Foreign capital and the prospects for Zimbabwe

World Developmenr,

1976, Vol. 4, No: 1, pp. 25-58. Pergamon Press. Printed in Great Britain.

Foreign Capital and the Prospects for Zimbabwe COLIN STONEMAN*

University of Hull

Summary. - Very little is known about the development or the structure of foreign ownership of the Rhodesian economy, because of the general inadequacy of statistics resulting from participation in federation in the 1950s and UDl. This paper is an attempt to put the story together, by a series of estimates, a rather heavy reliance on statistics published in 1964-5, and an assessment of scattered information appearing morerecently. It is concluded that although Rhodesian private capital is relatively much weaker than its South African equivalent, it is dominant in some important sectors. Some possible consequences of this for Zimbabwean prospects are considered.

I. INTRODUCTION The renewed attempts to find a political settlement of the Rhodesian dispute have raised again the question of the structure of the Rhodesian economy and its prospects. Because of official secrecy, there are few hard facts less than ten years old. Following a settlement there will no doubt be many surprises, possibly including evidence of a strengthening of the economy during its enforced isolation, but there can be little doubt that fundamental changes will then be put into operation. At the time of writing the most plausible assumption is that the state of Zimbabwe will be born before the end of the decade, probably in a political settlement following an intensified guerrilla war, and possibly after increasing, if unproclaimed, adherence to UN sanctions policy by South Africa. In such an event it is likely that around a half or more of the white Rhodesians would leave the country, taking their expertise and much capital with them.1 A minority, in general more closely linked with international capital (mostly in mining and some technologically-advanced industries), would remain and work with the new majority government. What would be the prospects of the infant Zimbabwe? A degree of optimism arising from the observation that Rhodesia is Africa’s second industrial power should be tempered by a recognition that the blacks have been more

effectively excluded from economic power and experience than in any African country except South Africa. Whereas most newly-independent countries are confronted by a situation in which almost all capital is foreignowned (but prepared to work out a modus vivendi, often in fact attracting accusations of neocolonialism), a significant domestic capital existed in Rhodesia before UDI; this has quite certainly been strengthened, absolutely and possibly relative to foreign capital (in some sectors), under sanctions. If this domestic sector is seriously depleted by emigration on a large scale (possibly including removal or destruction of machinery), a badly distorted economy would result. (See further discussion in section VII below.) As part of a study concerned with assessing the situation preparatory to making specific policy recommendations, this paper investigates the role played by foreign capital in Rhodesia’s development, and the growth of domestic capital in its shadow. Of necessity the discussion is only impressionistic for the period since UDI, hut this makes it all the more important that the situation before

* Thanks are due to Duncan Clarke, Sean Gervasi, and Robin Murray for comments on an earlier draft. 1. This conclusion is discussed in section Vi1 below, pp. 55-56.

26

WORLD

DEVELOPMENT

this event be analysed in as much detail as possible. We shall be concerned both with the total size of foreign and domestic capital, and with sectoral distribution. But we shall also be concerned with the context in which this capital operates. Rhodesian capitalism is a peripheral branch of world capitalism having developed almost entirely in response to the locational logic of metropolitan capitalism (although with increasing influence from a ‘sub-metropolis’ based on South Africa). Domestic capital has always been subordinate to foreign capital, and it might be more useful conceptually to focus attention on it, as a perturbation modifying the integration of Rhodesia into the world capitalist system, rather than positing a ‘Rhodesian Development’ which is then influenced by foreign capital. This will, however, only be possible intermittently because statistics of foreign stocks and flows are more readily available and reliable than their domestic equivalents. The external dependence of the Rhodesian economy in 1965 misled most observers2 into predicting dramatic results from sanctions. With over half the industrial capital foreign, exports at about half of GDP, and imports often even more, the economy seemed peculiarly vulnerable. In the event, much of the foreign capital was in effect, nationalized (or ‘Rhodesianized’) without compensation, and both imports and exports greatly reduced, showing that part of the external dependence was at the behest of the world market, and more a habit than an inevitability for the Rhodesian economy. Considerable external dependence remained, of course, and this had to be channelled to (and through) South Africa, but as time passed the suspicion grew that even a large part of this could if necessary have been reduced. None of this is to say that Rhodesia could have survived sanctions in 1945 or 1955: at these times the foreign capital present was insufficiently diversified to have made seizure of it an adequate basis for survival. Nevertheless Rhodesia’s liabilities remain, and will at some stage have to be repaid (by Zimbabwe?) should the country wish to return to the world capitalist fold. Or perhaps more precisely, as early repayment would seriously affect the viability of the economy, an indefinite moratorium might be arranged allowing the full weight of foreign capital to again make itself felt. This could plainly be a severe constraint on the economic freedom of an independent Zimbabwe, in a way not experienced by, for example, Tanzania or Mozambique. At the same time it must be pointed out

that if a white minority, largely boycotted by all except two neighbouring countries (South Africa and Mozambique), could make a fair success of the economy, the same might well be true of a black majority. Were Zimbabwe to formalize the existing effective expropriation and refuse to compensate the owners of foreign capital, she would have the support of most of Africa, and a significant proportion of the rest of the world, to set off against the hostility of the British, South African and American governments, and the multinational corporations. In purely financial ter.ms this could make sense, as it is unlikely that Zimbabwe could expect to receive an annual average capital inflow of E50m or more, sufficient to service the existing liabilities. Against this must be set both a continuation of the present difficulties of finding export markets, and, more significantly, more effective opposition from capital. This would apply both to ‘domestic’ (i.e. white Rhode&an-owned) and foreign capital. The latter, generally opposed to ‘sanctions as a political interference with the working out of its economic rationality, has made few efforts externally to strengthen their impact (by withdrawal of personnel, refusal of permission to expand, etc.) whilst internally its subsidiaries have seen no alternative to full co-operation with the Smith regime. In many cases, and not only those involving South African capital, there has been direct involvement in sanctionsbusting. A ‘Zimbabwean UDI’ would reverse these tendencies, with a substantial exodus of key personnel from both the ‘domestic’ and foreign sectors, together with a proportion of the capital, to an extent dependent on the channels available for evasion of controls. It is a matter of speculation whether the short-term economic results under such a scenario would be worse than those obtaining under the present regime. But the key decision is a political one - whether to seek a long-term aim of self-reliance and socialism (on the model of China, Tanzania or Mozambique), or of dependence on and integration into the international capitalist system. Just as the Rhodesian whites were prepared to accept short-term disadvantages so as to avoid political integration into Black Africa, so Zimbabweans may be prepared to accept short-term stringency for the sake of economic independence. In discussing foreign capital and Rhodesian development it will be convenient to bear in mind a paradigm of the impact of foreign

2. Notable

exceptions

being

Curtin

and blurray

[ 11.

FOREIGN

CAPITAL

AND THE PROSPECTS FOR ZIMBABWE

capital on an underdeveloped country possessing no significant economic activity outside the subsistence economy. We may distinguish three stages.3 In the first stage the area is purely an appendage of foreign capital from a metropolitan area, from where the political power is also usually exercised. It is integrated into the world capitalist economy (and may be abandoned by it) purely on the latter’s terms. Infrastructure that develops is almost entirely concerned with exploitation of some mineral or agricultural resource, and very nearly all the inputs are imported and the outputs exported. Entry to a second stage may be marked by the attainment of local political power, in an economic context still dominated by foreign capital. This was the stage reached by South Africa in 1910, by Rhodesia in 1923, and by Botswana in 1968. With political power comes the potentiality of influencing economic decisions to the advantage of the indigenous people, possibly by discrimination in favour of domestic capital (if any), but generally by forcing some form of compromise on foreign capital. There are two main reasons why such political power rarely leads to anything approaching equivalent economic power: firstly, the foreign capital usually finds a local elite to ally itself with, and the compromise typically continues the outward orientation of the economy, in that exports (and profits) leave the country in exchange for imports that consist mainly of inputs to the foreign sector, and luxury goods for the elite; secondly, even where there is some desire on the part of the elites to bring about the development of the whole country, the power of foreign capital coupled with its political connections, is usually sufficient to be a moderating influence, and its profitability great enough to accept a degree of investment in diversification programmes, without allowing diversion from its main concerns. If the second stage is thought of as full integration into the periphery of world capitalism, it will be appreciated why a third stage (assuming the continuation of a capitalist orientation) is rarely attained. In it the domestic capital has become dominant (or, as in South Africa, a proportion of international capital effectively becomes naturalized), and is powerful enough to gain recognition of its own sphere of influence in less developed areas. South African capital, unlike the capitals of most other African or Latin American countries, is no longer a junior partner at home to international capital, whilst it itself dominates domestic capital in countries such as Malawi. Rhodesia, and (until recently) Mozambique.

27

The case of Rhodesia shows the first two stages very clearly, and also a premature and abortive third stage (during the Federal period). The position of Rhodesian capital is being strengthened in absolute terms under sanctions, and possibly also in relative terms. In the unlikely event of a settlement favourable to the whites (for example, a settlement of the type envisaged in 1972), acquiesced in by neighbouring countries, a third stage might well be reentered. A slightly more likely outcome would involve majority rule with gradually increasing black involvement in the stiIl whitedominated economy, on the model of the Afrikaner rise to economic influence inside the Englishdominated South African economy. Such an outcome, were it politically possible, would probably be acceptable to international capital and is the solution apparently favoured at the time of writing by both Prime Minister Vorster and President Kaunda. However, the most likely outcomes have been touched on already: capitulation by white domestic capital (and emigration to South Africa) resulting in an economy initially dominated once again by international capital, although with nominal black control; or thoroughgoing black nationalist policies eliminating foreign capital, either capitalist (the Japanese model) or socialist (the Tanzanian model).

II.

RHODESIA

BEFORE

1945

The first stage in the development of capitalism in the area now known as Rhodesia was unusually brief. Although ivory hunters and gold prospectors had already begun the disruption of the earlier African societies in Mashonaland and Matabeleland, the first positive economic encroachment by white men did not come until 1890 with the penetration of Rhodes and the ‘Pioneer Column’ of his newly formed British South Africa Company. This was stimulated in part by the expectation of finding a ‘Second Rand’, and by the hope of so displacing the economic centre of gravity of Southern Africa away from the predominantly Boer Transvaal. In the words of Arrighi [ 2 1, The

most

mined

the

important single element which deternature of economic and political

3. It should perhaps be emphasized that no explanatory content, in the manner of W.W. Rostow’s ‘stages of economic growth’, is implied. The stages are picked out purely

for descriptive

reasons.

28

WORLD DEVELOPMENT development in Southern Rhodesia, has been the overestimation at the end of the 19th century of its mineral resources on the-part of the British South Africa Company and the persistence of such an overestimation for roughly 15 years.

Before a realistic view of the region’s potential was reached, however, the Company had invested very large sums in a railway, other infrastructure, and mine workings. The gold yielded fell far short of repaying the investment, and other means had to be sought to increase the value of the assets. This was achieved to some extent by the fostering of a white settler community with a stake in the country and a consequent interest in its development: farmers and merchants began settling in the early years of this century to supply the needs of the mining communities. The nucleus of a distinct, national, white class, with interests divergent from international capital, was thus established. The Company, whilst it would have preferred to see Southern Rhodesia’s incorporation into the Union of South Africa, was content to escape the economic pressures and administrative burdens of government by handing political power over to the settlers as early as 1923. Up to that time it had not paid its shareholders any dividends. Lesser mineral wealth would have meant that fewer white settlers would have been attracted, and either as a result of more prudent investment on the one hand, or bankruptcy of the company on the other, the area would have remained even further on the fringes of the economy with indefinite world capitalist postponement of local political power and the second stage of development (as in Botswana, for example). Greater wealth, on the other hand, if quickly exploited and exhausted, could have led to rapid abandonment of the area by international capitalism (as represented by the British South Africa Company), before any other roots were put down. Great and lusting mineral wealth (as in the Transvaal, or the Copperbelt) might, however, have stimulated such considerable interest in the capitalist world as to result in greater incorporation and proportionately less power for the white nationalists. (The Transvaal remained subordinate to the Cape until 1948; Zambia and the Congo to Britain and Belgium until more recently.) moderate wealth of mineral So the resources, and their over-estimation by international capital, resulted in the early transfer of political power to some 35,000 white settlers in 1923. It might be argued that these settlers in no way represented local political power, but

rather international capital in a more diffuse guise: few of them, after all, had been born in Southern Rhodesia, and the real indigenous peoples - the Africans, at this time numbering around a million - remained powerless. Whilst admitting some truth in this, it must be argued that these people were nevertheless the nucleus around which a semi-autonomous capitalism has developed: with hindsight they are seen to have had a commitment to the area not manifested by white miners or international capital in other areas, who readily moved on to more profitable fields. The Africans themselves, and the later white settlers (in very different ways) were used by, and incorporated into, this incipient capitalism on its own terms. It can therefore be said that an independent political power existed locally, in conflict with international capital. Before 1923 this manifested itself in pressure on the British South Africa Company to improve the economic infrastructure, which the Company was loath to do, having over-invested already, from its point of view (see [ 31). This conflict continued in the inter-war years because of the shortage of local capital and the consequent necessity to seek foreign investment or reinvestment. The narrowness of the domestic base was’in sharp contrast to the situation in South Africa. This divergence was in part caused by the much larger and longer established (and therefore inclined to regard itself as ‘South more African’) white population in the latter. But perhaps as important was the modesty of the mineral wealth in Rhodesia, which was insufficient to induce much international capital to move its residence to the country, contrary to the situation in South Africa. Rirodesia attracted no Oppenheimer. The modest profits made by the British South Africa Company did not result in much reinvestment, and its Rhodesian assets finally passed into the hands of the Oppenheimer Empire in 1965-6.4 With the exception of some mining companies, other international capital showed little interest until after World War II. This relative isolation left the infant capitalism to develop as best it could: its sources of funds were more or less restricted to the smaller

4. The British South Africa Company was one of the three parents of Charter Consolidated, set up under Harry Oppenheimer’s influence in 1965. The next year. Charter’s Rhodesian assets were grouped with those of Anglo-American in Anglo American Rhodesia Limited (Amrho), in which Charter holds only a minority interest.

FOREIGN CAPITAL AND THE PROSPECTS FOR ZIMBABWE

29

Table 1. Industrial origin of the Gross Domestic Product (Em) GDP (NDP 194s1953)

Non-African apriculture

1945 1946 1947 1948

(42.5) (49.0) (57.5) (69.01

1949 1950 1951 1952 1953

(78.0) (95.3) (108.0) (13O.OJ (145.0)

13.5 17.4

1954 195s ih56 1957 1958

168.5 186.5 211.6 238.0 249.1

1959 1960 1961 1962 1963

African agriculture

Mining and quarrying

Uectricity, water etc.

Building and construction

Distribution

Other services

5.5 5.1 5.1 6.9

5.3 6.5 7.7 9.0

(0.7) (0.8) (0.9) 0.9

(1.5) (2.0) (3.0) 5.0

;9

ls.9

4.9 4.9 _

7.8 9.4 10.1 13.6 13.2

10.6 14.0 18.5 20.8 22.2

1.2 1.5 (1.9) (1.8) (1.9)

6.9 8.4 (9.3) (11.9)

10.9 13.1

27.2 26.6

23.1 24.6 28.6 29.7 30.0

14.6 15.1 11.5 17.3 16.7

14.5 15.7 16.7 17.5 17.6

24.6 26.8 30.1 35.8 38.8

4.0 4.6 5.5 6.4 6.8

13.2 15.5 17.9 23.1 23.7

23.4 27.0 29.6 32.4 34.3

49.9 56.9 65.8 76.7 82.0

264.6 279.9 294.6 299.5 308.2

33.9 35.6 44.5 42.7 44.3

16.9 17.1 19.5 20.3 20.2

17.2 19.1 18.7 17.0 15.8

41.8 47.2 49.5 52.5 53.7

7.0 9.3 10.5 11.6 13.2

21.3 22.4 18.0 16.2 14.6

38.6 40.9 42.6 43.3 43.9

87.9 88.4 91.5 96.2 102.6

1964 1965 1966 1967 1968

323.2 341.5 342.8 375.6 390.9

44.2 41.5 42.8 41.0 38.0

22.0 16.3 24.5 34.9 22.4

19.0 24.1 22.6 23.1 24.2

59.0 67.4 61.5 71.1 78.6

11.4 10.9 12.1 12.9 13.2

16.4 16.0 16.3 20.2 25.2

45.6 52.3 44.7 50.6 55.8

105.6 113.1 118.4 122.0 133.5

1969 1970 1971 1972 1973 1974

464.6 491.3 569.7 644.6 700.3 840.4

50.1 47.6 61.2 71.8 75.0 93.8

32.8 26.9 36.4 41.6 29.7 47.4

31.3 33.6 35.2 35.0 48.9 60.4

91.2 110.2 131.0 154.1 173.9 212.2

14.8 15.5 16.2 17.5 19.6 21.2

28.9 29.4 32.3 40.7 42.7 50.6

62.4 69.1 77.8 87.8 100.6 117.3

152.8 159.2 179.9 196.2 210.1 237.6

_ 13.2

5.4

_

_

194X-50 thedata dertve fromAccounts (71 (1946-51). Table 17. 1945-7 clnd 1951-3 from Table 1 of Accounfs 17) (1967). in the case of NDP raised by 8% to make aliowance for output m the subsistence economy. 1 estimate that the figures for each of the years 1945-53 should be raised by a further 7-86 to make them comparable with the gross figures for later years. (The ‘Monckton Report’ [8] gtves f 145.2m for 1952 and f 159.5m for 1953 (Appendix VI, p. 304j.j For 1954-9 from Table 1 of Acmunts [7] (19671, Table 9 of Accounrs (1954-64). and (for some 1959 data)EconomicSurvql [9] (1969). For 1960-4 from Table 4 o!‘Acmunrs 17) (1970). Note that I” 1970 numerous small revisions were made m the 1960-8 data. These were mainly upward revisions of African agriculture (between fl.2m and f2.Om) and redistribution from ‘Other services’ to the other sectors. It may therefore be inferred that stmilar revisions should apply to earlier years also. For 1971-4 from Ecmomrc Sure? 191 (19741. Note that in this issue also there were many reviuons of earlier data, apam manly affecting African agriculture. the adJustments varying between +f4.8m and -f 13.5~1. No explanation is available for these considerable revisions which represent an average reduction of f4.lm per year in the estimates of the output of Afrxan agriculture over the years 1965-73. For For

Notes: -Data not available kx.+res in thts and other tables are in Rhodeslan pounds tcunent). tip to the 1967 devaluation these were equal to the pound sterlmp: values m the currently used Rhodeslan dollars ma? be obtamed by multlplicatlon by 2. and in pounds sterling ustq the current exchange rate. The parentheses for 1945-53 for GDP mdlcate that NDP IS m fact quoted for these years. Other feures in parentheses are m fact net output f~ures and no attempt has been made to eliminate the element of double countmg that may be present. Thrs is not usuail? of large magmtude in later years. for which compartsons are possible. In addnion the fgures for 1945-7 and 1951-3 are estimates by the author for the minmg and quarrying sector and the manufacturing sector. In the case of the former. gross ourput data were converted to net output using a factor calculated from data for later years. tar the manufacturm~ sector. net output was converted to contribution IO GDP similarly. Cull details are available from the author.

scale gold mines and farming, with tobaccogrowing rapidly assuming the most important position. The weakness of domestic capital before World War Il’ was a challenge to the domestic political power. This was held by a coalition of white farmers (and a few non-

agricultural settler entrepreneurs) and white workers, in opposition to groups representing international capital. The conflict was not very sharp at this stage, and there was little support for a policy that could be described as state capitalist: South Africa was already moving in

30

WORLD DEVELOPMENT Table 2. Industrial origin of the Gross Domestic boduct: Af&an ngriculture

1945 1946 1947 1948 1949 IV.50 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974

18.3

7.8 6.3 5.1

14.1 13.2 13.5 12.5 12.0 12.8 12.7 15.1 14.2 14.3 13.i 12.2 12.5 10.9 9.7 10.8 9.7 10.7 11.1 10.7 Il.2

8.7 8.1 8.3 7.3 6.7 6.4 6.1 6.6 6.8 6.6 6.8 4.8 7.1 9.3 5.7 7.1 5.5 6.4 6.5 4.2 5.6

Mining and quarww 12.9 10.4 8.9 10.0 10.0 9.9 9.4 10.5 9.1 8.6 a.4 7.9 7.4 7.1 6.5 6.8 6.4 5.7 5.1 5.9 7.1 6.6 6.2 6.2 6.7 6.8 6.2 5.4 7.0 7.2

Marlufacluring

12.5 13.3 13.4 13.0 13.6 14.7 17.1 16.0 is.3 14.6 14.4 14.2 15.0 15.6 15.8 16.9 16.8 17.5 17.4 18.3 19.7 17.9 18.9 20.1 19.6 22.4 23.0 23.9 24.8 25.2

this direction with the establishment of a state iron and steel industry (Iscor) in 1928, when international capital refused to provide the necessary finance. Nevertheless, some small moves in this direction were apparent in Rhodesia, initially in an expanded road-building programme. In 1936 direct steps were taken to strengthen the bargaining power of tobacco farmers against the United Tobacco Company which held a monopsonistic position in tobacco marketing. The resulting Tobacco Marketing Act (1936) was only partially successful. In the same year, the Electricity Supply Commission was set up, acquiring existing power stations (except for the Bulawayo and Salisbury municipal ones), and beginning a large expansion programme which resulted in the setting up of three new generating stations before the war began. The Roasting Plant, to process low-grade ores, was set up in 1938 by the government, and amounted to a subsidy for the relatively inefficient small-scale, domestic gold miners. Both the railways, and the colliery at Wankie remained under the control of the British South Africa Company, however. The crucial event which was to bring about industrialization and the development of a domestic capitalist class, came from outside,

Electricity. wilter,etc.

percentages

Budding and conStl"Cll"n

DistnbUUO"

Il.61 11.61 (1.6) 1.3

13.5) 14.1) (5.2) 7.2

1.6 (1.8) Cl.41 (1.3) 2.4 2.5 2.6 2.7 2.7 2.6 3.3 3.5 3.9 4.3 3.5 3.2 3.5 3.4 3.4 3.2 3.2 2.8 2.7 2.8 2.5

8.8 18.61 19.2)

13.7

27.5

7.8 8.3 8.5

13.9 14.5 14.0 13.6

29.6 30.5 31.1 32.2 32.9 33.2 31.6 31.0 32.1 33 3 32.6 33.1 34.5 32.5 34.2 32.9 32.4 31.6 30.4 30.0 28.3

I .5

8.8

;::

3.0 8.0 6.1 5.4 4.7 5.1 4.7 4.8 5.4 6.4 6.2 6.0 57 6.3 6.1 6.0

14.3

14.”

13.7 I?.0 14.6 14.5 14.4 14.3 14.1 15.3 13.0 13.5 14.3 13.4 14.1 137 13.6 14.4 14.0

however. This was World War II. Its effect was two-pronged: an increased demand for Rhodesia’s chrome and asbestos ores by Britain and America; and a degree of isolation of the Rhodesian economy from its former sources of investment capital and imports, amounting to involuntary protection. Demands were therefore made on incipient (or in many cases. non-existent) local industries. and these demands were considerably increased by the establishment of an air training scheme in the country in association with the British government. To quote Arrighi again, This explosion in demand could have led merely intlation as it did in many other underdeveloped

to

countries. Instead it was under these circumstances that the nntional character of the white bourgeoisie and white workers which controlled the government became Imporraur. Contrary to what happened in the economies of the ‘enclave’ type, controlled by international capitalism with no interest in the development of the country, the Government in Southern Rhodesia could intervene both through direct anti-inflationary controls and by setting up actual iron and steel production and cotton spinning plants which made the growth of secondary industry possible.5

5. Referenoe [4]. Italics in original.

FOREIGN CAPITAL AND THE PROSPECTS FOR ZIMBABWE Thus with the artificial protection of the war, the first tentative steps towards the establishment of a domestic economy were made. The necessary large-scale capital expenditure was made by the government in plant for the production of iron and steel (‘Risco’, at Que Que) and cotton spinning (at Gatooma), but later stages in the production of consumer goods were left to private capital, necessarily, in wartime conditions, largely domestic. Gross output in the manufacturing sector more than doubled between 1939 and 1944, and by 1946 had reached E17.3m or over three times the pre-war level. (Figures from the 1968 Census of Producrion [ 5 I.)

III.

THE PERIOD

FROM

1945 TO 1953

With the end of the war, it might have been predicted that reduction of demand for Rhodesia’s exports coupled with exposure to cheap imports would kill the infant industries in the cradle. This might indeed have been the case except for the occurrence of several new factors: the continuing world post-war demand for raw materials; Britain’s dollar shortage, which stimulated a switch to Rhodesia as a supplier of tobacco,6 and the flight of capital (and migrants) from Britain, and (after the Nationalists came to power in 1948) from South Africa. The low internal demand in Rhodesia, caused by the poverty of non-whites was thus prevented from exerting its full effects and causing stagnation. On the contrary, the new stimuli proved so powerful that the number of Africans in wage employment rose from 254,000 in 1936 to 377,000 in 1946 and 555,000 in 1954 (to level off above 600,000 in the late 1950s). An outside observer, unaware of the restriction of the internal market, might selfexpected growth to become have sustaining. The new developments, however, were largely by foreign private capital and domestic public capital (mainly concerned with infrastructure); the small domestic private capital base did not expand at so fast a rate, partly because of the shortage of domestic capital, and partly because of increasing competition, both from cheap imports, as Britain and Europe recovered from the war, and internally from the new foreign industries backed by much larger capital resources. During this period the relative contributions of agriculture and mining to GDP decreased. whereas that of rhanufacturing industry increased (see Tables 1 and 2). The large inflow of foreign capital allowed consumption to

31

remain at around 70% of GDP even though investment reached the exceptionally high level of about 40% of GDP (see Table 3). Measures of the relative importance of foreign capital Ideally, a calculation of the ‘returned value’ of foreign capital to Rhodesia over a period of years would quantify the changing financial contribution to the economy. Reynolds [ 61 has defined ‘returned value’ as the sum of monies paid into the domestic economy by the foreign enterprise for operating costs (wages, rents, locally-purchased inputs), taxation, duties on imports, and miscellaneous minor payments. In the case of Rhodesia, adequate statistics are not available, and in most cases have not been collected. In particular, the published statistics do not distinguish between foreign and domestically-controlled companies as sources of wage payments. Neither is it possible to approach the problem from the opposite direction by deducting payments abroad from the value of gross output, for import statistics (when available) do not show the precise destinations of the intermediate and capital goods involved. However, some idea of the extent of the domination of the economy by foreign interests can be gauged by three measures of varying relevance and reliability: (1) the value of foreign liabilities of the country: as far as 6. Visible exports nearly quadrupled over the period (Table 6), rising to over half of GDP in value (Table ll), and showing a slight swing away from the typical colonial pattern of heavy bias towards primary products. Minerals declined in relative importance, but thanks to the rapid rise of tobacco-growing, agriculture increased its share. The dramatic increase in manufactured exports to nearly one quarter of the total (a fifteenfold rise at current prices) is only in part indicative of industrial development, which at so early a stage was inevitably much concerned with import substitution. About two-thirds of the value of manufactured exports in 1953 (E15.2m) was accounted for by food, beverages, tobacco, textiles, footwear, apparel and made-up textiles. A very rapid increase occurred after 1950 when India boymtted South Africa, and Rhodesia developed a profitable trade in textiles and clothing with her Southern neighbour. But the colonial pattern was clearly beginning to break down by 1953, for exports approaching f lm in value each were made by the chemical, non-metallic mineral and metal industries, and electrical machinery and transport equipment exports were also growing. Very nearly all the manufactured exports went to neighbouring countries, however, in contrast to the primary e.xports which went almost entirely overseas (and mainly to Britain).

32

WORLD DEVEL0PrvIEN-P Table 3. E’xpenditure Consumption fm

%

Government cur*ent expenditure fm B

on the Gross Domestic GFDCF

Product GDP (market

Net exports

plusstock changes fm

c:

tm

%

prices) fm

I946 1947 I948

33.7 43.2 49.8

66.6 77.3 71.3

5.8 7.3 1.3

11.5 13.1 10.5

10.9 19.4 28.8

21.5 34.7 41.3

-1.7 -14.8 -18.7

-3.4 -26.5 -26.8

SO.6 55.9 69.8

1949 1950 19s 1 1952 1953

59.2 69.2

74.4 70.9

8.4 10.4

10.6 10.7

3 7.5 34.7 59.6 57.9 44.0

47.1 35.6

-27.5 -17.9 -45.6 -40.1 -20.3

-34.5 -18.3

79.5 97.6

1954 1955 1956 1957 1958

124.2 136.7 155.3 173.2 184.8

70.4

1959 1960 1961 1962 1963

_

Statistical dlscrepancy (Expendrtues - GDP) fm -1.9 -0.8 -2.6

_

10.6 9.2 9.4 9.6 10.4

48.2

27.3

-15.1

-8.6

176.5

-0.5

69.9 69.1 68.8 70.4

18.7 18.0 21.2 24.1 27.2

68.2 83.3 86.4 89.4

34.9 37.1 34.3 34.1

-28.0 -34.6 -31.4 -37.9

-14.3 -15.4 -12.5 -14.4

195.5 224.7 251.7 262.5

-0.6 0.5 0.6 1.0

184.4 194.3 203.1 208.5 217.4

65.7 64.4 63.7 64.3 65 .O

32.2 31.9 36.6 38.7 42.6

10.5 10.6 11.5 11.9 12.7

66.9 69.2 70.7 50.7 43.2

23.9 23.0 22.2 15.6 12.9

-15.0 -4.4 +2.5 +17.1 +27.2

-5.3 -1.5 +o.Ll cs.3 +a.1

280.5 301.5 318.6 324.1 334.5

1964 1965 1966 1967 1968

237.4 245.1 249.7 272.3 294.0

66.9 66.2 68.9 70.4 70.0

40.7 46.2 45.7 49.5 52.9

11.5 12.5 12.6 12.8 12.6

45.4 52.0 58.7 67.6 91.0

12.8 14.0 16.2 17.5 21.7

+22.8 127.8 +8.3 -2.6 -17.8

+6.4 +7.s +2.3 -0.7 -4.2

354.6 370.8 362.3 386.8 420.1

1969 1970 Awragc~ 1946-50 1954- 63 1964-70

313.0 347.8

65.5 67.0

57.4 60.9

12.0 11.7

95.8 107.2

20.0 20.7

+12.4 +3.4

~2.6 +0.7

478.3 519.0

72.2 66.7 67.8

-22.8 -4.5 +2.1

37.1 25.3 17.6

11.1 10.9 12.2

sources: For For Fir Fir

1946-50 fromAccounts 171 (1946-51). Table 5 and (net exports) Table 3. 1954-8fromAcmunrr 171 (1954-64),Table5 (and GDI:CF 1951-3). 1959-64 from rM0nfhf.v Digest 01 Sfatisrics 101 (March 1970). Table 43. 1965.. 70 Acmunrs 171 (1970),Table 9.

[

from

possible these should be expressed in market value (rather than book value), and should exclude liabilities other than long-term (i.e. less than one year); (2) flows of capital investment and amortization; (3) flows of property income (dividends, interest and profits). Even these measures are very difficult to obtain in a form allowing comparison over any length of time. The reasons for this are various: the primitive state of the statistical services after World War II (very little was published prewar); the disruption caused by the beginning of the Federation, and in particular the consolidation of balance-of-payments (and some other) statistics with those of Northern Rhodesia and Nyasaland during the Federal period; and finally, of course, the suppression of many statistics after UDI. For these reasons it should constantly be borne in mind that there are various breaks in the comparability of the series, and that many of the figures are only rough estimates. Foreign

To

liabilities

my knowledge,

p. 6.

no estimates

have been

made of the value of foreign assets in Rhodesia in the immediate post-war years. This value was high in African terms, and much higher than the value of private domestic capital, but not very substantial when compared with the investment which was to follow. It was still dominated by the holdings of the British South Africa Company, although two American companies were extending their chrome mining operations, and Turner and Newall were responsible for most of the output of asbestos. Frankel [ 111 estimated that public listed capital invested between 1870 and 1935 amounted to L3.5.993m. Most of this is attributable to the BSA Co., and in particular about E26m to Rhodesia Railways (including the sections through Bechuanaland, Portuguese East Africa and Northern Rhodesia). Unfortunately the figure he gives for private listed capital, &53.484m, includes also Bechuanaland and Northern Rhodesia. A rough estimate can be made by ignoring the former and dividing the sum between the two Rhodesias. Frankel also quoted an estimate that almost E25m had . been invested in the Nothern Rhodesian copper

FORElGN CAPITAL AND THE PROSPECTS FOR ZIMBABWE Table 4. Capital account of the Balance ofPayments Government and oubbc authorities

Corporate and other “rtvate

net

Open market mvestme”ts*

net

“CA

Total cadtal inflcw (net)

Net balance 0” cltuent account

CUrrent DlUS &pita1 balance

3.5 -2.1

0.7 -1.2

1et5

I”lb u

3Eil. tties

1945 1946 1947 1948

1.7 3.6 38.0 62

5.3 3.8 29.9 7.7

- 3.6 -0.2 8.1 -1.5

0.8 1.6

0.0 0.5

0.8 1.1

3.6 1S.l

0.1

3.5 15.1

11.6 13.6

-13.9 -16.1

-2.3 -2.5

1949 1950 1951 I952 1953

11.6 13.4 30.2 23.0 22.6

3.8 9.5 6.6 4.1 IO.1

7.8 3.9 23.6 18.9 12.5

7.2 7.7 11.4 9.6 14.1

0.1

0.5

7.1 7.7 11.0 9.6 13.6

14.9 11.6 34.6 28.5 26.1

-27.3 -19.4 -47.4 -42.5 -14.7

-12.4 -7.8 -12.8 -14.0 1 .4

1954: I9557 19561 19s7t 195%

16.0 9.8 4.3 5.9 25.0

-0.8 7.5 -0.4 -7.1 1.5

16.8 2.3 4.7 13.0 23.5

6.5 13.5 15.6 21.1 21.3

2.1 3.1 -0.4 -1.1 -0.2

4.4 10.4 16.0 22.2 21.5

1959: 1960t 1961t 1962: 1963:

20.2 6.5 12.9 0.8 0.2

1.1 -2.1 -2.1 -0.7 -2.5

19.1 8.6 15.0 1.5 2.3

18.9 22.3 10.7 -1.5 2.5

-I .7 3.6 -0.2 0.5 -0.4

20.6 18.7 10.9 -2.0 2.9

1964 1965 1966 1967 1968

0.6 -0.3 1.1 2.0 -2.9

-0.3 0.9 3.7 1.8 0.2

-0.3

-2.7 0.2 -3.1

8.4 -6.7 -0.5 0.8 19.7

1.1 1.8 0.8 -2.3 2.6

1969 1970 1971 1972

-1.3 -0.4 -3.6 -0.2

-1.5 -0.7 - 3.8 -0.6

3.2 6.8 IS.2 -2.8

-0.6 0.8 0.8 1.4

0.3 0.3 0.2 0.4

0.4

mtlou

(Em)

Ii& ities

I.?

1. ets

33

IGilities l

4,s 8.7 8.3 6.4 7.6

a:ets

inflow

.

*

-2.8 0.9

5.3 19.8 -13.6 -28.9 -5.2

-0.8 -11.1 21.9 35.3 12.8

20.4 I .6 42.6 70.5 57.8

-14.2 -15.4 - 36.5 -72.5 -62.2

6.2 -13.8 6.1 2.0 4.4

-2.7 -3.2 -5.6 -4.0 -0.4

24.0 22.3 -13.0 0.3 9.7

-26.7 -25.5 7.4 -4.3 -10.1

13.0 1.8 33.5 -4.8 -4.9

-15.0 -6.1 -11.0 -4.8 14.4

-2.0 -4.3 22.5 -9.6 9.5

7.3 -8.5 -1.3 -3.1 17.1

-0.7 3.0 1.1 2.1 3.7

5.1 -8.7 -0.5 -0.8 -2.1

-5.2 11.7 1.6 2.9 5.8

1.8 2.0 -2.3 0.0 19.8

2.4 13.1 -2.2 -8.3 -25.0

4.2 15.1 -4.5 -8.3 -5.4

3.8 6.1 14.9 -4.2

1.8 2.9 4.0 5.1

2.7 3.5 4.2 5.3

5.0 8.9 15.3 0.6

1.8 --7.0 -27.5 2.2

6.7 1.9 -12.3 2.8

-0.9 -0.5 -0.2 -0.2

sources For IY45-53 data are taken from Irvbre 1 131 pp. 396-9. For 1954-63 from Federafwn Accounts 1141, Table 202. Omttted from the present table for reasons of brevtty. and because comparable f~ures are not available for other periods (or for Rhodesia alone). are transactions of the banking sector, which were as follows fqr the years 1954-63 (in fm). Liabilities. 8.7. -0.7, 3.7. 11.1. 2.6, -16.9. 0.8, -3.1, -0.4, 0.3 Assets 11.9, -7.9.12.0.0.4.4.7. -19.2. -15.3. 13.3.2.7. -5.5 (Total liabihties 1954-63: +f6.lm. total asuts: -f3.1m. Thus the “et increase in liabilittes during this period’accounted for by transactionsof the banking sector amounted to f 9.2m. The sum of the balances on current and capital accounts is equal to these changes plus errors and omissions.) For 1464 from Accounrs 171 (1967). Table 44. For /Y65- 70 from Acmunrs [7] (1970). Table 52. For lY71&> fromEconornrcSurve~~ 191 (1973). For 1967 1470 a& 1973. differe~t’f&res are pwe” lor the “et capital mflow in EconormcBrrve~~ 191 (1974) (published I” 1975). i.e. +f 11.9m I” 1967. +f 13.2m m 1970 and -fl.2m in 1972. As neither breakdown “or exolanatm” 1s available for these revisions. they are not used. however. The same source also gwcs “et capltal inflow fiiures for 1973 and 1974 asf?S.Sm and f31.7m. Notes*The columns lahelled ‘Open market tnvestments’ srrtctly refer to 1964-72 only. For 1945-53 this item is included u1 ‘Corporate and other pnvate’. 1.01 1954-63 the ttems quoted are ‘Other capital transactions’ and ‘Rivate short-term’ as defined in the Accounts (141 Table 202. ihe latter term is penerally very small so far as ltahihtle; are concerned. +The ftpures for the years 1954-63 refer to the Federntmn as a whole.

Federal

industry in the previous decade (i.e. the first decade of exploitation of the deposits). So a figure of around E60m should not be too far wrong for Southern Rhodesia in the late 1930s and may not even be too much of an underestimate for 1945 considering the cessation of investment during the war and the difficulty of making good depreciation. This sum almost certainly represented the major part of the industrial investment in the colony at the time: it was estimated that in 1946 firms registered abroad earned nearly 45% of the taxable corporate income, whilst 68% of the capital of domestically registered companies was in fact held abroad. (See Barber [ 121.)

Taken together these -figures suggest that over 80% of the investment was foreign (even excluding, as these estimates do, the Rhodesian Railways, which were shortly to be purchased by the government). When it is recalled that there were by this time some industrial holdings in productive enterprises (R&o, The Roasting Plant, etc.) by the government, the figure should be reduced to 70-7.5s (or less if utilities and general infrastructure are to be included as well). But as near as can be judged, given the inadequacy of the statistics, the war-time stimulus and government initiative had not increased the domestic stake in productive enterprise to more than a maximum of

WORLD

34

DEVELOPMENT

20-30% of the total of some E60-80m. But it is probable that domestic capital did not regain even such heights again until after UDI. inflows

of foreign

capital

The capital account of the balance of payments is given in Table 4. It will be seen that over the period 1945-53 there was a net inflow of L139.0m of which &69.5m was in the government and public authorities sector, representing mainly borrowings, stock issues, etc. for infrastructure development. A round figure for the total value of foreign holdings in 1953 would then be L200m, for the published statistics do not include reinvestment of profits which may be taken to cover depreciation at the least. The increase in public assets in this period is a complicating factor in that it relates to a building up of sterling balances and also to the acquisition of property from foreigners: the figures for 1947 are strongly influenced by the purchase of Rhodesian Railways from the BSA Co. for E30m causing the major part of the increase, in assets for that year. But the purchase was financed by a stock issue in London of E32m, so that the actual result as far as Rhodesia was concerned was a change of creditors. Therefore, in this year at least, the net inflow figure is a better indicator of foreign investment. In most other years, however, the net increase in assets referred to transactions generally unconnected with the net increase in liabilities, so that this higher figure may be more relevant, suggesting a total inflow of almost L120m in the public sector alone during the period. An alternative way to measure capital inflows is to use the negative of the balance on current account. In the period 1945 -5 3 the resulting figure is generally higher than that given by the net inflow of capital. The sum of the current and capital balances (the latter here defined as the net inflow of capital on non-banking accounts) is given in the final column of Table 4, and contains transactions of the banking sector as well as net errors and omissions (the last then including any unrecorded capital flows). From 1945-53, the total of this column is -E50.9m, or -E5.7m per annum, suggesting that in these years there was a fairly high level of unrecorded capital inflows (possibly flight capital from Britain was one contributing factor). Table 4 thus yields several estimates of the importance of foreign capital. In Table 5 some of these are compared with net domestic capital formation. It is seen that over the period foreign sources provided at least half, and possibly (when allowance is made for reinvestment of unremitted profits) as

much as 90% of all funds for net investment. The fact that these foreign investments were alone equal to around 30% of the national income shows how the exceptionally high savings rate of this period was achieved.7 (See also Table 11.) Outflows

of property

income

Although capital flows are useful figures to measure against total investment, they do not necessarily disclose the extent to which an economy is becoming subject to control from outside. Grants cause no increase in liabilities; loans give rise to claims for payment of interest and amortization, but ultimately no further claim on the economy. On the other hand, flows of profits, dividends, and royalties on private foreign investments, are likely to continue indefinitely, and in many cases to increase as a result of reinvestments. Over periods of ten years or more it is fahly common to find that investment income payments total about twice the inflow of capital.6 At the same time, there is rarely any provision for amortization or divestment, so that the balance-of-payments problems can become acute. The diversion of export earnings from investment to capital servicing may increase the reliance on new foreign investment, so completing the vicious circle.9 Table 6 shows the current account of the balance of payments. Unfortunately, the sources do not distinguish between the three types of investment income, but it is reasonable to assume that most of the income payments in the government and public authorities sector represent interest payments, whilst most of the payments of corporations is accounted for by

countries manage to invest 10% of their income. A figure of 20% or more is

7. Few poor

national commonly

regarded

as very

good,

but

thanks

to the

inflow Rhodesia achieved 40% during this period, reaching as high as 55% in 1952. It is of interest that capital formation from domestic resources (excluding reinvestment of foreign-controlled enterprises) has remained in the region of 10% for the last 2.5 years. 8. See for example Kidron [ 151 and United Nations, Economic Surve,~ of Larin A tnerica [ 16 1. 9. In addition the ‘complete’ character of direct investment may mean that the qualitative effects on the economy and the local people are inimical to national development, and these effects may well be of more significance in the long term than balanceofpayments problems. This question will not be considered further in this article, however. See tiirschman 1171, Pazos [18] and Stoneman [19].

Em

~ 10.9 19.4 28.8

37.5 34.7 59.6 57.9 44.0

Em

42.5 49.0 57.5 69.0

78.0 95.3 108.0 130.0 145.0

1945 1946 1947 I948

1949 1950 1951 1952 1953

Em 2.8 0.9 11.6 13.6 14.9 11.6 34.6 28.5 26.1

_ 22.2 33.7 41.7 48.1 36.4 55.2 44.5 30.3

(4) Net capital inflow

(2) as%(l)

(3)

5. Net

ami

-3.5 2.1 13.9 16.1 21.3 19.4 47.4 42.5 24.7

39.7 33.4 58.1 49.2 59.3

Em

(6) Negative of current balance

investment

8.3 59.8 47.2

(4) as % (2)

(5)

dorwstic

72.3 55.9 79.5 73.4 56.1

19.3 71.6 55.9

(6) as % (2)

(7)

foreign

capital,

79.4 78.6

46.0 34.6

on govermnent

Table 1.

81.6 81.8 90.4

30.6 28.4 53.9

_~ 58.7 123.2 81.3

I .4

(9)

6.4 23.9 23.4

53

(8) as % (2)

1945

(8) Net increase in liabilities Em

Notes and sources: (1) NDP, Net Domestic Product, from Table 1. (2) NfW~; Net Domestic Capital Formation (including stock changes) from Accounfs [7] (1954-64). Rrinvestnrcrrt: see Appendix. Other dufa from Table 4. Note that according to Irvine [ 131, p. 396, many amortization payments assets; these Iwe been deducted l’rom increases in liabilities as given in Table 4.

(2) NDCI-

(1) NDP

Table

88.1 90.0

5 1 .o 39.6 5.0 5.0

in

86.8 39.5 _

32.1 31.0 _ 1.5 2.6 _

as hicreases

_ 66.1 129.1 87.6

_ 7.2 25.1 25.2

_ 0.8 1.2 1.8

loans are treated

(11) as % (2)

(12)

(10) Em

PIUS

(8)

(11)

fm

(10) Rein vestment

WORLD DEVELOPMENT

36 Table 6. Current Vistble Payments

1945 1946 1947 1948 1949 1950 1951 1952 1953 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974

I”

o”t I” o”t in O”t L” out in O”f 1” o”t in O”, 1” Out I” o”t ,n out in ““t in L,“, tn. ““t I” out in “Ut Ill ““t m o”t m (net) in (net) in (net)

Account

01 the Balance o/ Pavments

trade

Investment

TOtal

Guods

Re exports

17.6 12.4 20.9 20.2 23.2 33.1 28.7 12.2 34.0 54.1 48.1 58.7 51.5 85.5 60.8 88.0 64.9 77.4 147.2 110.7 161.2 122.6 103.8 89.7 102.7 96.4 96.8 (IO.0 120.4 106.5 136.7 124.8 149.9 149.2 29.1 41.5 26.2

15.8

2.1

.

13.8

2.7

4.8

16.2

2.9

46

21.1

3.6

4.5

tiold

24.2

4.9

i.4

34.3

7.4

6.4

35.9

9.6

6.1

44.4

9.8

6.6

47.2

11.1

6.6

125.0

15.1

7.1

139.0

15.5

6.8

88.5

8.5

6.4

90.3

6.1

6.3

86.7

4.3

6.0

I LO.6

3.4

6.5

127.8

3.1

5.8

140.2

6.4

3.3

Income.

ServLox

Total

Governlllent

Publit other

4.5 1.3 3.8 6.2 5.0 9.9 6.1 11.3 6.8 14.2 8.4 15.7 9.0 20.6 10.6 23.5 II.2

I .4 3.2 1.7 3.8 1.3 4.6 2.0 4.0 2.1 4.7 2.3 5.8 2.5 71 5.0 9.1 5.1 10.5 9.8 25.9 10.4 22.8 5.7 13.6 7.5 13.1 7.6 14.5 7.1 15.5 8.3 18.0 9.2 19.3 -17.6 -19.3 -18.7

0.3 0.5 0.3 0.5 0.3 0.9 0.3 1.3 0.4 I .s 0.4 1.7 0.5 1.9 0.6 2.2 0.7 2.9 0.3 5.2 0.7 4.8 0.1 1.8 0.1 1.6

0.9 5 1.2

19.0

23.0 36.6 27.3 38.1 22.1 27.9 22.3 31.1 24.7 29.3 27.4 28.9 25.3 32.9 28.2 38.3 -9.8 -27.6 -37.7

0.7 0.6 0.6 0.8

C&m)

Curporate bodies

0.2t 2.7 0.2t 3.3 0.2t 3.7 0.2t 2.7 0.2t 3.2 0.2f 4.1 o.zt 5.2 2.6 6.9 2.5 7.6 5.1 14.7 5.0 14.9 1.6 I1 .o 3.9 11.4 5.0 13.1 4.8 14.2 5.3 16.5 5.8 17.5

0.8 I.5 1.5 1.7 1.8 1.8 1.9 2.2 6.0 2.5 3.1 2.9 0.8 2.2 0.3 1.3 0.8 I.1 0.8 7 ::9 2.0 I.1

[ 1,

Perwnal

5

2.2 2.3 1.2 I .4 1.3 1.2 1.4 1.5

TGtIlst’ers

1.5

I .j

3.7 1.K 6.2 1.9 7.1 2.5 6.2 3.1 6.0 3.7 7.3 4.5 6.7 5.0 7.0 6.0 7.6 Il.8 7.3 9.5 3.7 5.i 5.6 5.7 6.0 6.5 6.4 8.5 6.5 7.8 7.0 8.9 -1.4 -3.5 -9.4

Total current 25 .o 21.4 30.1 32.0 35 -7 49.5 43.9 60.0 49.1 76.1 64.8 83.9 70.3 117.7 83.1 125.6 88.2 112.9 187.6 185.0 206.1 193.0 135.3 136.8 138.1 146.3 135.1 160.3 161.1 159.3 176.7 183.5 194.2 215.7

Cuttent bal*nce +3.5

-2.1 -13.9 -16.1 -27.3 -19.4 -47.4 -42.5 -24.7 +2.4 +I).2

-1.6 -8.3 -25.2 cl.8

-7.0* -28.7* +0.4 -8.7 -39.5

[ 1

Sources: For 1945- 9 data for goods and x-exports from Overseas Ecotmmrc Survqvs 20 Appendices VI, dnd (for gold) XIV: lrvme 13 source for imports (p. 332). exports (p. 318). senwes ‘p. 344). investment mcome (p. 352). and transfers (pp. 357-81. For 1950-3 from Exrernnl Trade 121 1965). for exports. mtpotts. ie-qxxts and gold. frame giver s~mibu figurer for unports (58.3. 87.8. 85.6 and 77.1) and total exports (47.7. 50.7, 60.0 and 63.8) for these yeus. Servvxs. investment mcomr and tratsfers are taken from lrvtne as above. For 1964 from Acmunrs [7] (1967). Table 45. For IV65-i0 fromAccounls 171 11970). Table49. For 1971-4 fromEmnomrcSurve~ (91 197L-4). Notes: Unless othemtse indicated, gaps in the table mdicate that no entry 1s apphcable. or that, m the case oi some Investment mcome items_ only net t-@ores are available. ‘Payments m/out’ stands for ‘recetptslpaymentn’; ‘Cold’ ts non-monetuy gold; Investment Income mcludes mterest. dividends and profits. l Gold included with goods in 1945. 9 Personal sector included with corporate bodies (‘other mterest’ m lrvtne (I 31). 1945 -53. S Public other (i.e. public authonties) payments included under Government. 1945-53. t Rough estimates by Irvine 13 1. l Current balance tigures taken from later, revised source which did not give the full breakdown. lndivldual items are therefore subject to revision for 1970-l.

wasthe

1t

t

[

- less than Rounding

f 50.000 errors

may wxount

for other

minor

discrepancies.

dividends (with profits remitted abroad being a smaller proportion; see the later discussion of the Questionnaire Reports for some justification of this). Total payments more than tripled in value over this period, to E10.5m in 1953, but even so remained very much less than the capital inflow. Table 7 offers a direct comparison of these two quantities, showing that at this stage the net benefit to the balance of payments of the foreign capital was still positive, although after making allowance for reinvest-

ment, payments approached half the value of inflows in the early 1950s. 10 A more usual approach to the assessment of the financial impact of foreign ownership is to relate the income payments to the value of exports. The ratio payments/exports is thus a measure of the proportion of export earnings which must be devoted to servicing the foreign ownership of capital. Two other ratios yield some relevant information: payments/imports may be related to the proportion of total

37

FOREIGN CAPITAL AND THE PROSPECTS FOR ZIMBABWE Table 7. Pavments abroad (1)

Capital lnflou

of investments

income, and capital in_flows (Em)

Reinvestment

(1+2)

(4) GDP

(5) Payments

0.8

1.2 1.8

2.9 15.1 17.9

46.0 53.0 62.2 74.6

3.2 3.8 4.6 4.0

-92.0 181.0 33.1 24.9

7.0 1.2 7.4 5.4

4.7 5.8 7.1 9.1 10.5

17.2 29.9 15.0 21.4 42.5

5.6 5.6 6.1 6.5 6.7

(2)

(3)

(6) (5) as 7c of (1;

1945 1946 1947 1948

-3.5 2.1 13.9 16.1

1949 1950 1951 1952 1953

27.3 19.4 47.4 42.5 24.1

1.5 2.6

28.8 22.0

5.0 5.0

41.5 29.1

84.2 103.0 116.7 140.5 156.7

1954 1955 1956 1957 1958

19.7 32.7 39.4 40.9 46.4

7.8 8.6 9.8 11.1 11.0

27.5 41.3 49.2 52.0 57.4

168.5 186.5 211.6 238.0 249.1

11.5 12.4 15.9 18.6 16.4

58.2 37.9 40.4 45.5 35.3

1959 1960 1961 1962 1963

20.5 10.7 18.5 4.5 -0.8

12.0 14.1 14.1 13.7 12.8

32.5 24.8 32.6 18.2 12.0

264.6 279.9 294.6 299.5 308.2

16.9 18.4 20.8 18.7 21.1

1964 1965 1966 1967 1968

-2.4 -13.2 1.6 8.3 25.2

15.1 18.6 13.1 18.8 21.2

12.i 5.4 14.7 27.1 46.4

320.7 343.4 338.2 360.2 390.7

1969 1970

-1.8 7.4

28.5 29.0

26.7 36.4

21.1 33.3 8.2 23.3 -7.8 8.1

2.6 10.1 13.1 11.5 16.9 22.1

23.1 43.2 21.9 34.1 9.1 30.3

(7) (5) as 0 of (4)

(8) (2+5)

(9) (8) as % of (3)

4.6 5.8 5.8

158.5 38.5 32.4

6.2 8.4

21.5 38.1

14.1 153

29.6 52.1

6.8 6.6 1.5 7.8 6.6

19.3 21.0 25.7 29.1 27.4

70.2 50.8 52.3 58.3 41.6

82.4 172.0 112.4 416.0 -2640.0

6.4 6.6 7.1 6.2 6.9

28.9 32.5 34.9 32.4 33.9

88.9 131.1 107.0 178.4 282.6

25.9 22.8 13.6 13.1 14.5

-1080.0 -173.0 850.0 158.0 51.5

8.1 6.6 4.0 3.6 3.7

41.0 41.4 26.7 31.9 35.7

350.2 767.0 181.6 117.9 77.0

445.7 478.5

15.5 18.0

-862.0 239.0

3.5 3.7

44.0 46.1

164.8 128.3

93.0 219.7 295.6 250.1 332.1 402.7

5.9 15.3 19.8 17.1 24.4 14.9

27.8 45.9 240.1 73.4 -313.0 184.0

6.3 7.0 6.7 6.8 1.3 3.7

8.6 25.3 33.4 28.6 41.2 37.0

37.2 58.5 152.3 82.5 453.0 122.0

A verages

1945-53 1954-59 1960.-63 1954-63 1964-65 1966-70

Notes and sowces: Cal. (1) Capital inflow as measured by the negative of the current balance; data from Tables 6 and 9. Cal. (2, Estimates of reinvestment of foreign-controlled mmpanies; see Appendix. Note that figures are net of depreciation 1946-50. Cal. (4) Data from Table 1, with fwures for 1945-53 raised by 8%. Cal. (5) Total investment income payments abroad; data from Tables 6 and 9. Cal. (6) ConaptuaUy more mnustent would have been to have compared payments to the net increase in liibiiities. Ln practice, however, the negative of the cunent balance .wrves as a good proxy. and furthermore is available for the icderal years. allowing comparability over longer periods. It is to be noted that for twelve of the sixteen years for which it is possible to make comparisons. the negative of the current balance is greater than the net capital inflow, but less than the net increase in habilities. It is probabl), therefore, usually a rather conservative estimate of the latter.

external expenditure which is neither consumed nor invested, but is a consequence of foreign ownership; receipts/exports conversely is concerned with the extent to which penetration of other economies is substituting for trade. Rises in the first two ratios would therefore indicate increasing incorporation and dependence on (usually) more-advanced economies. This indeed is what is observed (see Table 8 and Figures 1 and I), although from 1957 a marked acceleration in the growth of exports began to reduce the payments/exports ratio. However. as this coincided with the start of a decline in capita! inflows,. the capacity to import stagnated whilst payments continued to rise. so that the ratio of payments to imports continued to worsen. Figure 1 also shows that

although increased

in the early proportion of

federal income

period an arose from

10. Again in this case we are concerned with ‘firstorder’ effects only. It was no doubt true that at the time the only realistic alternative to foreign investment was no development. Zf capital could be obtained on no better terms, and i.f technical knowledge was otherwise unavailable, a bar to foreign investment would have both increased the reliance on imports, and reduced the capacity to export. So allowing for second-order effects favours the acceptance of ,foreign investment in the early stages of development. A more appropriate ‘alternative position’ which needs to be considered in later stages, when balance-f-payments effects are more negative. and industries well-established, is expropriation or nationalization. See Hirschman [ 171.

38

WORLD Table

Total investment income payments abroad

8. Relations

DEVELOPMENT

between

investment

income

and

trade

Em

Em

Total investment income receipts from abroad Em

1945 1946 1947 1948 1949

3.2 3.8 4.6 4.0 4.7

16.7 26.4 43.0 53.5 68.3

1.4 1.7 1.3 2.0 2.1

22.1 24.7 28.2 34.8 40.8

19.2 14.4 11.7 7.5 6.9

6.4 6.9 4.6 5.8 5.2

14.5 15.4 16.3 11.5 11.5

1950 1951 1952 1953 1954

5.8 7.1 9.1 10.5 11.5

74.4 106.1 111.5 96.4 98.0

2.3 2.5 5.0 5.1 5.4

56.5 60.5 71.4 76.1 83.5

7.8 6.7 8.2 10.9 11.7

4.1 3.8 7.0 6.7 6.5

10.2 11.7 12.7 13.8 13.8

1955 1956 1957 1958 1959

12.4 15.9 18.6 16.4 16.9

116.5 129.0 134.5 141.5 128.0

6.2 8.5 6.9 6.6 6.3

89.0 94.5 103.5 104.0 116.5

10.6 12.3 13.8 11.6 13.2

7.0 9.0 6.7 6.3 5.4

13.9 16.8 18.0 15.8 14.5

1960 1961

1962 1963 1964

18.4 20.8 18.7 21.1 25.9

126.5 142.0 132.0 130.5 147.3

9.0 9.3 5.8 6.0 9.8

124.5 138.0 144.0 152.0 170.2

14.5 14.6 14.2 16.2 17.6

7.2 6.7 4.0 3.9 5.8

14.8 15.1 13.0 13.9 15.2

1965 1966 1967 1968 1969

22.8 13.6 13.1 14.5 15.5

160.7 117.6 127.5 139.3 135.4

10.4 5.1 7.5 7.6 7.1

188.5 125.9 125.0 121.5 147.8

14.2 11.6 10.3 10.4 11.4

5.5 4.5 6.0 6.3 4.8

12.1 10.8 10.5 11.9 10.5

1970 1971

18.0 19.3

157.7 187.5

8.3 9.2

162.0 178.1

11.4 10.3

5.1 5.2

11.1 10.8

Imports

Payments 3s

Exports

%

Receipts as %

Of

Of

Payments as 4/0 Of

imports

exports

exports

Em

Notes and sources: Data from Tables 6 and 9. ‘Imports’ stands for total imports of goods and services; ‘Exports’ stands for total exports of goods and services, including re-exports and nonmonetary gold. The figures for 1965 to 1971 for payments include a recent revision eliminating payments to Zambia arising from jointly-owned assets previously regarded as located in Rhodesia.

foreign holdings by Rhodesia, it did not prove possible to consolidate the outward-looking policy once the continuation of the Federation came in doubt. The period 1945 -53 was the period in which the Rhodesian econbmy ‘took off under the stimulus of high export demands and substantial capital inflow. The constraints imposed by the very limited size of the effective market, consequent on separate development and job reservation, were yet to be felt. There was considerable slack to be taken up within these constraints as shown by the rise in the employment figures for Africans, and foreign capital was eager to exploit both the natural resources and the cheap labour. Simi-

larly, the more negative effects of ance on foreign capital were not themselves felt. It is unfortunate shall see, this early formative period one for which moderately reliable trade and capital flows are available.

IV.

RHODESIA

DURING

heavy reliyet making that, as we is the only statistics of

THE FEDERATION

The rise of manufacturing industry brought with it a realignment in the white ruling coalition. The alliance of domestic white classes (including workers) of the 193Os, which was intermittently hostile to foreign capital, was replaced by a coalition dominated by domestic

FOREIGN CAPITAL AND THE PROSPECTS FOR ZIMBABWE Figure Fbyments

OS

percentage of imports. x

Receipts

39

1.

as

percentage ofexports

*

1445

1965

I970

Figure 2. Payments as percentage of exports: x x

x Y

\

x x

x

x Y

\

I

1945

I

1950

I I956

x x

x

I

I

I

1960

1965

1970

X

40

WORLD DEVELOPMENT

capital and foreign capital. The interests of the latter no longer diverged very much from those of domestic capital, because of the relative decline in importance of mining.t r Capital in general was becoming more interested in a stable, fairly well-trained labour force, than in abundant cheap labour. It was also interested in gaining economies of scale in manufacturing from an expansion of the internal market, and by promoting export markets. These factors pointed towards federation as well as towards an ideology of ‘partnership’ to replace the ‘two pyramids’ rhetoric of the 1930s. Federation mattered less to foreign capital (which in some cases was already established in Northern Rhodesia), but it allowed rationalization of small-scale operations, and raised the importance of Southern Rhodesia as a base for the area. But all the interests of domestic capital and of the middle classes pointed to federation.’ * For thirty years, since the attainment in 1923 of internal self-government and the possibility of exerting local political power over economy, foreign-controlled the largely Rhodesia’s development is seen to be characterized by a weak and intermittent economic nationalism.’ 3 Rhodesian capitalism was barely adolescent, let alone mature, when in 1953. thanks to a complex of factors including Britain’s post-war problems of adjustment to a secondary world role, it found itself at the centre of the Federation of the Rhodesias and Nyasaland. And in the ten years that followed, it enjoyed some of the benefits usually reserved for a country in what we have called the third stage of development (in which domestic capitalism is dominant, and outward-looking). Rhodesian-based industries gained protected markets in Northern Rhodesia and Nyasaland, whose own infant industries were allowed no protection against their much more advanced southern rivals. Northern Rhodesia’s copper earnings financed a high proportion of ‘the Federation’s’ (in fact, largely Southern Rhodesia’s) :mvestment. Nyasaland supplied cheap labour in whatever quantity was needed. Southern Rhodesia in effect acquired two colonies. The dilemma faced by most small countries with insufficient internal demand, of setting up systems of protection to nurture infant industries only to find that they never become competitive because of the absence of econowas temporarily solved for mies of scale, Rhodesia.t4 The balance of advantage for the three territories has been discussed in various terms. It has been shown by Pearson and Taylor

[22], for instance, that ‘nvhereas the growth of manufacturing industry in Southern Rhodesia in relation to the growth of the consumer market was above the Federal average, in Northern Rhodesia and Nyasaland it was considerably below’. Thus although Rhodesia expanded its manufacturing industry faster during federation than it would have done in the absence of the link, the opposite is probably true of the other two countries. Other harmful effects, or unequal distribution of benefits, have been analysed by Hazlewood 1231. Federation, then, helped to consolidate Rhodesian industry. But with its break-up imminent, vital markets were threatened. To be sure, Zambia and Malawi had become so dependent on Rhodesia for supplies that no immediate dramatic change need have been expected, and in fact, soon after independence, Malawi concluded a trade agreement with Rhodesia which left the status quo almost unchanged. But the ‘unnatural’ situation of a tiny country enjoying such protected markets despite the proximity of larger and lower cost competitors,

11. International mining companies had no interest in the country’s industrialization and wanted a good supply of cheap labour. With technological advance in more recent years, however. capital has substituted for much of the cheap labour, and mining companies also have come to prefer a stable, better-educated work force. See Anighi [2] for a more detailed analysis of the various class interests.

12. The white farmers, and workers, increasing in numbers, but now subordinate in political influence, shared no direct interest in federation, and were opposed to the ‘partnership’ policy. because on the one hand it would lead to dearer farm labour, and on the other to increasing competition with white ‘There was little active opposition to workers. federation, however, which ensured the t-low of cheap labour from Nyasaland without much affecting competition for skilled jobs. 13. The contrast

with South

Africa

is striking.

14. It should not of course be forgotten that this was in the context of an economy still dominated by international capital, with a government in which representatives of these interests were prominent. This anomalous situation is perhaps somewhat clarified if we refer not to ‘Rhodesia’ but to ‘the dominant domestic and foreign capitals based on Southern Rhodesia’. As this latter phrase clearly omits reference to the blacks in any territory, or to the white workers, it occasions no surprise that this highly favourable but anomalous system proved unstable in at least two major respects.

FOREIGN

Table 9. Estimate

Payments

1954

Total

in cwt I” Cl”, I” 0”t in cut ,n O”, in out I” out m ““t ,n 0”I ITI out

1955 1956 195: 1958 1959 1960 1961 1962 1963

70.5 75.5 75.0 92.5 79.5 103.5 87.0 107.5 86.5 113.5 97.5 98.5 104.5 95.5 117.0 109.5 122.0 98.0 128.5 95.0

CAPITAL

of the Current Account

Vasible trade Goods Re-ev pais

SWvita

TOIll

13.0 22.5 14.0 24.0 15.0 25.5 16.5 27.0 17.5 28.0 19.0 29.5 20.0 31.0 21.0 32.5 22.0 34.0 23.5 35.5

5.4 11.5 6.2 12.4 8.5 15.9 6.9 18.6 6.6 16.4 6.3 16.9 9.0 18.4 9.3 20.8 5.8 18.7 6.0 21.1

53.0

11.0

6.5

11.5

6.5

61.5

11.5

6.5

68.0

12.0

6.9

67.0

12.5

6.8

71.5

13.0

6.9

84.0

13.5

7.0

96.0

14.0

7.1

100.5

14.5

6.8

15.0

7.0

FOR ZIMBABWE

of the Balance of Payments

Gold

57.0

106.5

AND THE PROSPECTS

Investment mcome PubGovCorp. lit o*ate U”olher Illen, bodies 0.1 2.9 0.1 3.1 0.1 3.4 0.1 3.4 3:8 4.0 4.2 4.2 4.2 4.0

1.1 0.6 1.1 0.6 1.0 0.9 1.4 1.5 1.3 1.0 1.2 1.8 1.5 3.5 .6 3.5 1.6 3.8 1.5 4.7

3.4 8.0 4.2 8.7 6.1 11.6 4.3 13.7 4.2 11.6 4.0 11.1 6.2 10.7 6.2 13.1 2.6 10.7 2.8 12.4

I

41

for 1954-63

(Em)

Personal

Transfen

Total curIe”*

0.8

5.3 3.8 5.1 3.6 6.3 3.3 6.3 4.1 5.8 4.5 5.7 3.6 5.8 4.5 5.7 8.9 5.1 8.5 5.0 10.5

94.2 113.3 100.3 132.5 109.3 148.2 116.7 157.2 116.4 162.4 128.5 148.5 139.3 149.4 153.0 171.7 154.9 159.2 163.0 162.1

0.8 0.9 1.1 1.1 1.1 1.2 1 .s 1.6 .7

I

Current bala”=

-19.7 -32.1 -39.4 -40.9 -46.4 -20.5 -10.7 -18.5 -4.5 +0.8

1,

Notes and LOWCCS: Investment mcome and tclnsfers are taken from Federal Rccounrs [ 14 Table 143 Current Wances are from Accounts 171 1954-64). Table 71. Gold (i.e. non-monetary Fold1 IS from Exiernal Trade 1211 Table I. All other figures have been estimated b) interpolation and can only be taken as indlcatmg likely trend values over the period. Full details are available from the author.

(

was clearly of limited duration. It seems probable that Rhodesia would have seen its position in Malawian and Zambian markets gradually eroded, and indeed would have been forced to erect higher barriers to protect its own industries in their home market as well. Further, because such a large proportion of ‘Rhodesian’ industry was in fact owned, and often controlled, abroad, its interests were not always indentical with those of the government, which was under pressure from the other white classes. Foreign companies which had been supplying the Zambian market from Rhodesian branches, prepared to establish new branches in Zambia behind the new tariff barriers, and divested somewhat from their interests in Rhodesia. (See also note 19.) In other cases, higher unit costs consequent on the loss of protected markets, gave rise to an incentive for some companies to supply Rhodesia from a South African branch. The basically unsound state of some parts of the economy which arose from the artificial conditions of federation, can be guessed at from the fact that even a.fter UDI, with all competition except South African effectively removed, certain industries had to be given protection against cheap imports. (An example is the restriction on imports of cotton and synthetic fabrics imposed early in 1966. Although the reasons given related to ‘the interests of local producers’, another factor was doubtless the shortage of foreign exchange.) Because of consolida?ion of the accounts of the three countries during the federal period.

many data are lacking for Rhodesia alone. GDP continued to grow at a rapid rate, doubling in money terms over the ten years. Real growth was somewhat slower than in the immediate post-war period at just under 4% per annum. The share of manufacturing and of services in GDP continued to rise at the expense of most other sectors (see Tables 1 and 2). Capital inflow into Rhodesia continued at very high levels at first, but towards the end of the period turned to an outflow. Accordingly the rate of capital formation declined from around 35% of GDP to below 15% and consumption fell from about 70% to below 65% (see Table 3). Exports doubled in money terms over the decade, whilst imports, after increasing more rapidly, stagnated after 1957-58, so that Rhodesia left the Federation with a surplus on current account (see Table 9). Foreign liabilities No figures have been published either for Southern Rhodesia, or for the Federation as a whole. South African statistics [24] show total assets in the Federation of E115m in 1956 and E175m in 1963. A large proportion of this probably between a third and a half - is attributable to Northern Rhodesia, and in particular Anglo-American Corporation’s holdings in the copper-belt. But if the rough estimates of total foreign liabilities of Rhodesia of E200m in 1953 (see above) and f500m in 1963 (see below) are accepted, these figures are quite consistent with a South African share

WORLD DEVELOPMENT

42

rising from about over the period.

a quarter

to about

a third

Inflows of foreign capital Hazlewood [23] has concluded that the one clear economic benefit of the Federation was a greater inflow of foreign capital. As we shall see, most of this came to Southern Rhodesia, where, following the substantial inflows and government borrowings of the post-war years, the domestic capital base had declined in’ relative importance. This general pattern of domestic public and foreign private capital was clearly regarded as reasonable (unlike the position in South Africa, where, after 1948, the strengthening of the domestic private sector, as well as the public sector, was emphasized). It is well illustrated by the two following points. (1) Considerable efforts were made to attract foreign investment. William H. Ball, President Eisenhower’s Special Envoy,, speaking in Salisbury in August 1953 on the prospects of American investment, said: ‘If private investment came here to any great extent it would only be if and when your Government or some other Government laid on the primary facilities to support industrial growth. I don’t see how in the world you are going to interest private investors otherwise’ [25]. He was not to be disappointed: the growth of basic infrastructure ahead of investment and in the expectation of foreign private capital, proceeded apace during the federal period, and in the view of some observers [26] the process was carried too far. (2) Once government-established industries had proved viable, and were making profits, there was a tendency to denationalize them, but not, as in South Africa, by selling them to local capital. When Risco was partially denationalized in 1957, Anglo-American Corporation, Stewarts and Lloyds, Lancashire Steel, and other South African and British companies were prominent. The Lancashire fiim David Whitehead (now owned by Lonrho) dominated a consortium which took over the Cotton Spinning Board’s assets in 1960. Tow [27] estimated that domestic investment was only about 30% of the total over the period 1947-53 (cf. section III above), and ‘it seems likely that the increasing pitch of economic activity in the territory during the period following 1953 raised the level of importance of foreign investment somewhat above that of the period 1947 -53, during which it never accounted for less than 5.5% of total investment’. Reliable statistics of capital inflow into Southern Rhodesia alone are of course not available during the federal period. The best

indications we have are the estimates made by the Central Statistical Office in 1965 of the current account balance [28]. The figures are given in Tables 9 and 10 where they are shown also as a proportion of investment. Further estimates have been made to take account of reinvestment of undistributed profits (see Appendix). They broadly support the statements of Hazlewood and Tow, although there is evidence of a slight relative decline despite the increased volume: it would perhaps be safer to say that the formation of the Federation had a psychological effect which resulted in a much greater inflow than would otherwise have been the case, whose relative importance in investment was only slightly below that of the exceptionally high levels of the immediate post-war years. Over the ten years, the total inflow was about E230m (or nearly &350m including reinvestment), over three-quarters of which occurred in the fist half of the period. This amounted to 34.4% of Gross Domestic Capital Formation (or 5 1.3% including reinvestment estimates). For better comparison with the earlier period (for which net investment only was calculated), net figures may be derived from Table 10 by deducting depreciation provisions from GDCF. Relating current balance figures to NDCF, the ratio fell from 66.1% in the former period to 46.2% in the latter (58.4% 1954-58) or from 90.6% to 60.2% including reinvestment. Parallel calculations (for gross and net investment) can be based on figures in the Federation Accounts (Tables 1, 2, 4, 19, 22). It is of interest that there are indications of a total inflow of slightly less than to Rhodesia alone. which is consistent with the view (see for example Hazlewood [23 ] p. 210 et seq. ) that the Federal fiscal arrangements engineered a redistribution from Northern to massive Southern Rhodesia. Parallel with (and in part caused by) the fall in foreign investment in the second quinquennium of the Federation, total investment in Rhodesia fell to about 15% of GDP (see Table 3). By 1963, with an actual outflow of foreign capital as measured by the positive current balance, foreign sources after allowing for reinvestment equalled only a few percent of GDP (see Table 11). It would be difficult to place a very definite figure on the increase in foreign liabilities over this period even were there no doubts about the accuracy of the statistics of the capital inflow. This is because of the problems associated with, on the one hand, reinvestment of undistributed profits, capital appreciation, etc. and on the writing-off provision, depreciation other,

43

FOREIGN CAPITAL AND THE PROSPECTS FOR ZIMBABWE Table (21

(1)

1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 A vem.qe: 1954-63 1964-5 1966-70

GDP

CDCr

fm

fm

168.5 186.5 211.0 238.0 249.1 264.6 279.9 294.6 299.5 308.2 323.2 341.5 342.8 375.6 390.9 464.6 491.3

48.2 68.2 83.3 86.4 89.4 66.9 69.2 70.7 50.7 43.2 45.4 52.0 42.7. 61.4* 83.4. 91.7. 102.4.

(3) (2) as c Of(l)

28.6 36.5 39.4 36.2 35.8 2s.2 24.4 23.6 16.7 13.8 13.8 15.1 12.6 17.1 21.4 20.6 21.4

10. Gross domestic (4) Net cap ifal inflow fm

(6) -Current bala”ce fm

(5) (4) as% of (2)

1.8 2.0 -2.3 0.0 19.8 5.0 8.9

investment and foreign capital (7) (6) as% of (2)

19.7 32.7 39.4 40.9 46.4 20.5 10.7 18.5 4.5 -0.8 -2.4 -13.1 1.6 8.3 25.2 -1.8 7.4

4.0 3.8 -5.4 0.0 23.7 5.5 8.7

40.8 48.0 47.3 47.3 51.9 30.6 15.5 26.2 8.9 - 1.9 -5.3 -25.2 3.7 13.5 30.2 -2.0 7.2

(8) Net increase in liabilittes fm -

19) (8) as R of (2)

-

;.9 -19.1 6.2 13.2 25.9 -3.0 7.4

6.4 -36.7 14.5 21.5 31.1 -3.3 7.2

(10) ,rJ

(11) 16)

(12) (11) f”

113) (8)

GJ

of as (2) ‘I

GJ

fm

fm

7.8 8.6 9.8 11.1 11.0 12.0 14.1 14.1 13.7 12.8 15.1 18.6 13.1 18.8 21.2 28.5 29.0

27.5 41.3 49.2 51.0 57.5 32.5 24.8 32.6 18.2 12.0 12.7 5.5 14.7 27.1 46.4 26.1 36.4

fm 57.1 60.6 59.1 59.0 64.3 48.6 35.8 46.1 35.9 27.8 27.9 10.6 34.4 44.2 55.7 29.1 35.5

34.4

26.9 14.5 19.0

-15.9 10.7

3.9 8.2

(14) ,131 as % of (2)

-

-

-

-

18.0 -0.5 19.3 32.0 47.1 25.5 36.4

1 39.6 -1.0 45.7 52.1 56.5 27.8 35.5

51.3 18.7 39.7

-16.6 13.0

18.0 51.7

Notes and sources Col. (1) GDP at factor cost from Table 1 (we footnotes thereto) Cal. (2) Cross domesttc capital formation, including increases m stocks and pmvislon for deprectatton: /or 1954-S from Acmunrs (71 (1954-64). Table 5; for 1959-64 from Month@ Dbesr o/Stansrics [ 101 (March 1969). Table 43,/m 1965- 70 from Acmunrs [7] (1970J.Tablcs46 and 47. *The ittares quoted have been adjusted so IS to climmate the esttmated value of stockpiled tobacco. Published figures for stock changes are (in fm). 2.2, 18.6, 9.3, 11.0. 8.2,and 9.3. These f@unrare here reduced to: 2.2. 2.5, 3.0. 3.5.4.0. and 4.5. before addition to other stock chnngesfasgtven tn Table 47J, and pass fixed capital formation tar ,gwen in Table 46). Colr. (4) and (6) Net upltal inflow and current balance fqures are taken from Tables 4 and 9. Col. (8) Net mcreare tn liabilrttes ue calculated from Table 4 by subtrantng the rum of balmcer on cunmt and capttal mmunt~ (taken to represent unrecorded increase or utually since 1964, decrease - in liabilities. although it IS conceded that the fwurea must in part be expI&ed also by changes m the bankine sector, and tn unrecorded changes m assets). from net tncrcases in liabilities for the three sacton distrnguished in Table 4. Cot. (10) (rJ ts the estimated reinvestment by foreign-controlled compantes (see the Appendix).

Table

Exports,

Il.

tiDP

imports, and capital flows as a proportion I~xports

IltlpCXts

fm

fm

46.0 53.0 62.2 74.6

16.7 26.4 43.0 53.5

36.2 49.9 69.2 71.6

22.1 24.7 28.2 34.8

48.0 46.1 45.4 45.7

-3.5 2.1 13.9 16.1

-7.6 4.0 22.4 21.6

1949 1950 1951 1952 1953

84.2 103.0 116.7 140.5 156.7

68.3 14.4 106.1 111.5 96.4

80.9 72.1 91.3 79.2 61.5

40.8 56.5 60.5 7 .4 76.1

48.5 54.8 51.8 50.7 48.6

27.3 19.4 47.4 42.5 24.7

32.4 18.9 40.6 30.3 15.8

1954 1955 1956 1957 1958

168.5 186.5 211.6 238.0 249.1

98.0 116.5 129.0 134.5 141.5

58.2 62.7 61.0 56.5 57.8

83.S 89.0 94.5 103.5 104.0

49.5 47.7 44.7 43.6 41.9

19.7 32.7 39.4 40.9 46.4

1959 1960 1961 1962 1963

264.6 279.9 294.6 299.5 308.2

128.0 126.5 142.0 132.0 130.5

48.4 45.3 48.2 44.0 42.3

116.5 124.5 138.0 144.0 152.0

44.1 44.6 47.8 48.1 49.3

1964 1965 1966 1967 1968

323.2 341.5 342.8 375.6 390.9

147.3 160.7 117.6 127.5 139.3

45.6 47.1 34.3 34.0 35.6

170.2 188.5 125.9 125.0 121.5

1969 19?0

464.6 491.3

135.4 158.4

29.1 32.2

147.8 161.8

I)J:z

are ukcn

lrom

Table

6 and

fm

I

the

Appendtx.

7;

inflow

1945 1946 1947 1948

.%urcc~

%

Capital fm

7

of GDP

Reinvestment fm

Capital inflow + reinvestment ‘i; fm

_ 2.9

0.8 1.2 1.8

15.1 17.9

5.5 24.3 24.0

1.5 2.6

28.8 22.0

34.2 20.7

5.0 5.0

47.5 29.7

3zs Il.9

11.7 17.5 18.6 17.2 18.6

7.8 8.6 9.8 11.1 11.0

27.5 41.3 49.2 52.0 57.4

16.3 22.2 23.3 21.8

20.5 10.7 18.5 4.5 -0.8

7.8 3.8 6.3 I .5 -0.3

12.0 14.1 14.1 13.7 12.8

32.5 24.8 32.6 18.2 12.0

12.6 8.9 11.1 6.1 3.9

52.7 55.2 36.7 33.3 31.1

-2.4 -13.2 1.6 8.3 25.2

-0.7 -3.9 0.5 2.2 6.5

15.1 18.6 13.1 18.8 21.2

12.7 5.4 14.7 27.1 46.4

3.9 1.6 4.3 7.2 11.9

31.6 32.9

1.8 7.4

-0.4 1.5

28.5 29.0

26.7 36.4

5.8 7.4

See alw

the

notes

to Table

8

.

23.0

WORLD DEVELOPMENT

44

unsuccessful ventures, etc. Probably the best which can be done is to add to the negative of the current balance one half of ‘net’ profits (see Appendix), so allowing roughly for depreciation and reinvestment. On this basis, the increase in liabilities during 1954-63 was E300m, which when added to the (speculative) figure of &200m in 1953 gives a total of E500m for foreign liabilities in 1963. Of this, about a third or ElSOm was in the public sector, such as loans from the IBRD, and government stocks. Private liabilities of about E350m were mainly to Britain (E200-250m), South Africa (about ElOOm), with the USA relatively unimportant (about E20m). Outflows of property income Total payments continued to rise rapidly, to E18.6m in 1957 (more than double the 1952 figure), but thereafter they rose more erratically to JZ21.lm in 1963 (Table 8). Up to 1957 they took an increasing share of export earnings (18.0% compared with 10.2% in 1950), but because of the steady rise in exports the ratio fell to 13.9% in 1963. This reversal of trend was not unequivocally optimistic, however, for with capital inflows falling the burden on total foreign revenue continued to increase. This is seen most clearly in the fact that the payments/imports ratio continued to rise (to 16.2% in 1963, and 17.6% in 1964; see Table 8). From 1960 payments exceeded capital inflows (see Table 7), an event which was, of course, brought forward by the decline of the latter. A: a proportion of GDP, payments moved between 6 and 8%. The indications are that the growing burden of foreign ownership was being contained by the buoyancy of exports and the success of import-substitution policies (in part aided by economies of scale provided by the Federation).

V. FOREIGN

COMPANIES

IN RHODESIA

Although all the statistics so far discussed relating to the Federal period are of low reliability due to the method of estimation involved, it is only for the final year of Federation out of the whole of Rhodesia’s history to date that certain detailed information about the economic activities of companies is available. Tables 12 through 15 present data on the relative position of foreign companies in the tota earnings of profits, provisions for depreciation, etc; a break-down by country of ownership and sector; some data on changes in liabilities; and a breakdown by industry of

output, exports and payments at home and abroad. All the information refers to 1963 and is taken from the ‘Report on the Results of the National Income and Balance of Payments Questionnaire’ (sent to companies in 1963)[29]. The inquiry did not include the British South Africa Company (whose assets in Rhodesia at the time amounted to about &5m: these. are now controlled by Anglo-American institutions. nor financial Corporation), Further, the response rate covered only about 73% of gross operating profits of companies, although coverage in the sectors most dominated by foreign companies (mining and manufacturing) was over 90%. As the two sets of omissions wiIl bias the sample in opposite directions, it will be assumed that the respondents are fairly typical of the population. 1s From Table 12 it is seen that the foreign sector accounted for 68.0% of gross profits; for 66.0% of provision for depreciation; 68.8% of net profits; 67.1% of disposable funds; 76.5% of tax paid (referring to profits made in 1962); 64.4% of after-tax profits; 65.1% of interest, dividends and profits paid; 62.3% of the fund for reinvestment; 69.5% of GFDCF; 68.3% of GDCF. Of investment income paid by the foreign sector, 63.4% was paid abroad, whereas the domestic sector paid 30.4% abroad. Thus there is evidence both for significant resort to local financing by some foreign companies, and for significant foreign portfolio holdings in, or foreign minority participation in joint ventures companies. domestically-controlled with, Breakdown by country of ultimate control was not carried very far so as to avoid disclosing the identity of certain companies. It may, however, be assumed that about 90% of the ‘other foreign’ category in ‘Table 13 refers to the UK. The apparently preeminent position of South Africa (which alone accounted for nearly half the net profits of the foreign sector) is largely due to its dominance of the agricultural sector (in particular the sugar estates in the low veldt). The other main sectors are dominated by ‘other foreign’ countries (i.e. the UK, except for mining, where the UK, the USA, and South Africa, are all important).

15. It should also be noted that as the Federation was still in existence during the period to which the Questionnaire related, corporate transactions and connections with Malawi and Zambia were treated as internal. The main effect of this will have been to inflate internal income receipts; payments will have been relatively little affectekbecause few Zambian or Malawian companies had Rhodesian subsidiaries.

FOREIGN CAPITAL AND THE PROSPECTS FOR ZIMBABWE Table

12. Appropriation

45

account of companies in Rhodesia in 1963

Foreign sector, of which:

Number of companies Gross profits Depreciation

fm fm

Net profits fm

Interest and dividends received at home fm interest and dividends received abroad Em Disposable funds Em Pax paid fm After-tax

profits Em

Interest. dividends and profits paid at home Em Interest. dividends and profits paid abroad Em Fund for re-investment fm

Foreign subsidiaries other 100%

Externally controlled companies

Internally controlled companies

126

154

Grand total

Total

Foreign branches

41s

112

190

21.8

5.5

11.0

2.5

2.8

10.3

7.0

2.2

2.5

0.7

1.6

3.6

10.6

1.2

6.1

21.5

47

1229 32.1

14.8

3.2

8.6

1.9

5.2

1.0

3.3

0.1

0.8

2.0

1.3

1.2

0.0

0.8

0.0

0.3

1.7

2.9

21.2

4.3

12.7

2.0

2.2

10.4

31.6

5.2

1.6

2.6

0.3

0.7

1.6

6.8

16.0

2.6

10.2

1.7

1.5

8.8

24.8

4.1

0.3

2.2

0.3

1.4

4.1

8.3

7.1

0.0

4.9

1.0

1.1

1.8

8.9

4.8

2.3

3.1

0.4

2.9

7.1

GFDCF* Em

11.2

1 .o

3.9

1.0

5.3

4.9

16.1

Stock changes Em GDCF* Em

-1.5 9.1

-0.5 0.5

-0.6 .3.3

-0.1 1.0

-0.3 5.0

-0.4 4.5

-1.9 14.2

-1.0

Notes and sources: Data are taken from the Questionnaire Report [29], Tables 12, 13 and 16. This and subsequent tables refer only fo companies which completed the questionnaire, which was addressed ‘to all branches of foreign companies and all manufacturing companies in Rhodesia and to the majority of other companies incorporated in Rhodesia having nominal capital in excess of f20,OOO. A certain number of companies engaged in agriculture and distribution in Rhodesia were excluded although their nominal capital was in excess of E20,OOO because their operations have not been significant in the past’. The British South Africa Company and its subsidiaries and financial institutions were also excluded. (See p. 2 of the report.) The response to the questionnaire accounted for only about 73% of the gross operating profits of compames circulated, as recorded in theFederation Accounfs [ 141, suitably adjusted. *Figures for gross fixed domestic capital formation and gross domestic capital formation (including stock changes) exclude f235,OOO (i.e. E0.2m) in land. These would raise the total foreign and internally-controlled fiiures by EO.lm each (see Table 17 of the report), but distribution inside the foreign sector is not given.

South Africa, however, was the most important owner of new assets in Rhodesia in 1963, as shown by Table 14, but it must be reemphasized that the last few years of the federal period were untypically bad so far as foreign capital flows were concerned, and that furthermore South Africa was going through a period of capital outflow. So the importance of South Africa was almost certainly much greater than in earlier years. and maybe (though less certainly) greater than in 1964 and 1965. Table 15 sets out much of the available information on the extent of foreign domination by industry. The last six columns show gross output for the years 1963-66 and exports for 1964 and 1965 by commodity groupings. It will be observed that over 90% of the product of the ‘mining industry was exported whereas the ratio for all manufacturing industry was a little over a quarter. The

only manufacturing sectors which significantly exceeded this ratio were spinning, weaving and clothing; and basic metal and metal products (which includes such products as ferrochrome, produced largely because it is of much lower bulk than chrome ore and therefore cheaper to haul, rather than because of its use to local industry). It is therefore clear that manufacturing industry, unlike mining or tobacco growing, depended to a considerable extent on the domestic market. However, there was no parallel reliance on local financing: except in certain industries, foreign capital was of equal or greater importance. The first five columns of Table 15 show net profits, dividends and profits paid at home and abroad, and ‘internallyand externally-controlled surplus’. According to page 5 of the Report: ‘Foreign control was indicated by an excess of dividends and profits

WORLD DEVELOPMENT

46

Table 13. Gross and net operating proj’its, depreciation, und gross capital formation of’companies in Rhodesia in 1963 by sector and residence of. control (Em)

Gross

Agriculture and forestry

Mining and quarrykg

Manufacturmg

Budding and Consrruction

Distribution

Transport and communicatmns

3.2 0.4 3.6 1.1 4.8

I .o 3.2 4.2 I.2 5.4

2.7 6.1 8.9 4.1 12.9

0.1 0.1 0.2 0.0 0.2

1.3 1.8 3.1 2.1 5.2

0.3 0.2 0.5 0.5 1.0

0.2 2.4 2.6 0.5 3.1

0.7 1.7 2.4 1.6 4.1

0.0 0.1 0.1 0.0 0.1

2.9 ;::

0.9 0.8 1.6 0.7 2.3

2.0 4.4 6.4 2.4 8.9

1.4 0.9 2.3 0.4 2.7

0.9 5.4 6.2 2.8 9.0

Other

Total

0.1 1.3 1.4 I.0 2.4

0.4 0.0 0.5 0.7 1.2

9.0 12.9 21.8 10.3 32.1

0.3 0.5 0.8 0.4 1.2

0.1 0.3 0.4 0.4 0.8

0.1 0.1 0.1 0.2 0.3

1.7 5.3 7.0 3.6 10.6

0.0 0.0 0.0 0.0 0.0

1.o 1.2 2.3 1.7 4.0

0.1 1.0 1.0 0.6 1.6

0.4 0.0 0.4 0.6 0.9

7.3 7.5 14.8 6.7 21.5

0.1 -0.1 0.0 0.0 0.0

-0.6 -0.8 -1.4 0.0 -1.4

0.0 0.4 0.4 0.1 0.5

0.2 0.1 0.3 0.0 0.3

3.4 6.3 9.7 4.5 14.2

Rojits

Africa Other foreign Total foreign Domestic sector Total Deprectition South Africa Other foreign Total foreign Domestic sector Total South

Ner profits

South Africa Other foreign Total foreign Domestic sector Total Gross domestic

0.6 3.7

crrpital formclrion

1.4 0.5 1.9

South Africa Other foreign Total foreign Domestic sector Total

:::

Note and sowce: The ‘other’ category includes financial companies, real estate, and services. Data are taken from (291, Tables 14. 15.16, and 18.

Questionnaire

Report

Table

South Africa United Kingdom Other Total

14. Recorded

change in long-term liabilities abroad by sector and country of origin, I963 (Em)

Agriculture and forestry

Mining and quarrying

Manufacturing

Building and construction

1.8 0.3 0.1 2.3

0.2 0.1 0.3 0.6

0.6 0.8 3.1 4.5

0.1 -0.2 -0.7 -0.9

Distribution 0.0 -1.4 0.8 -0.6

Transport and communiutions

Other

0.0 0.6 -0.2 0.4

1.7, 0.4 0.2 2.3

Notes and source: * Largely financial companies. f l.lm assets in UK financial companies changes in assets were very small (f 0.2m or less). Data were taken from Quesfionnnire Report

paid abroad over dividends paid at home in the following industries: beverages; tobacco; paper, pulp, printing and publishing; chemicals and chemical products; basic metal and metal products; electrical mat,hinery; and miscellaneous industry. These industries accounted for 59% of the gross operating profits of all manufacturing industry.’ Mining (including, by a small margin, gold mining); building and construction; financial companies; and transport and communications may also be included in this category on the same criterion. The situation is not, however, quite as simple as this: the fourth and fifth columns of Table 15 provide another criterion, in that it is likely that if a sector is

were also acquired; Table 2 1.

4.5 0.6 3.5 8.5 otherwise

[ 291,

largely foreign dominated, the undistributed profits, or ‘surplus’ controlled by foreign branches, subsidiaries and other externallycontrolled companies, should exceed that accruing to internally-controlled companies. This is not, of course, a very reliable criterion. especially in the present case where only one year’s figures are available, as the surplus is determined by the size of dividends and profits remitted abroad. Further, a large negative, externallycontrolled surplus, far from implying domestic control could be a sign of foreign control in so far as it would usually only arise for a company with large assets and a good credit rating. In such cases a large deficit might appear as a

FOREIGN CAPITAL AND THE PROSPECTS FOR ZIMBABWE

41

Table 15. Extent of foreign control of companies in Rhodesia in 1963, gross output 1963-66, and exports 1964-65, by type of commodity or industry (Cm) Net

profits Agriculture and forestry Gold nuning Other mming and quarrymg Total mimng and quarrying Manufacturing: t,ood Beverages Tobacco’ Spinning, weaving, clothmg Wood. cork. lurntture Paper. pulp, printing and publishing Rubber products Chemicals and chemical products Non-metallic minerals Bauc metal and metal products Nonslectrral mnchrnery Electrical machmery Transport equipmenti tvhscelhneous Total Buildmg and construction* Wholesale distribution Retail distributmn Total distribution binancbl compames Real estate Transport and communwations Sernces TOTAL

Dividendst paid at home abroad

3.710 1.214 1.128 2.342 1.274 0.947 0.744 1.432 0.221 0.478

1.702 0.069 0.398 0.467 0.439 0.075 0.037 0.119 0.040 0.166

0.118 0.075 0.894 0.969 0.214 0.448 0.046 0.028 0.003 0.179

0.304 1.945

0.016 0.112

0.002 0.215

0.186 0.762

0.184 0.116

0.082 0.282

0.054 0.111 0.206 0.212 8.876 0.047 2.5 11 1.500 4.011 0.270 0.641 1.602 0.015 21.514

0.001 0.010 0.039 0.008 1.362 0.023 0.266 0.401 0.667 0.493 0.123 0.149 0.013 4.999

0.000 0.025 0.000 0.110 1.870 0.375 0.123 0.145 0.268 3.257 0.028 0.547 0.000 7.432

Control of SllIplUS abroad

home

0.406 0.611 -0.05 1 0.560 0.069 -0.025

1.199 0.525 -0.776 -0.25 1 0.116 0.264

0.172 0.133 0.031

0.641 -0.034 -0.027

0.131

0.866

-0.166 -0.231

0.178 -0.392

0.026

0.022

0.024 0.040 0.204 -0.025 0.184 0.382 0.566 0.876 0.003 0.293 0.004 2.892

0.032 -0.019 1.641 -0.579 0.687 0.122 0.809 1.751 0.070 0.242 -0.084 4.804

Cross 1963

1964

Exports

output 1965

1966

1964

1965

44.9 7.1 20.4 27.5 8.2 0.7 2.1 9.7 1.7 1.4

52.5 6.8 25.6 32.4 10.8 1.1 1.8 10.5 2.2 1.8

25.9 41.4 6.6 8.0 23.2 6.4 9.5

29.3 45.4 7.0 9.3 25.6 6.9 10.2

34.8 50.6 7.8 9.4 28.8 7.9 10.9

35.4 51.6 8.1 8.0 19.3 8.0 10.9

4.2 20.5

3.9 22.5

4.3 30.9

3.3 22.6

4.7 19.4

4.3 22.9

4.9 26.0

5.7 24.2

2.6 3.8 18.3 2.1 170.5

2.4 5.1 19.9 2.5 187.7 15.5

2.8 6.2 22.0 2.9 215.4 16.4

2.7 6.9 17.4 2.9 201.7 17.2

1.0

1.1

5.8

6.4

10.4

9.9

6.4 >

1.9 49.3

125.4

8.9 >

2.2 56.7

149.2

Notes and s”“rces: l 7obxco’ mcludes Group 221 of the ISIC (manufactured tobacco pmducts) and also Group 222 (post auction tobacco handling and packing). This latter item may have inflated the gross Output ti~ures due to handling. of tobacco for export which is agricultural exports. t’Tranoport equipment’ includes repair of vehicles and equipment in gross output fwures (Groups 381-386 hsted unde paid abroad’ mcludes profits. *Gross output figures in ‘Building and construction’ refer to private sector only (total and 389). i. Divldendr figures were: f 35.9m. t36.0m. and f35.9m for 1964-6). In all other cases the e~oss outp”t f@uri refer to all units covered by the census, i.e. private firms. corporations, statutory bodies. local and central government enterprises, and povernment departments. ProfUr, diGdendsand swplus are taken from the Querrionizaire Reporr 1291, Table 13 (for coverage see notes to Table 12 above~. tinxs ourpur data are from the Census of Roducrion 15 (1966). Ex,wts Ye from External Trade /21]. Where gaps are left in the table data are not available with sufficient breakdown.

1

result of high taxation and dividend repayments following a previous successful year, or of course through large repatriation of profits. Similar arguments might apply in reverse to sectors in which there was a large negative internally-controlled surplus, in particular nonmetallic mineral products; and basic metal and metal products. Bearing these points in mind, such a criterion based on control of undistributed profits may be used to check and modify the simple one based on dividend and profit payments. 16 Some further information is given in Tables 23 and 24 of the Report. These tables give comparative results for 1962 and 1963 for companies reporting in both years, allowing the first criterion above to be applied. (There is no breakdown of internallyand externallycontrolled surplus by type of industry, so the second criterion cannot be used.) Where both criteria agree when using the more complete data of Table 15, this further information

confirms the assignment of foreign or domestic control for both years. Where the criteria point in opposite directions (particularly where negative surpluses are involved), it sometimes provides stronger grounds for making a choice. For example, although for both gold and other mining the data in Table 15 imply foreign control on the dividend and profits criterion, but domestic control on the surplus criterion, the data of the Report’s Table 24 place gold-mining firmly in the domestic sector, and other mining firmly under foreign control in both years. The available data are plainly not adequate to quantify the degree of foreign control, deriving as they do from the results of a

16. It must also be admitted that the effects of transfer-pricing techniques would almost certainly tend to minimize the extent of foreign control on both criteria.

WORLD

48

DEVELOPslENT

Table 16. Shares uf profits b.v mdustries grouped according tu the extent of.fbreign control Whole economy

(a) (b) (c) td) (e) ‘Foreign’ Aggregate Source

Manufacturing

industries

percentage of net profits

percentage of gross profits

percentage of net profits

percentage of gross profits

19.5 9.0 57.7 5.7 8.0 57.4 68.8

17.0 18.2 52.2 5.7 6.9 61.3 68.0

44.4 8.6 44.5 0.0 2.5 75.3

39.7 15.0 42.7 0.0 2.5 76.1

and definition

of categories:

see text below.

questionnaire for one year, with some comparative results for the previous year. Nevertheless the figures are such that definite conclusions can be made for some sectors of industry, and fairly strong inferences for others. The following fivefold division reflects this, but errs on the side of caution: fairly strong arguments could be made for instance for ‘promoting’ several sectors from category (c) to category (b). (a) sectors in which foreign capital was dominnnt: beverages; tobacco; chemicals and chemical products; financial companies. (b) sectors in which foreign capital was more important than domestic capital: mining (non-gold); basic metal and metal products; building and contruction. (c) sectors in which foreign and domestic capital were of comparable importance.. spinning, weaving and clothing; wholesale distribution; transport and communications; non-metallic mineral products; miscellaneous industries; machinery; real estate; transport equipment; paper, pulp, printing and publishing; food manufacture; agriculture and forestry. (d) sectors in which domestic capital was more important than foreign capital: gold mining; services. (e) sectors in which domestic capital was dominant: wood, cork, furniture; retail trade. Table 16 shows the percentages of net and gross profits accounted for by these categories, fist for the whole economy and then for manufacturing industries only. The row marked ‘foreign’ was calculated on the arbitrary assumption that categories (a) and (b) and half of category (c) are foreign-controlled. This may be compared with the aggregate figures quoted above (p. 44) and shown in the final row of the table. A further check can be made using

the comparative table of the Report, as shown in Table 17. These checks suggest that the above assignment into five categories is roughly consistent with aggregate figures, except that for manufacturing industry it probably overestimates the degree of foreign contro1.i 7 As the figures for the whole economy are in fair agreement, this also implies that the degree of foreign control in other sectors may be somewhat under-estimated. Inadequate as it is, this is probably the best information at present available on foreign control by industry, and forms the basis to which subsequent changes must be referred.

VI.

RHODESIA

AFTER THE FEDERATION AND UDI The two years between the break-up of the Federation and UDI are better documented statistically than any others before or since. They see Rhodesia beginning to turn in on itself. With the loss or attrition of protected markets to the north, some of the new resources needed to be realigned to supplying the domestic market. Not that there was any conscious decision to begin reducing external dependence as an end in itself. Promotion of exports and a renewal of foreign private investment were still hoped for; but the white elite looked into the jaw of UDI and did not find it too terrifying. Safeguarding a privileged position was beginning to take precedence over growth and development. Although it can be argued that UDI and the economic sanctions

J7. Unless full weight is given to the external control of the surplus, or arbitrary adjustments are made to allow for the effects of transfer-pricing techniques.

FOREIGN CAPITAL AND THE PROSPECTS FOR ZIMBABWE Table 17. Dividends controlled

Wholeeconomy

surplus

and profits as percentages

paid abroad and externallyof totals in 1962 and 1963

Dividends and profits paid abroad as percentage of total paid

Externally-controlled surplus as percentage of total surplus

59.8 67.0 61.3

62.4 50.0 59.3

51.8 66.9 61.0

89.0

: 1963 : 1962* : 1963*

Manufacturing industry only: 1963 : 1962* : 1963*

49

70.2,

Notes and source: Data are taken from the Quesfionnnire Reporr 1291, Table 13, and for starred years. Table 24. * Average of both years as there was a deficit in 1962.

followed have improved the structure of the economy (though not its size) by reducing external dependence - forcing attention on to the domestic capital goods sector and on to import substitution in general - it is obvious that these are incidental, possibly unforeseen benefits. In the absence of international political pressure, external economic dependence would no doubt have continued at a very high level. Nor must it be thought that the structural improvement is of any short-term benefit to the African majority: resources were transferred from supplying Zambians with cheap clothing and consumer goods into supplying white previously imported Rhodesians with ‘essentials’ such as cornflakes and fashionable clothes. 18 But, as in World War II, the enforced protection did provide a stimulus to diversification and a necessity to develop capital goods industries, particularly steel production, construction, and metal-working. The present cost of this is largely borne by the blacks, but there could be long-term benefits to the economy which Zimbabwe will inherit. UDI was, of course, opposed by all the outward-looking interests in Rhodesia: by blacks for obvious reasons; by tobacco farmers dependent on exports for their livelihood; by international capital; and by much of domestic capital. Initially, international capital in the primary production sector (which necessarily fears the growth of nationalism of any kind) was vigorous in opposition to the approach of UDI. Foreign manufacturing capitalism similarly had something to lose in its export markets, as well as an end to hopes of expanded internal markets. The years before UDI saw some withdrawal of foreign capital (see Table 4); Tanganyika Concessions moved its headquarters from Salisbury to the Bahamas, and which

companies involved in both Rhodesia and Zambia strengthened their links with the latter.19 Domestic capitalism, accounting for about a third of the investment, adopted a more equivocal position, On the one hand it needed expanded markets internally and in neighbouring countries for its rather low quality products, but on the other hand it was more dependent than was international capital on the goodwill of its white employees who at the same time formed a large part of its market. Economic national+m implied a relative weakening of international capital. Thus domestic capital was the first to bow to the inevitable and come to terms with UDI. In late 1964 the Rhodesian Institute of Directors voted solidly against UDI, warning of the damage that would be done to the economy by sanctions. In 1965, a poll of members of the Association of Rhodesian Industries showed only 19 out of 294 in support of UDI (three years later ARnI was still in the forefront of those calling for a settlement). However, once it was a fait accompli, industry had no option but to seek the best accommodation available under the circumstances. One of the first acts of the government after UDI was legislation giving

18. And thereby the manufacturing interests lost much of their earlier interest in the expansion of the African market, and consequently in the further integration of Africans into the capitalist economy, and the over-all prospects for long-term development. 19. The Observer Foreign News Service of 5 March 1963 wrote about a volte-face by industrialists in favour of Zambia. involving much new investment. The British South Africa Company (which earlier supported Sir Roy Welensky) made a f2m loan for African housing.

50

WORLDDEVELOPMENT

control over firms and subsidiaries to ensure that their actions were in ‘Rhodesia’s’ interests. Restrictions were placed on the withdrawal of British staff from the Feruka refinery, and when, early in 1966, both Risco and car assembly firms (all foreign-owned) made several hundred workers redundant, they were obliged to continue paying most of them. By such means unemployment was avoided until redeployment of industrial resources to suit the new circumstances meant that workers sacked chance of work elsewhere. had a good Unwelcome as such measures were to many companies, the period of adjustment was not too long, and in addition there were two other factors of some significance which reduced opposition. Firstly, the local executives of foreign companies (who were nearly all white Rhodesians) found themselves cut off from their parent company to a large extent, and therefore free to make their own decisions and to reinvest locally-made profits that would have been repatriated otherwise; in such ways the distinction between foreign and domestic capital became blurred. Secondly, with the curtailment of many imports, Rhodesia was forced into a new phase of import substitution, parallel to that during World War II. After UDI, GDP fell about 4% in real terms (according to Rhodesian statistics) but thereafter resumed a moderate rate of growth, rising to around 10% in 1969 and 197 1. Sanctions therefore plainly failed to achieve even their intended economic effect in the medium run; as we have seen, some of the long-run effects are likely to be fauourable. As for the sectoral shares in GDP, it is no surprise that non-African agriculture has declined: from 12.9% in 1965 (14.0% in 1964) to 10.2% in 1970. But mining, which had been declining in relative terms until 1963, has recovered; manufacturing, under the stimulus of compulsory protection and new demands for import substitutes, has continued its steady rise, now contributing over 20% (see Table 2). Government policy under sanctions was to try to maintain the level of white consumption. As can be seen from Table 3 this was probably achieved, for consumption rose to over 70% of GDP again; at the same time, white earnings were rising faster than black earnings, despite the rapidly growing black population. As Sutcliffe [30] has shown, real earnings of black employees did rise (although slower than those of the whites), but as employment accounted for a constantly declining proportion of the population, average black consumption fell. The penalty for maintaining consumption under difficult circumstances was partly, of

course, borne by investment which recovered only very slightly from the very low levels of the early sixties, and this was thanks to an improvement in net capital inflow after UDI. The low level of investment over a period of ten years resulted in serious problems, particularly for the railway system, but there can be little doubt that the counter-measures adopted by the Smith regime eased the situation considerably. With the main creditor country prevented from divesting or even repatriating undistributed profits, Rhodesia could well afford to forego the possibility of new inflows. Outflows of investment income were 2% times the size of inflows in 1965. And once the countermeasures were seen to be working, a considerable inflow of capital, mainly into mining, began to arrive from South Africa. Foreign liabilities. With the approach of UDI some unofficial estimates of the value of British assets in Rhodesia were made, which do not conflict too seriously with the figures arrived at in section IV above. The Times (30 October 1964) estimated private foreign capital at E 1 lo- 150m, so that the total foreign capital was probably over E200m. This was almost certainly an underestimate, but the Financial Times (9 October 1965) estimated &200m for British capital alone. Inclusion of South African and other investment and official loans leads to a figure not far short of the E500m estimated above. Given the shortage of data, this is quite encouraging, so it can probably be fairly safely claimed that the actual figure was in the range E400-550m. The Board of Trade Journal gave a figure of E62m for the value of private direct investment by the UK in Rhodesia in 1965, which is not inconsistent with a total investment of about E150-200m.20 As we have seen, South African assets were at around ElOOm, and only the USA besides was significant. The book value of US investments on the eve of UDI has been quoted at $56m (of which $50m was in chrome mining) [ 3 11. The difficulties are compounded if an estimate of foreign liabilities for any later date is desired.

20. The figures given are book values (market values are commonly one quarter to one third higher); oil, banking and insurance are excluded; portfolio and all official investments are not covered. For comparison, at the same time the Board of Trade gave E392m for UK assets in South Africa, while the latter’s statistics gave to&alliabilities to the UK of close to E 1000m.

FOREIGN

CAPITAL

AND THE PROSPECTS

From 1965, South African statistics included Rhodesia and the other countries of the former federation under ‘other sterling area’ although there were higher assets there than in the UK. From 19 67, sterling area assets (apparently still including Rhodesia) were not broken down at all. It is known that there have been several major investments by South African industry in Rhodesia in recent years (see below), and in view of the restrictions imposed on investment income payments, most non-South African capital has been forcibly reinvesting profits (or making loans to Rhodesian businessmen), so it can hardly be doubted that the total figure is now substantially higher. The discussion of the following section would suggest that liabilities to South Africa are now of the order of E200m, out of a total for private liabilities of between ES00 and E600m. Inflows of foreign capital Counter-measures to sanctions first halted and then reversed the outflow of capital indicated by the current account surpluses of 1963-5. This is confirmed by the capital account (Table 4), a particularly large inflow occurring in 1968. The sum of the current and capital balances given in the last column of Table 4 shows an average figure of about ElOm per annum for 1963-5, implying an unrecorded outflow (over half of it in 196.5), but this conclusion must be regarded as very tentative because after 1963 the published statistics do not separate changes in banking reserves from errors and omissions. The figures therefore could equally well be explained in terms of building-up reserves in South Africa or another friendly (or neutral) country. It is known for instance that Rhodesia’s reserves in Britain were run down considerably during 1965 so as to avoid the danger of them being frozen after UDI, but this may have been part of a general switch to holding reserves in South Africa. Nevertheless the possibility remains that there has been an unrecorded outflow of capital since 1964: restrictions of allowed purchases of overseas securities were made in the Budget of the summer of 1965, because of the considerable outflow that had occurred in 1964. After UDI it appears that unrecorded flows were small, the sum of the two accounts averaging less than Elm from 1966 to 1970. The five calculations of foreign capital flows given in Table 10 give totals of about E40m (between 1 1.7 and 13.5% of GDCF) for the five years 1966-70, except for the last two which adjust for reinvestment. These latter calculations suggest a total increase in liabilities of

FOR ZIMBABWE

51

over Ll50m, so that even in this period of relatively small flows of new capital, about 48% of investment was attributable to foreignowned (if no longer foreign-controlled in nonSouth African cases) interests. In addition, with the freezing of investment income payments to many parent firms, a conservative estimate would be that at least ElOm each year since UDI should be accredited to foreign sources. Whether this further ESOm was actually reinvested by the foreign firms, or paid into blocked accounts (and borrowed and invested by Rhodesians) is not relevant if we are concerned to estimate the rise in liabilities. On the assumption, therefore, that the unknown quantities involved in depreciation (no figures are published) on the one hand, and market revaluation on the other, broadly cancel each other; total liabilities had risen by about E200m by 1970. (Since then capital account data have not been published, but the current account suggests a continuation of the trends with a particularly large capital inflow in 197 1 to cover the large current deficit.) The South African share must surely have risen, because in addition to reinvestment by South African firms in earlier enterprises, they have played a major part in the establishment of nickel mining (Anglo-American Corporation’s new investments alone are about E20m), the expansion of copper mining (particularly by Messina), the building of the El lm nitrogenous fertilizer plant at Que Que (by a South African consortium led by Sable) and many other smaller ventures. So it is unlikely that liabilities to South African investors are now less than E200m. The British stake has increased more slowly, and is now probably in the range E225-300m, so that total private liabilities can be put at around E550m. Official liabilities (other than to South Africa) will not have changed, of course, as no new loans have been made or maturing ones repaid, but to the figure of about E150m already quoted21 we should perhaps add the interest now amounting to around E30m which has not been paid. This is, of course, also a Rhodesian liability, and in effect has become a long-term one, until, at any rate, a settlement is reached. A total figure of E730m is thus arrived at, but the method perforce employed plainly does not warrant

21. E88m raised on the London market, plus E60m to the IBRD but guaranteed by Britain. Other

owing

smaller loans may be ignored, bonds may have been repaid f88m may now be too high.

as some of the above via South Africa. so

WORLD DEVELOPMENT

52

such precision, and the strongest claim that would appear to be justified is that total foreign liabilities now lie within the range 2600-800m. This represents at least El00 per capita (in a country whose per capita income is roughly $100 per annum) or about 63000 per white. Outflows

of property

income

Counter-measures against sanctions amongst other things resulted in almost a halving of the cost of ‘servicing foreign liabilities. Receipts from overseas assets also fell, but the significance of this to the balance of payments was limited by their much smaller size. As exports also fell the ratios of both payments and receipts to exports were almost unaffected (see Tables 6 & 8 and Figs. 1 & 2). The ratio of payments to imports, however, fell markedly. It would be a mistake to interpret this as a consequence of the worsening in the terms of trade after UDI (which was about 14%, mainly attributable to higher import costs) because the fall was about twice as large as this would require. More simply the decline demonstrates the possibility in a crisis of staunching the drain on the economy arising from external dependence, transferring the resources from unproductive payments to essential import requirements. After readjustment to the new circumstances (involving more dependence on South Africa) the upward trend in payments/imports seems to have reasserted itself, however (see Fig. 1). Table 7 also shows that counter-measures reduced payments as a proportion of GDP from over 7% to around 4%, a factor of some significance with investment running at only about 15% of GDP. Payments,, however, generally stiIl exceeded capital inflows. The more realistic ratio allowing for reinvestment both in the figures for payments and capital inflow is in fact too pessimistic in this case, as blocked payments of about ElOm a year would, as mentioned above, increase foreign liabilities and so properly be added to capital inflow as well. Structure

of foreign

ownership

after

UDI

Sanctions obliged the white Rhodesians to attack the foreign control (if not de jure ownership) of their economy. With the abandonment of many conventions of normal economic behaviour, they took some actions which would have been beneficial for Rhodesian capital in any case, but unthinkable except out of necessity. Prior to UDI the on direct investment increasing outflow account increased the need to export - and to

seek new investment. The domination of the economy by foreign capital which inhibited the growth of domestic private’ industry could hardly be attacked under such circumstances. Hence there was a dilemma approaching the typical Latin American vicious circle. Under sanctions, a wide range of import substitutions had to be made by manufacturing industry so as to free foreign exchange for essential materials and capital goods imports. Tables 1 and 2 show the considerable growth of the manufacturing sector in this period. Subsidiaries of multinational corporations could no longer argue the greater efficiency of importing consumer items for which economies of scale were said not to exist in Rhodesia, when they were cut off from their parents and other suppliers. So they either diversified into local production or were taken over by a domestic firm. Undoubtedly exposure to world markets would lead to ‘rationalization’ and destruction of many such industries. But equally many others having survived a protected infancy would prove viable, or at any rate prima facie seem worthy of interim protection during a ‘hardening-off’ process. We shall make some attempt to assess the value of such industries to Zimbabwe below, after a discussion of probable sectoral changes of control. No complete or organized information is available on this subject, of course, and the following, it must be emphasized, is one outsider’s view,22 and may diverge from the view of a scholar resident in Rhodesia. (a) Industries where foreign capital was dominant before UDI. In these industries there seems to have been little challenge to foreign dominance, although with the decline of the tobacco industry and its more recent revival there are signs of greater activity on the part of domestic capital. Both Tobacco Sales and Tobacco Auctions have been active,. the latter diversifying through its purchase of Rhodesian Equity Investment Trust and thereby a majority holding in Hodgson and Myburgh which controlled Country Building Contractors and Eastlands Estates. The tobacco industry, however, remains dominated by South African (Rupert Tobacco Corporation) and British (British American Tobacco, and Imperial

22. Gleaned from a systematic perusal of a number of secondary sources, in particular, the Standard Bank Review, the APica Research Bulletin, the ‘ARnl Register’ [ 321, the Rhodesian Journal of Economics and United Nations Sanctions Reports [33].

FOREIGN CAPITAL AND THE PROSPECTS

Tobacco) interests. Similarly for the other industries in this group, the only reports testify to continuing dominance by foreign capital with South African capital (itself, of course, frequently linked with British capital) strengthening its relative position. Thus African Distillers took over Gilberts in 1971, and in 1972 Rhodesian Breweries (controlled by South African Breweries, of the Barlow Rand Group) bought Lonrho’s 50% share in Chibuku Holdings, and thereby its 70% share in Heinrich’s Chibuku Breweries and the whollyowned Rhodesian Food Corporation as well as several minority interests (including one in African Distillers). In chemicals and fertilizers some major South African investments have been made, including Sable’s nitrogen fertilizer plant, for which the total investment is variously reported at f9m and RhS34m (probably the latter figure would include plans for local production of the ammonia input), African Explosives’ phosphate enterprise at Dorowa and Rhokana Corporation’s expansion of sulphuric acid production. Mergers involving South African firms include those between Albatross Fisons and African Explosives, and between Klipfontein Organic Products and Agricura Rhodesia. Banking has, of course, expanded with the denial of international servicing, as evidenced by the birth of the Netherlands Bank of Rhodesia (now called Rhobank) out of a subsidiary of the Netherlands Bank of South Africa, the opening in Rhodesia of the Bank of Lisbon and South Africa, and Standard Bank’s expenditure of E1.75m on new Salisbury premises. (b) Industries in which foreign capital was more important than domestic capital before UDZ. There is little evidence of any significant

domestic capital participation in the very rapid expansion of the (non-gold) mining industry since UDI. It is probable that some small locally-owned mining companies have been set up. probably in copper (there are said to be about 40 copper-mining companies, although MTD Mangula owned by Messina of South Africa dwarfs the rest), either as off-shoots of gold-mining companies, or with help from the Mining Development Corporation. Both Messina and Rio Tinto Rhodesia have raised investment capital locally recently. But there can be no doubt that over-all the major part of the very substantial investments that have been made have been funded by foreign capital. In the case of British-controlled companies this has probably been entirely from retained profits, which gives an indication of the profit-

FOR ZIMBABWE

53

ability of their operations despite sanctions (the qualification being necessary because of the exceptionally high degree of interdependence between British and South African capital in the mining field). The Minister of Mines claimed that 37 new mining companies entered Rhodesia in 1968, although it is not clear how independent of each other and established companies they were. The main growth has been in nickel and copper, with AngloAmerican Corporation investing some E20m in mines and refineries, plus a further tlOm through JCI, and about E12m in developing the Wankie Colliery. Rio Tinto Rhodesia have invested of the order of ElOm, purchasing mines, including a chrome mine (otherwise dominated by American interests), reopening others, and developing smelters. Turner & Newall invested about E12m of blocked funds in a new asbestos mill at Mashaba, and Lonrho, although most active in gold, greatly expanded production from their Inyati copper mine. In American companies have been chrome, dominant since the late 1920s. They apparently had little difficulty disposing of production after UDI, and thanks to expansion of ferrochrome smelting facilities were well-placed to take advantage of the ‘Byrd amendment’ of 1972 which allowed America to import Rhodesian ferrochrome despite sanctions. The next growth metal is likely to be platinum, for which Rustenburg have started an investment programme estimated to cost R97m ultimately. Although no pretence can be made to estimate accurately, it would seem that of the order of ElOOm of foreign capital has been invested in Rhodesian mining since UDI. The trend to greater local beneficiation of base minerals has not necessarily involved much local capital. Much less information is available for the basic metals and metal products group of the manufacturing industry. But it is in this sector that expansion of domestic capital seems most likely and indeed ‘More Wear’, a heavy engineering group has grown considerably. It is also claimed that much of the plant for the new coke oven complex at Wankie was supplied by Rhodesian firms. The domestic industry is bolstered by the state holding in Risco (although foreign capital is also important). Risco itself is highly efficient for so small a steel industry, but growing demands suggested a need to double the present output to about a million tons per annum, requiring an investment of some E36m. Two-thirds of this was to come from Europe until the recent disclosure of the operation. It is doubtful that South African resources will be able to supply the

54

WORLD DEVELOPMENT

deficiency. On a smaller scale, Alcan of South Africa, in association with Nefichro Acceptances (a Rhodesian merchant bank) and Industrial Assets Corporation, built an aluminium factory. Reports suggest expansion in some companies which, whilst foreign-controlled, are quoted on the Rhodesian Stock Exchange, for example Rhodesian Cables (owned by BICC). In building and construction, a sector in which there has been considerable activity, some Rhodesian-owned firins have been prominent, including Johnson & Fletcher, and the diversified groups, Mashonaland Holdings and Freehold Corporation of Rhodesia. These latter two groups own a large number of subsidairies in the non-metallic products, manufacturing, and retail trade sectors, as well as in construction. (c) Sectors in which foreign and domestic capital were of comparable importance before UDI. In the non-metallic mineral products sector, most activity seems to be centred round British and South African firms. Britishcontrolled Salisbury Portland Cement have expanded recently by Rh$l.lm, Dunlop opened a vinyl floor tiles factory in Bulawayo, but Marley were prevented by the United Kingdom government from divesting their Zl.3m holding in Rhodesia. South Africancontrolled companies Rhodesia Cement and Plate Glass (although both quoted on the Rhodesian Stock Exchange) have invested Rh$0.6m on diversification and Rh$O.Sm on expansion, respectively. South African interests are reported to be providing more than half the finance for a new brick and tile project. It is likely therefore that the industry is now more dependent on foreign interests, although it is of course possible that comparable expansion of domestic capital has oocurred without being so widely reported. Alternatively, there may have been a large number of small local developments. Spinning, weaving and clothing has expanded considerably with both domestic firms and UK-owned David Whitehead & Sons (Rhodesia) prominent. The latter is now quoted on the Rhodesian Stock Exchange, having offered shares of a nominal value of Rh$3m. In food manufacturing the dominance of South African (Anglo American, Huletts, Barlow Rand) and British (Tate & Lyle, Brooke Bond, Unilever, Cadbury-Schweppes) does not seem to have been challenged on a large scale, except by the state through government abattoirs and the Cold Storage Commission, and the SabiLimpopo Authority. In transport, the Britishowned assembly factories have not been able to

continue, although some are being used to assemble French and Japanese cars and trucks. The Ford assembly plant was taken over by the Industrial Development Corporation and used to assemble Renaults, but has apparently now been converted into an electric motor factory. The plans for a completely Rhodesian car, the GNW Duiker, were eventually vetoed by the IDC. But small-scale manufacturing initiatives, mainly with local capital, have been numerous. It is claimed that Rhodesia has significant exports in recently developed lines such as agricultural machinery and paraffin-fuelled deep freezers. Although over 50 firms are listed in the ARnI Register in the paper sector, the largest, Rhodesian Pulp and Paper Industries, and the Rhodesian Printing and Publishing Company (publisher of the Rhodesia Herald) are South African, whilst BPB Industries (UK) controls newsprint manufacture. (d) Sectors in which domestic capital was more 7mportant than foreign capital before UDI. The recent rise in the gold price has stimulated production in many mines and caused the reopening of others, working of tailings, etc. Rio Tinto Rhodesia, AngloAmerican and Lonrho have all announced new investments. But the industry is dominated by a large number of small domestic producers who are receiving help from the Mining Development Corporation, and the Industrial Development Corporation in association with General Mining Finance Corporation (of Johannesburg). The considerable expansion of tourism has attracted South African capital into various hotel projects (the Southern Sun Group is most important), and it seems likely that this has reduced the relative importance of domestic capital in services. (e) Sectors in which domestic capital was dominant befbre UDI. In both the wood and retail trade sectors there is some slight evidence of an increase in importance of South African capital. An Anglo-American subsidiary, RNFE (Rhodesia & Nyasaland Forest Enterprises), doubled its plywood output after a RhSlm investment. OK Bazaars and Pick ‘n’ Pay have both expanded in Rhodesia. UK firms are also active in the timber sector. But local capital is probably still dominant (through both large groups, such as Maceys, Hadon and Sly, Caps Holdings, and numerous small businesses). The available information, then, largely concerns new foreign investment, suggesting the paradoxical conclusion that the foreign stake in the economy has increased during a period of international sanctions. This conclusion cannot

FOREIGN CAPITAL AND THE PROSPECTS FOR ZIMBABWE be regarded as certain, for rhe following reasons: firstly the uase pomt for foreign capital was some 70% of the total, so- that foreign investment could continue to dominate in absolute terms whilst losing ground relatively; secondly almost all the new capital has been South African, and there can be no doubt that this component has grown very fast, probably faster than domestic capital, but at the expense of other foreign capital; thirdly, not all the British capital which has accumulated in blocked funds has been reinvested, so that although substantial investments have been made by Turner & Newall, Lonrho, RTZ, United Transport, and others from retained earnings, this has to be counter-balanced both by the absence of new flows, and by the fact that some companies have ceased trading or have been taken over by private domestic or state capital; and fourthly, as already stated, both censorship and their smaller size will have reduced the reporting of expansion by domestic firms. Although foreign capital has probably strengthened its hold on beverages, chemicals and chemical products, mining other than gold, non-metallic mineral products, hotels, and possibly made further inroads into food manufacturing and retailing, mostly rather large-scale activities, the reverse may well be the case with many of the smaller-scale manufacturing activities on which the manufacturing boom has been based. Whereas these conclusions must be unsatisfactorily tentative, and may prove inaccurate in detail, what is indisputable is that state capital has grown in importance since UDI. It has been pointed out above (pp. 29-30) that, particularly since 1948, South Africa has combined a capitalist, free enterprise ideology, with a much larger state involvement in infrastructure and productive industry than other capitalist countries, the contrast with Rhodesia being quite noticeable. Since 1965 Rhodesia has increasingly followed the South African pattern, partly through the creation of new state organizations, but more through the much greater importance that many existing bodies Public naturally assumed under sanctions. sector investment rose 68% in real terms between 1965 and 1970, and now amounts to over 40% of all investment [34]. More significant in quantitative terms than the IDC (whose total assets are around E5m) are the infrastructural investments, in power, water (especially and, particularly, Rhodesian for irrigation), Railways, in which investment has been measured in tens of millions of pounds annually in recent years.

55

VII. CONCLUSIONS It has not been my purpose here to describe the Rhodesian economy in full detail. The above excursion (in section VI) into selective details was intended as an investigation into the question of whether under sanctions Rhodesian domestic capital has been able to reverse the imbalance favouring foreign capital in most sectors before UDI. Much further detail could, of course, be given, but would not necessarily permit more reliable judgements to be made, because of the shortage of published statistics, and the impossibility of achieving balance starting from a basis of facts selectively released. What can be stated with some certainty is that almost all the large investments since 1965 have been made by foreign capital or by domestic state capital. There is no evidence of a marked decline in foreign ownership of the economy; indeed it is probably strengthened in some sectors. On the other hand, although the evidence is scanty, domestic capital may well have expanded relatively (it has certainly done so absolutely) in some other sectors by a less conspicuous process involving smaller investments. The fastest growth in manufacturing seems to have occurred in sectors where foreign dominance is less marked, including machinery, spinning and weaving, electrical and radio, soft drinks, and iron and steel. The ARnI Register [32] shows the number of firms almost doubling between 1966 and 1970, whilst the number of products rose from 1059 to 3837. Although some 65% of these were monopoly products, the tendency to monopoly in the small market being intensified by import restrictions, this still leaves some 1,400 products (more than the 1966 total) produced competitively, and it is likely that it is in this field that domestic capital has been most prominent. (See also Dickinson [35] .) And it is here that the most immediate problems for Zimbabwe are to be found, for in the event of a settlement, even one favoured by international capital, perhaps half of the white Rhodesians would leave taking essential skills and capital with them. The reasons for expecting so large a proportion to leave are as follows. Firstly, contrary to popular belief, few white Rhodesians are farmers (under -10% of the work-force even before UDI). The whites are highly concentrated in urban areas, and the large majority of them are employees whose concrete stake in the country is that they can still- earn. more in _wage employment even than .^. in South Atrica. Secondly, although emotional

56

WORLD

DEVELOPMENT

ties are strong for those born or raised in the country, about half are in fact fairly recent immigrants, and over half of these are either South African born or came from Britain by way of South Africa. In the event of the loss of the political power which at present guarantees their very high standard of living, most will feel a powerful incentive to move south. Thirdly, the white population has always been unusually with large two-way flows. Thus volatile, according to the Month@ Digest oj Statistics [ 101 there were 7000 immigrants and 13,400 emigrants in 1964, the latter figure representing over 6% of the white population. Should a settlement precipitate a major exodus, this would involve mainly WOTkeTS, but also small businessmen and a significant proportion of local capitalists whose market would be declining. With them would go a considerable amount of capital, most obviously in the form of vehicles and machinery. Although there is, of course, no question of major installations or buildings being removed, the industrial sectors in which Rhodesian private capital is most important include those in which a high ~TO~OTtion of the assets are relatively transportable clothing, wood industries, example (for machinery and miscellaneous industries). The loss of skiUs in other sectors such as retail trade and services could also be serious. Beyond that the possibility cannot be excluded of the deliberate destruction of assets which cannot be moved, as occurred during the French withdrawal from Guinea. The white farmers, having a longer-standing and more deeply-rooted commitment to the country, will on the other hand hope to remain (as did their counterparts in Kenya) and in the absence of wide-spread warfare, the agricultural sector need be relatively little affected in the short-run. Similar considerations apply to the representatives of foreign capital who will generally wish to remain to continue the country’s of the exploitation profitable resources after reaching an accommodation with the new government. Because of its domination in so many sectors already, coupled with the postulated collapse of capital’s foreign capital, much domestic importance seems likely to increase following a settlement, and the attitude adopted to it would seem to be the main factor in determining Zimbabwe’s future direction. Let me conclude therefore by describing three scenarios for the immediate future, distinguished in part by the response to this situation. In the first, an accommodation is reached

quite soon under pressure from Prime Minister Vorster of South Africa and President Kaunda of Zambia. This does not prevent about half the whites leaving Rhodesia, for the reasons just given. The immediate result is an economy critically dependent on international capital. A large proportion of the newer manufacturing industry disappears, either because owners leave, taking what they can, or because exposure to world markets requires their ‘rationalization’. This applies to some extent to foreign subsidiaries whose parents prefer to supply from South Africa once the local market loses its protection. Many potential future growth points are thus destroyed. Independent development is constrained by the need to conciliate the major foreign exchange earner. In the second scenario, the failure of negotiations leads to renewed guerrilla war, more effective sanctions involving Mozambique and, less conspicuously, South Africa. International capital withdraws to some extent, but on the birth of Zimbabwe offers co-operation, which is accepted on the basis of joint ventures (similar to the ‘Zambianized’ copper industry). Zimbabwe grows, but effectively under the control of foreign capital. That is, industry retains or redevelops an outward orientation, a bias towards capital-intensive investment, and a bias against the capital goods industry, as described in detail by Arrighi and Saul [ 361. Rural poverty is hardly affected. The third scenario follows the second until independence, at which time as a result of the acquisition of skills, partly in the process of the actual war, partly through direct help from sympathetic countries such as Tanzania and Mozambique, a large proportion of the abandoned industries are kept functioning, are protected against outside competition, and are then adapted and expanded to service the African market. Foreign capital is nationalized with minimum compensation, and that conditional on the training of Zimbabweans to take over the management after a short period. Although export earnings fall, the economy has shown itself diversified enough to withstand a degree of isolation, and as it now no longer needs luxury imports, it weathers the storm, aided by Mozambique, Tanzania and Zambia. This strategy alone makes it possible to concentrate investment in the rural areas where the large majority of the population lives. REFERENCES [l]

Curtin,

T. snd Murray, (London: 1967).

and Rhodesia Affairs,

D., Economic Sanctions Institute of Economic

FOREIGN CAPITAL AND THE PROSPECTSFOR [2] Arrighi, G., Tlze Political Econonzy of Rhodesia (The Hague: Mouton. 1967), p. 19. [3] op. cit., p. 25. (41 op. cit., p. 40. [S] Central Statistical Office, Census of Productiorz (Salisbury, 1966, 1968). (61 Reynolds. C.W., ‘Development problems of an export economy: the case of Chilean copper’. in M. Mamalakis and C.W. Reynolds, Essqvs on tke Qzilearz Economy (New York: Richard D. Irwin. 1965) pp. 261-409. [7] Central Statistical Office, Natiozzal hzcome and Social Accounts of Soutlzem Rhodesia, I946- 1951 (Salisbury, 1952): National Accounts and Balance of Payments of Rhodesia (Salisbury, 1967, 1970). [S] Report of the Advisory Commissiorz on the Review of the Constitution of the Federatiorz of Rhodesia and Nyasalazzd (The ‘Monckton

Report’) (London: HMSO, 1960). [9] Central Statistical Office, Economic Survey of Rhodesia (Salisbury, 1969-75). [lo] Central Statistical Office, M071th~~~ Digest of Statistics (Salisbury, June 1954: February 1966; March 1969). [ll] Frankel, S.H., Capital lnvestmezzt in Africa (Oxford University Press, 1938) p. 158. [12] Barber, W.J., The Economy of British Central Africa (Oxford University _ l%ss, 1961) pp. 111-12. [13] Irvine, A.G., Tlze Balance of Pqvmerzts of Rhodesia and Nyasaland, 1945- 1954. (Oxford University Press, 1959). [ 141 Central Statistical Office, National Acwurzts and Balance of Pqvments of Northerrz Rhodesin, N_vasaland, and Southern Rhodesia, 19.54-63

(Salisbury, 1964). [15] Kidron, M., Foreign Investment in India, (Oxford University Press, 1965). [ 161 United Nations, Economic Survey of Latirz America. 1967 (New York: United Nations. 1969). [17] Hirschman,. A.O., ‘How to divest in Latin American, and why’, Essqvs in hzterzzational Finance, No. 76 (Princeton University Press, 1969). [ 1S] Pazos, F., ‘The role of international movements of private capital in promoting development’. in J.H. Adler (ed.), Capital Movements and Ecortomic Development (Macmillan, 1967). [ 191 Stoneman. C.F., ‘Foreign capital and economic growth’, World Development. 3, (January 1975) pp. 11-26.

ZIMBABWE

51

1201 Overseas Economic Surveys, Southern and Northern Rhodesia and Nyasaland (London:

HMSO, 1950). [21] Central Statistical Office, Annual Statement of External Trade, 1965 (Salisbury, 1966). (221 Pearson, D.S., and Taylor, W.L., Break-Lip (Salisbury: Phoenix Group, 1963) pp. 17-18. 1231 Hazlewood, A., ‘The economics of federation and dissolution in Central Africa’ in A. Ha&wood (ed.). African Integration and Disintegration (Oxford University Press, 1967) pp. 185-250. [ 241 Reserve Bank of South Africa, Quarterly Bulletin of Statistics. [25]

Quoted in Thompson, C.H. and Woodruff, H.W., Economic Nvasaland

Development

(London:

in

Rhodesia

Dennis Dobson,

and

1954) p.

190. [26] Pearson and Taylor, op. cit., p. 7. [27] Tow, L., 7’he Manufacturing Economy Southenz

Rhodesia:

Problems

and

(Washington, D.C.: National Academy - National Research Council, 1960) 1281 Reference (14],Table71. 1291 Central Statistical Office, Report on

of Prospects

of Sciences pp. 122-3.

__

the Results of the National income and Balance ofPavments Questionnaire sent to Companies operating bz the Federatiozz in I963 (Salisburv. 1964).

[3OJ Sutcliffe, R., ‘Stagnation and ‘inequality in Rhodesia 1946-68’, Bulletin of the Oxford University Institute

of Economics

and Statistics,

33 (February 1971) pp. 35-56. 1311 Rhodesia Hera& 18 September 1970. 1321 . . Association of Rhodesian Industries, Register of . Rhodesian Manufacturers (Salisbury, 1970). 1331 United Nations, General _Assembly Report AIAC.109lL.393 (7 April 1967). [ 341 Clarke, D., ‘The growth and economic impact of the public sector of Rhodesia’, Rhodesian Journal of Economics, 6, (September 1972) pp.48-60. [35] Dickinson, N.J., ‘Performance and prospects in Rhodesian manufacturing industry’, Rhodesian Journal of Economics, 5, (December 1971) pp. 9-16. [36] Arrighi. G., ‘International corporations, labor aristocracies and economic development in tropical Africa’, in R.1. Rhodes (ed.), Imperialism and Underdevelopment (New York: Monthly Review Press, 1970). 1371 Sowelem, R.A., Towards Financial hzdepen_ -dence in a Developing Ewnomy (London: George Allen and Unwin, 1967).

WORLD DEVELOPMENT

58

Appendix Estimates

of Reinvestment

of Undistributed Proji’ts of’ Foreign-controlled in Rhodesia (Em)

Companies

Net reinvestment by foreign-controlled companies is estimated by deducting the provision for depreciation from undistributed profits, and taking one half of the resulting ‘net profits’ as the amount reinvested by foreign companies. The procedure is shown in the following table. (8) (7) Estimates of reinvestment by foreign companies net gross

(5) 14)/(l)

(6) Net profits

4.9 5.8 7.0 1.9 8.4

.188 ,203 ,215 ..213 .230

(10.7) (11.3) (12.5) (14.3) (13.5)

11.1 11.0

5.4 5.1 6.3 7.2 6.8

(23.9) (28.1)

9.6 10.3

,241 ,220

(14.3) (17.8)

12.0 14.1

7.2 a.9

46.9 45.5

(.2&l) (27.3)

11.5 11.8

,244 259

(16.6) (15.5)

14.1 13.7

1963

42.6

(25.6)

12.3

,288

(13.3)

12.8

7.8 6.7

1964 1965 1966 1967 1968

49.6 71.3 58.6 68.8 75.2

30.1 37.1 26.2 37.5 42.3

,606 ,520 ,447 .545 ,563

(11.4) (16.4) (13.5) (15.8) (17.3)

(18.7) (20.7) (12.7) (21.7) (25.0)

15.1 18.6 13.1 18.8 21.2

9.4 10.4 6.4 10.9 12.5

1969 1970

95.7 106.0

56.9 57.9

.595 ,546

(22.0) (24.0)

(34.9) (33.5)

28.5 29.0

17.5 16.8

(1)

(2)

Gross Profits

Undistributed Profits

1954 1955 1956 1957 1958

26.0 28.5 32.5 37.1 36.5

(15.6) (17.1) (19.5) (22.2) (21.9)

1959 1960

39.8 46.8

1961 1962

(3) (W(l)

(4) Depreciation

7.8 98::

8.3

Notes and sources: Figures given in parentheses are estimates. Col. (1) Gross profits, 1954-9: Table 19 of Accounts (71 (1954-64); 1960-63: Table 3 of Economic Survey [9] (1970); 1964: Table 11 ofAccounts (71 (1966); 1965-70: Table 21 ofAccounts [7] (1970). Col. (2) Undistributed Profits (including provisions for depreciation), 1964- 70: same sources as for col. (1). For 1954-63 the estimates shown are 60% of gross profits, the justification for which is shown in col. (3). Col. (4) Depreciation, 1954-63: Table 170 of Federal Accounts [ 141; 1964- 70: estimates equal to 23% of gross profits, the justification for which is shown in col. (5). Although there is a clearly rising trend, the mean value is used 3s it is likely that since the end of federation, and more particularly since UDl, proportionate provision for depreciation has fallen. It is worth noting that these values are more erratic than the published vaiues for 1954-63. lt may well be that a lower (non-linear) extrapolation (yielding values of (Em) 12.8, 13.2, 13.5, 13.8, 14.0. 14.2, 14.3) may be nearer the mark. The values estimated above will, however, be quite adequate for the present rough calculation, as the actual change that has occurred in provision for depreciation is one of the closely-guarded secrets of the government since UDI. It is quite possible that under the circumstances provision for depreciation has fallen since 1965. Col. (6) Net profits: Obtained by deducting depreciation from undistributed profits. For all years, therefore. estimates are involved. Col. (7) Gross reinvestment: Estimated at one half undistributed profits. This factor is to allow for both domestically-controlled companies’ share in undistributed profits and for local participation in foreign-controlled companies. As the data given in Table 12 show, this is a very conservative estimate of foreign reinvestment; a factor closer to two-thirds might well have been chosen. Col. (8) Net reinvestment: Estimated at one half net profits. Similar considerations apply as for gross reinvestment. The period 1946-53. Table 7 of Accounfs [7] (1946-51) gives the following values for (net) undistributed profits: (fm) 1.5, 2.4, 3.5, 3.0. 5.2, for the years 1946-50. For 1952 and 1953, the ‘Monckton Report’ [a) (p. 304) gives net operating profits of about f 16.0m. from which we may estimate net profits to be about f lO.Om. Accordingly one half of these values have been used in Tables 5, 7, and 11 as estimates of net foreign reinvestment.