Abstract
The present debate on economic sanctions against South Africa reveals that, despite a long history of the threat and use of economic sanctions in international relations, there still prevails a wide array of misconceptions regarding the nature, mechanisms and consequences of such a policy. This article examines some of the economic aspects of the way in which sanctions can impact on a target country and assesses their implications for the South African case.
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The first major international conference on South African sanctions was held in London in 1964. See Ronald Segal (ed.): Sanctions Against South Africa, Penguin, 1964.
Resumes of the sanctions hitherto imposed are contained in J. P. Hayes: Economic Effects of Sanctions on Southern Africa, Thames Essay No. 53, Trade Policy Research Centre/Gower, 1987, Ch. 2; and in “Sanctions and the South African Economy”, ODI Briefing Paper, Overseas Development Institute, December 1986, p. 2.
Case studies of more than one hundred instances of sanctions since 1914 are presented in Gary Hufbauer, Jeffery Schott: Economic Sanctions Reconsidered: History & Current Policy, Institute for International Economics, 1985.
For more general surveys of both the political and the economic aspects of sanctions against South Africa, see Jesmond Blumenfeld: Economic Relations and Political Leverage, in: James Barber, Jesmond Blumenfeld, Christopher R. Hi11: The West and South Africa, Chatham House Paper No. 14, Royal Institute of International Affairs/Routledge, 1982, Part 2; also Jesmond lumenfeld : Economic Sanctions and Southern African Peace and Security: A Cautionary View, in: Southern Africa in Crisis: Regional and Inter-Regional Responses, Report No. 28, International Peace Academy/Martinus Nijhoff (forthcoming).
On the importance of defining limited and specific objectives in economic sanctions, see Gary Hufbauer, Jeffery Schott, op. cit., p. 79 et seq. On the objectives of South African sanctions, see Jesmond lumenfeld : Economic Sanctions and Southern African Peace and Security, op. cit.
See Jesmond lumenfeld: Economic Sanctions and Southern African Peace and Security, op. cit., and Economic Relations and Political Leverage, op. cit., for analysis of the political impact of economic sanctions on both South and Southern Africa.
Apart from the problem of illicit smuggling, international economic relations would still exist in so far as a stock of foreign resources — capital, labour and technology — remained in the target country. See below for problems associated with withdrawal of foreign capital (“disinvestment”).
For a brief account of the scope of “sanctions-busting” activities in the Rhodesian case, see Robin Renwi: Economic Sanctions, Harvard Centre for International Affairs, 1981, p. 39.
In some instances, especially where the target country is a low-cost supplier of a product to world markets, producers in both the imposing countries and in “third party” countries may gain from the sanctions through increased market shares. For example, both Australian and Canadian producers might be expected to benefit from sanctions against competitive South African mineral exports.
Attitudes to sanctions do not, of course, depend only upon cost- benefit calculations about trade gains and losses. Other factors, such as broad ideological or geo-political considerations are also relevant.
Jill Nattrass: The South African Economy, Oxford University Press, 1981, p. 1.
These relations are detailed in Stephen R. Lewis, Jr.: Economic Realities in Southern Africa (or, One Hundred Million Futures), IDS Discussion Paper No. 232, Sussex University Institute of Development Studies, June 1987. For brief overviews, see Jesmond lumenfeld : The Darker Side of Sanctions, in: International Correspondent Banker, September 1986, pp. 53-54; and Jesmond lumenfeld : Economic Sanctions and Southern African Peace and Security, op. cit.
J.P. Hayes, op.cit., pp. 18-19.
Where this capacity to inflict damage is, in fact, substantial, the mere threat of imposing economic sanctions may, in certain circumstances, prove sufficient to achieve the objectives.
Strictly speaking, the analysis in this section is predicated upon a situation of continuously full employment of all resources. The target country is therefore assumed to be on its transformation curve both before and after the imposition of sanctions. For the case where unemployment exists prior to the imposition of sanctions, see the analysis of the “cost-raising approach” below.
Trade dependency is usually measured as the combined ratio of imports and exports to GDP.
A “perverse” effect could result if economic sanctions were to raise, rather than lower, the prices of some of the target’ s exports. This could arise if the target is a major supplier of a commodity to world markets. (See note 21, below).
These are reflected respectively in the concavity of the target country’ s transformation curve and in the convexity of itscommunity indifference curves. R. Porter: International Trade and Investment Sanctions, in: Journal of Conflict Resolution, Vol.23, No. 4, December 1979.
South African Reserve Bank: Quarterly Bulletin, March 1987, Table S-115.
Republic of South Africa (Central Statistical Service): South African Statistics 1986, Table 16.16.
In some of its major export markets, South Africa faces a relatively inelastic demand curve. In these cases, which include gold and several “strategic minerals”, unless significant stockpiles were available in the consuming countries, restrictions on South African exports would be likely to raise their international prices and hence mitigate the effect on export earnings, until such time as assured alternative sources become available. On the debate over the importance of South Africa’ s strategic minerals, see Hanns W. Maull: South Africa’ s Minerals: The Achilles Heel of Western Economic Security, in: International Affairs, Vol. 62, No. 4, Autumn 1986, pp. 619–626, and the further references therein.
Apart from gold, which typically accounts for at least 40 per cent of South-Africa’ s total merchandise export earnings, precious and base metals, and mineral, vegetable and animal products together account for almost two-thirds of non-gold merchandise export earnings. See South African Reserve Bank: Quarterly Bulletin, March 1987, Table S-65
and South Africa: An Appraisal (Second Edition), The Nedbank Group, Johannesburg 1983, Table 65, p. 118.
Robin Renwi, op. cit., Table X, p. 103
E.G. Cross: Economic Sanctions as a Tool of Policy against Rhodesia, in: The World Economy, Vol. 4, No. 1, March 1981, pp. 69–78.
The National Supplies Procurement Act of 1970 gave the government sweeping powers to “control and direct the manufacture, acquisition, and supply of any goods and services … deemed to be necessary or expedient for the country’ s security”. See Muriel Hrre11 (compiler): Laws Affecting Race Relations in South Africa 1948–1976, South African Institute of Race Relations, 1978, p. 443.
For an analysis of the factors affecting import substitution potential in Rhodesia at the time of UDI see Timothy urtin, David Murray: Economic Sanctions and Rhodesia, Research Monograph No. 12, Institute of Economic Affairs, 1967. A brief acount of the subsequent effects of sanctions on industrial diversification and import substitution is provided in Donald L. Lsman: International Economic Sanctions: The Cases of Cuba, Israel and Rhodesia, University of New Mexico Press, 1979, p. 111–112.
It is only by focusing on such “critical” commodities that the notion of selective sanctions can be distinguished conceptually from measures which are simply scaled-down versions of a general trade embargo.
This is because the target economy’s production point would be pushed well back inside its transformation curve.
The oil embargo issue is discussed at length in Jesmond lumenfeld: Economic Relations and Political Leverage, op. cit., pp. 53–57. The proposed Mossel Bay oil-from-gas conversion project will further extend South Africa’s capacity to withstand oil sanctions. See Financial Mail, Johannesburg, 27 February 1987.
In strictly economic terms, armaments do not fall into the same category as oil, since they are clearly not a crucial productive input. They are, however, widely — and correctly — seen as crucial to the maintenance of political power.
See, for example, Graham Leach: South Africa (Revised Edition), Methuen, 1987, pp. 281–2; and Southern Africa Report, Johannesburg, Vol. 5, No. 11, 20 March 1987.
Southern Africa Report, Johannesburg, Vol. 5, No. 5, 6th February 1987.
However, there will be a compensating — and possibly non-negligible - reduction in the outflow of profits and dividends on the current account of the balance of payments.
However, future output and employment levels may well be more seriously affected. See the discussion of measures designed to lower the rate of growth (below).
To the extent that a process of withdrawal of existing foreign investment causes a reduction in the inflow of new foreign investment, the impact on the real economy will be correspondingly larger. The two phenomena are, however, conceptually distinct. For a discussion of the effect of reduced new investment see below.
These losses must however be weighed against the alternatives. One of the major driving forces behind the recent disinvestment process from South Africa has been the threat to international corporations’ non- South African revenues and profits from the “divestment” and “procurement legislation” campaigns, especially in the United States. In many instances, these potential losses would dwarf the costs of withdrawing from South Africa.
See Jesmond lumenfeld: South Africa: Economic Responses to International Pressures, in: The World Today, Vol. 41, No. 12, December 1985, pp. 218–221.
Since there were domestic and external political and economic pressures on market sentiments it is difficult to distinguish their effects. Indeed, it is clear that the external pressures both fuelled, and were fuelled by, their internal counterparts.
See Jesmond Blumenfeld: Economy Under Siege, in: Jesmond lumenfeld (ed.): South Africa in Crisis, Royal Institute of International Affairs/Croom Helm, 1987, p. 22 et seq.
See Jesmond Blumenfeld: Economy Under Siege, in: Jesmond lumenfeld (ed.): South Africa in Crisis, Royal Institute of International Affairs/Croom Helm, 1987, p. 25. On some of the political contradictions of disinvestment, see also Anthony Robinson: Disinvestment From South Africa: Inside, Doubt Takes Root, in: Financial Times, London, 16th June 1987.
In the case of General Motors, in order to facilitate a management buy-out, the American parent reportedly had to inject additional capital to liquidate debts, in effect implying that the corporation had to buy itself out of, rather than sell off, its South African investment. See Financial Mail, Johannesburg, 7th November 1986, p. 87.
Since September 1985, the self-inflicted element in these losses has been enhanced by the operation of the financial rand mechanism to which all capital flows have been confined. See Jesmond lumenfeld: South Africa: Economic Responses to International Pressures, op. cit., Note 23, p. 22.
E. G. Cross (op. cit., p. 73) estimates that of the total cost to the Rhodesian economy of lost export revenues over the fifteen years of sanctions, almost one-third was attributable to the discounts necessary to induce buyers to circumvent the sanctions.
Donald L. Losman, op. cit., Ch. 5.
But see E. G. ss, op. cit, p. 77 for a contrary argument.
The premiums paid to secure oil in the face of the international embargo alone reportedly totalled R22 billion over 10 years. J. P. Hayes, op.cit., p.40, Note 1.
The relationship between economic growth and apartheid has been the subject of much debate. See Merle Lipton: Reform: Destruction or Modernization of Apartheid?, in: Jesmond lumenfeld (ed.): South Africa in Crisis, op. cit.
also Jesmond lumenfeld: Class, Race and Capital in South Africa Revisited, in: Political Quarterly, Vol. 57, No. 1, January-March 1986, pp. 74–83.
Jesmond lumenfeld: Economy Under Siege, op. cit.
These problems are discussed at length in Jesmond lumenfeld: Investment, Savings and the Capital Market in South Africa, in: John Suckling, Landeg White (eds.): After Apartheid: Renewing the South African Economy, James Currey (forthcoming).
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The work upon which this article is based forms part of a larger project being undertaken by the author on the political economy of economic sanctions.
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Blumenfeld, J. The economics of South African sanctions. Intereconomics 22, 190–198 (1987). https://doi.org/10.1007/BF02932252
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DOI: https://doi.org/10.1007/BF02932252