Nelson Mandela's impact on South Africa transcends politics; it fundamentally reshaped the economic landscape and opened new opportunities for the African market. His journey, intertwined with the struggle against apartheid, provides a crucial lens through which to understand the evolution of South Africa's economy and its integration into the global market.
Nelson Mandela, a symbol of democracy and social justice.
The End of Apartheid and the Dawn of a New Economic Era
While South Africa was under the apartheid regime, various sanctions excluded it from international capital markets, and it was not able to issue cross-border debt. Lengthy negotiations led up to the release of Nelson Mandela from prison in 1990 and still more negotiations followed to end apartheid in South Africa and hold elections. Finally, on 10 May 1994, Mandela was elected president of South Africa. The new government wanted to enter these markets and issue US dollar-denominated bonds. In late summer 1994, South Africa’s finance ministry approached Moody’s Investors Service and Standard and Poor’s about obtaining credit ratings.
In 1994, David Levey headed Moody’s sovereign rating group for eight years. We were responsible for establishing and monitoring ratings assigned to government debt. Lots of countries came to the international debt market for the first time, including India, China, Israel, Italy, Greece, Russia, and many Central and East European countries. They all asked for credit ratings from Moody’s, so it was quite an exciting period of expansion for my group.
Key Players and Policy Decisions
When the end of apartheid and the terms of new elections were being negotiated, it was generally presumed that Nelson Mandela and his African National Congress (ANC) party would win any fair and free election held. But it was agreed that the government Mandela would head would be a government of national unity and include all important political parties. So, the government formed was very diverse, made up of lots of different kinds of people with different ideologies.
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Chief among the other parties sharing power with the ANC were the National Party and the Inkatha Freedom Party. In the new government, former South African president Frederik de Klerk of the National Party became deputy president and Mangosuthu Buthelezi of the Inkatha Freedom Party became Home Affairs Minister. It was also very important for us to understand whether there would be a political split in the Black South African community and whether all parties would work together for common goals. Buthelezi gave us his assurance that cooperation would prevail.
Mandela had already made some interesting decisions that indicated the nature of his government’s policy priorities. Mandela also retained Chris Stals as Governor of the Reserve Bank, a position he had held since 1989. One might very well have expected that Stals would have been replaced as head of the central bank. But Mandela kept him in his position and he stayed in that position until 1999, all through Mandela’s presidency. He had appointed Chris Liebenberg Minister of Finance. Liebenberg was very liberal, had been a strong supporter of the ANC and Mandela, and was a key figure in bridging the gap between the ANC and the business community.
Such signaling was important because the ANC was historically a radical left organization. There was a strong belief in many circles around the world that the new South African government would take a socialist direction, nationalizing industries, regulating foreign trade, and so on. So, this was one possibility. As part of our analysis, we needed to understand whether that was likely to happen. Appointing Liebenberg and retaining Stals were initial signals that South Africa would not take a radical direction.
On the other hand, Mandela made appointments that recognized the political importance of radical elements in the South Africa polity. Joe Slovo served as Minister of Housing and Alec Erwin as Deputy Minister of Trade and Industry. These appointments provided an entry point for the Communist Party and more radical ANC elements, giving them a stake in the new government.
Negotiating a New Economic Path
Map of South Africa indicating provinces and major cities.
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We met Mandela at the presidential residence in Pretoria for lunch, followed by a lengthy discussion. He gave us assurances that South Africa wanted to reintegrate into the global economy and be treated like a normal nation. They were not going to undertake nationalizations or other radical moves that would alienate the global financial markets. Mandela stated, and this was strongly reiterated by Finance Ministry officials, that the government was going to aim for a balanced budget, that it didn’t want to fall into the kind of debt spiral that characterized so many developing countries, despite the huge spending pressure created by poverty and unemployment.
Mandela felt that this was the best path forward to solve South Africa’s problems. The country had massive unemployment and great poverty within the majority Black population. There was huge income inequality, with the incomes of Whites and so-called Coloreds (mixed race) being much higher than that of Blacks. The government wanted to deal with unemployment and decrease the level of income inequality. It felt that integrating into the global network of trade and capital markets and increasing exports would be the best way to improve the people’s economic welfare.
Moody's Assessment and South Africa's Entry into Global Markets
South Africa was an unusual country in many respects. One way it was unusual is that while it had very low average income and massive inequality it had advanced-world infrastructure. It had state-of-the-art transportation, communication, and financial institutions. It was like two different systems operating side by side, that’s what apartheid really meant. The White economy was highly advanced. At the same time, the vast majority of the population lived in very poor conditions. It was a very unusual case, and we hadn’t seen anything comparable elsewhere.
The rating committee was made up of all the people at Moody’s who had knowledge about South Africa. Kristin presented her recommendation and we concluded to a Baa3 rating for South Africa. The significance of that rating is that it is the lowest so-called investment-grade rating on Moody’s scale. Still, being investment grade, it sent the message that we felt that South Africa was relatively safe for investors. We thought the risk of default was relatively low compared to other developing countries that had a below-investment-grade rating, what’s often called a speculative-grade rating.
S&P, in contrast, rated South Africa at the top of their speculative-grade rating scale. But Baa3 was our conclusion, and that rating held up for a very long time, in fact, the rating went up a number of steps in subsequent years. Quite recently, unfortunately, South Africa has fallen into major difficulties and the rating has been lowered by all the rating agencies to below investment grade. But this is a long time after the initial rating, 27 years ago. And back then, South Africa was able to issue bonds and the bonds did quite well in the market. The issue was lead-managed by Goldman Sachs and marketed by a large syndicate of global investment banks. So South Africa established its position in international capital markets.
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Challenges and Transformations in Post-Apartheid South Africa
From a context point of view, Africa has changed dramatically since about 2000. South Africa’s economic transformation has been remarkable one, though many challenges remain. Reflecting on the past quarter century of its history highlights the paradoxes of the region’s transformation. For many, the promising vision presented by post-apartheid South Africa’s leadership and today’s reality are not always congruent. Nevertheless, economic reforms undertaken at that time transformed South Africa’s economy and opened it up to investors from around the world.
A lot of emphasis in the earlier years was on investment for both growth and development, with an emphasis on South Africa and southern Africa. Earlier themes for African forums focused on opening up the region to business, with a focus on improving the business environment through internal policy reform. South Africa now ranks 41st globally according the World Banks’s annual Ease of Doing Business report, and 9th on a list of developing countries. Fluctuations in the rand and ratings downgrades remain an issue.
Africa’s infrastructure deficit remains a key, and thorny, challenge . The logistics of building and upgrading roads, ports and airports across the continent are daunting. Financing is the other hurdle. Bold thinking is needed. While the changes across much of the region over the past decade have been remarkable, the next 25 years are going to be challenging as Africa’s population grows exponentially.
This is a subtext where you are seeing a big shift from reliance on aid - that was quite heavily emphasized in the past decade - to other sources of investment. According to the World Bank, between 2013 and 2014 African governments undertook the most reforms to improve its business environment of any region in the world.
The Emergence of a Black Middle Class
Mandela and South Africa won the battle to end apartheid, but the fight to make that journey from a poor village to an urban middle class is one that continues today for millions of people in South Africa, one of the most unequal countries in the world with a widening chasm between rich and poor. The need to establish a middle class and fulfill its aspirations for a better life is, according to many political and economic analysts, South Africa’s next big struggle.
South Africa does, however, have an emerging black middle class, dubbed “black diamonds.” It is a small but rapidly growing group, numbering about 3 million people out of a population of 30.1 million adults, according to the University of Cape Town-based Unilever Institute of Strategic Marketing. For the first time, there are more black South Africans entering the middle class than whites, according to the University of South Africa's Bureau of Market Research. However, the same survey reaffirmed existing inequalities, finding that 1.6 percent of the adult population earns 25 percent of all personal income.
There is still a strong connection between the city-dwelling black middle class and rural areas of South Africa. Many black people who live and work in cities still keep a home in their ancestral village, to retain a connection with their roots. And many black diamonds retain strong ties to traditional cultural beliefs, a report by South Africa’s TNS Research Surveys found. For example, 86 percent said they believed in lobola - the custom where the groom's family pays the bride's family - and 75 percent believed in slaughtering animals such as goats to thank their ancestors.
Mandela, though still a city dweller, has maintained close ties with his home village. His cousin Morris moved back from Soweto to the rural Eastern Cape upon retirement, and lives today in a house that Nelson built for him in Qunu. The simple brick home, built after Nelson was released from prison, is a stone’s throw from the Mandela family graveyard, in the village where Morris and his famous first cousin spent their boyhoods.
During those flamboyant days in Johannesburg he became “a man of the city,” Mandela said.
The economic legacy of Nelson Mandela
Statistical Overview of South Africa's Economic Transformation
The following table provides a snapshot of key economic indicators reflecting South Africa's transformation since the end of apartheid:
| Indicator | 1994 | 2023 (Estimate) |
|---|---|---|
| GDP Growth Rate | 2.7% | 0.3% |
| Unemployment Rate | 20% | 32.6% |
| Gini Coefficient (Income Inequality) | 0.66 | 0.63 |
| Foreign Direct Investment (USD Billions) | 0.7 | 4.5 |
