Economic history of South Africa

Economic history of South Africa

Prior to the arrival of European settlers in the fifteenth century the economy of what was to become South Africa was dominated by subsistence farming and hunting.

In the north, central and east of the country tribes of Bantu peoples occupied land on a communal basis under tribal chiefdoms. It was an overwhelmingly pastoral economy and wealth was measured in the number of cattle men (not women) held. Population growth had created a land pressure that had seen the tribes move steadily from the origins in central east Africa.

In the southern and western parts of the country, San (Bushmen) peoples led nomadic lives based on hunting and the Khoikhoi (Hottentots) peoples led a pastoral existence.

European Settlement

In 1652 a permanent European settlement was established in Cape Town in the far south west of the country. It was not originally planned as a colony but as a refreshment station. Malnutrition, especially scurvy, a vitamin C deficiency arising from a lack of fresh fruit and vegetables, was a problem for the ships of the Dutch East India Company that was plying trade between the Netherlands and the Dutch East Indies, modern Indonesia.

To deal with the problems the Company established a garden at the foot of Table Mountain and bartered cattle from the Khoikhoi to supply to passing ships.

However, the arrival of permanent European settlers in triggered profound change. The Europeans decimated the San driving them to the Kalahari Desert region and virtually destroyed the Khoikhoi people as a struggle for land commenced. The Khoikhoi became farm workers and their identity merged with other groups.

Land hunger led to wars between the Bantu as the settlers migrated eastwards from the original settlement in Cape Town.

Between the wars, commerce developed between the settlers and the indigenous peoples. Sales of produce and stock saw the development of a black, landed peasantry.

Immigrant Skills

The Europeans meanwhile imported slaves from Malaya as artisans. Their skills have contributed to the clothing being a major industry in the Cape today. There were other waves of migration from Europe. Persecuted Huguenots from France turned their hands to wine production and Germans and British grew the nascent industrial base and developed modern farming methods.

The province of Natal, a British colony was found suitable for sugar production but the local Zulu tribes could not be attracted as cane cutters. Indentured labour was brought from India. The descendants of these labourers play an active role in commerce and industry today.

The European migrants diverged: the Continental Europeans merged to speak a Dutch-derived language, Afrikaans, and the English continued to speak English which became the language of commerce. This dichotomy was also seen in the economy, as Afrikaners were mainly farmers while English-speaking South Africans were drawn to commerce and industry.

Boer Republics

The Afrikaners formed two independent inland republics, the Zuid Afrikaanse Republiek (ZAR) and the Oranje Vrystaat (Orange Free State). On the coast the British occupied the Cape Colony and Natal.

The discovery of diamonds in the Cape Province in 1866 the discovery of gold twenty years later on the Witwatersrand in the ZAR transformed the economy and attracted considerable foreign interest. The subsequent diamond and gold rushes saw further migrations of a range of nationalities including Cornish miners and eastern European Jews amongst others.

The British invaded the Freestate and ZAR and brought them under British control uniting the four provinces in the Union of South Africa in 1910.

But perhaps the greatest impact was the influx of international capital to finance the mining operations, including the arrival of Cecil John Rhodes who formed the De Beers Company and Anglo-American.

Migrant Labour

The indigenous people had little taste for the mining economy and this led to a shortage of labour on the mines. In a measure to force labour to the mines, Rhodes, who had turned from forming the De Beers Company to politics, secured the passing of the Glen Grey Act in 1894. The Act obliged the payment of tax with the specific aim of forcing peasant farmers, who were not part of the money economy, to find work that paid money in order to pay the taxes. The Act was a deliberate move by Rhodes to force labour to the mines.

This was the start of a migratory labour system in which black men travelled to the mines to work leaving their families in the tribal areas.

The supply of labour became more than sufficient and the mining companies formed a buying cartel through their association, the Chamber of Mines. This enabled them to create a monopsony (market conditions where there is only one buyer) that suppressed wages. The mines also attracted labour from neighbouring countries such as Rhodesia (now Zambia and Zimbabwe), Nyasaland (now Malawi) and Mozambique (that was then a Portuguese colony) that kept wages down.

“The Rand Rebellion”

South African gold mines are deep and expensive to run and the mine companies endeavoured to keep costs down. However in trying to train blacks for skilled jobs they ran into conflict with white miners. Such was the resistance of the whites that it triggered a rebellion in 1922 in the area around the centre of gold mining, the Witwatersrand.

The “Rand Rebellion” was crushed with what was an early use of air power and some white miners were dispatched to the gallows. Ironically those sentenced to hang were said to have gone to the gallows misquoting Karl Marx and Friedrich Engels’s Communist Manifesto, saying, “Workers of the world unite” but instead of adding “You have nothing to lose but your chains,” the condemned miners added, “for a white South Africa.”

“Poor Whites”

Among the white population there were many sharecroppers, tenant farmers who shared their crops with their landlord in lieu of rent. Drought and the forced sale and consolidation of farms led to many being forced off the land. What were described as “Poor Whites,” almost exclusively of Afrikaner origin, flooded to the towns competing with blacks for jobs on the mines.

This was the period of the global “Great Depression” so all sections of the community were in fact impoverished but special attention was paid to white poverty.

The Carnegie Corporation founded by Scots-born, American philanthropist Andrew Carnegie, conducted a study into white poverty that was published as the report of “Commission on the Poor White Problem in South Africa” in 1932.

It led to the alleviation of white poverty but to some it also laid the foundations for the formalised system of racial discrimination against blacks that became known as apartheid.

Blacks had no vote and the whites used their political power to force the mining companies to protect skilled jobs for whites.

Labour-Afrikaner Nationalist Unity

From the late 1920s whites elected governments that united white labour and Afrikaner Nationalism that used sanctions such as denying government contracts, against businesses that did not employ people who spoke Afrikaans. Nationalised industries were established, like steel and the railways, reserved even low skilled jobs for whites.

The 1930s and 1940s saw the rapid industrialisation of the country as it supplied the mining industry and the government invested in major projects to protect white employment. South Africa not only had gold and diamonds but vast quantities of iron, coal and many other minerals. Agriculture diminished in importance as mining and then industry grew.

While English-speaking South Africans dominated industrial and commercial life Afrikaners banded together in mutual financial organisations that in due course were to be become major players in that sector of the economy.


In 1948, a government was elected (by the whites alone) that introduced the policy of apartheid (separateness) that was ostensibly to allow different racial groups to progress in their separate areas.

In practice, apartheid legislated racial division that confirmed white economic and political superiority and ensured that blacks were maintained in subservient positions.

English-speaking South Africans had participated in the discrimination that preceded apartheid, and tacitly supported the legislation while paying lip service to opposing the laws. By so doing apartheid managed to create a system in which black people were pushed to the margins of their land through the imposition of the Land Act of 1913. Repercussions of this act are still felt today; many blacks are unskilled, illiterate, and have low living standards. Their schooling system, the Bantu education, was based on the notion that black people cannot progress in scientific subjects, and has resulted in many being excluded from such jobs.

Business Support for Apartheid

With the support of foreign capital, the mines and the mining finance houses, largely dominated by English-speaking South Africans, prospered under the system of apartheid and shunned outright opposition. In return for the continued monopsony of labour purchase for the mines that kept wages low and outlawed trade unions, the English-speaking mining companies tolerated job reservation that prevented blacks from developing skills.

Over time the mining companies introduced changes to lower their costs but the alliance with the government continued.

White trade unionism was allowed but there were no black trade unions until the 1970s when black workers began flexing their economic muscles and, through the trade unions, promoting political change.


The imposition of international sanctions on the country began economic pressure that saw the unravelling of apartheid. There were oil sanctions but South Africa continued to be able to buy oil on international markets and developed technology that allowed the conversion of coal into oil. A small gas field was discovered off the coast of the Cape.

But the most damaging isolation was the denial of investment funds and the boycott of South African investments particularly by influential universities and foundations in the United States.

Ironically during the 1980s gold reached its highest price as a result of international tensions reaping huge profits for the mining company conglomerates. However, because of currency restrictions they were unable to invest abroad. The result was that they used their surplus funds to buy up businesses in virtually every activity in the economy.

However, the financial benefit for the mining companies of continuing to support the system eroded as international capital stopped flowing into the country.

Apartheid Economically Unsustainable

In 1990 the white president Frederik Willem (F.W.) de Klerk recognised the economic unsustainability of the apartheid system and released Nelson Mandela the black nationalist leader and unbanned the African National Congress (ANC) that Mandela led.

Despite some fears that the country could become unmanageable because of tribal conflict or even a military take over by the white-dominated armed forces de Klerk and Mandela guided the country to democratic elections in 1994 with Mandela as president.

Despite socialist rhetoric and support from socialist countries in its early years the ANC maintained the mixed economy and encouraged the market economy including relaxing foreign exchange controls.

Black Empowerment

At the same time they embarked on the Reconstruction and Development Plan to improve services including housing, education and health to blacks for whom these services had seriously lagged behind in the apartheid years.

The ANC also initiated a system of “black empowerment” that favoured black employment and required the transfer of some of the white owned businesses including mining companies to black ownership.

Land Hunger Again

A major source of stress remains the redistribution of land. Under apartheid 73% of land was in so called “white areas” and many blacks had been forcibly uprooted and removed to tribal areas.

The slow legal and bureaucratic process of restitution is causing impatience among blacks and concern among white farmers that South Africa may go down the route of neighbouring Zimbabwe where land is being unilaterally seized by the government and its supporters.

First World Infrastructure

The needs of the mines and for the whites to maintain internal security under apartheid had seen parts of South Africa develop a first world infrastructure.

This has served the country well in the post apartheid years, as has a sophisticated financial system that is allowing South Africa to provide services to the rest of Africa that it was prevented from doing under apartheid.

South Africa punches above its weight internationally. Foreign investment has flowed from South Africa around the globe: several major companies including Anglo-American, Old Mutual and South African Breweries are now listed on the London Stock Exchange.

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