Abstract
M.Comm.
The objective of this thesis is to examine the importance of external finance of economic development and growth in South Africa. The investigation takes cognisance of the unique characteristics of the South African economy, especially the years of isolation from the world economy, unequal distribution of income and the need for sustainable economic growth to create employment and thus a stable social and economic environment conducive to foreign investment.
The inflow of foreign capital in the economic development process is an imperative for filling either the investment-savings gap or the import-export gap. In a closed economic system the demand for investment funds will be met by the supply of domestic savings. Economic growth will be limited to the availability of investment funds, or domestic savings. In an open economic system, the demand for investment funds can be supplemented by the inflow of foreign capital, and growth will thus not be impaired by a scarcity of investment resources.
Foreign capital inflows formed an integral part of the economic development process in the South African economy since the discovery of gold and diamonds in the latter half of the nineteenth century. Until 1976, in 24 out of 31 years, the South African economy recorded a net inflow of foreign capital. South Africa could, until 1976, the year in which political and social unrest broke out, finance a shortfall on the current account of the balance of payments with the inflow of foreign capital. Since then South Africa became a net exporter of capital.
The South African economy found itself isolated from the world economy since the middle eighties due to the Apartheid policy. The inflow of foreign capital was greatly inhibited by sanctions and disinvestment. The South African economy had to rely on domestic savings to finance investment needs. This shortage of investment funds was an inhibiting factor on economic growth and development. This dissertation distinguishes between the different developing funding sources and as such outlines the benefits of using both multilateral as well as bilateral developing funding institutions to enhance and foster economic growth and development, especially in developing countries. It also gives a historical overview of South Africa's relationships with and use of these institutions.
The reintegration of Eastern Europe into the world economy meant even bigger pressure on existing development funds. Since the early nineties funds available to the Third World for economic development have been steadily declining. New sources of funds for economic development had to be found. The emphasis has been moving away from pure development assistance and grants to direct foreign investment as a means of financing development in the developing world.