of several factors led to an outflow of capital and rapid depreciation of the rand. Analysts have variously ascribed this to a number of different factors, including concerns about political stability, perceptions of underlying economic weaknesses, and expectations about the removal of exchange controls. The depreciation of the rand will help make South African exports more competitive, boost the position of export sectors (including gold), and offer South African producers some added protection from imported goods. However, the depreciation will also mean higher prices for imports, including oil and capital goods. It is also likely to put upward pressure on inflation and interest rates. In late April, the Reserve Bank responded to the depreciation by raising the interest rate by one percentage point.

The depreciation can also be expected to exert pressure on collective bargaining. On the one hand, workers will experience a drop in real earnings if rising levels of inflation are not matched by wage increases. On the other hand, many employers will already be facing increases in the cost of imported inputs, and will be under pressure to constrain wage increases. Employers in high export sectors will be more able to meet wage demands than those without the benefit of higher export prices.

Figure 20 shows that although private-sector wages have risen in real terms in recent years, wage increases have been less than gains in productivity. For example, real private-sector wages rose by 3,3% during the period from December 1992 to June 1995, while labour productivity increased by 8,7%. This has contributed to the lower rate of inflation. It should be noted, however, that a rise in labour productivity is often associated with an upturn in the business cycle, and reflects, among other things, higher levels of capacity utilisation.

With real wage increases below productivity gains, remuneration of labour accounted for 60% of GDP in 1995, as compared with 61,5% in 1992. By comparison, the share of profits in GDP rose from 22% in 1992 to 25% in 1995. This is illustrated in Figure 21 .

Conclusion

This overview of the economy has shown that there have been important improvements in a number of aspects of the economy, including higher levels of growth and investment and lower inflation rates. However, there has been an ongoing rise in the rate of unemployment, and levels of inequality are extremely high. Fixed investment is still insufficient to promote large and sustained increases in economic growth. In addition, the economy is increasingly dependent on large capital inflows. This suggests that substantial progress needs to be made in South Africa's economic performance in order to achieve the development goals set out in the RDP.

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