ECONOMIC CONDITIONS IN SOUTH-WEST AFRICA

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001600010075-8
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 21
• Document Creation Date: December 22, 2016
• Document Release Date: October 1, 2009
• Sequence Number: 75
• Publication Date: October 1, 1968
• Content Type: IM

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% 'jVI- -~- - - . -- - -
Confidential
DIRECTORATE OF
INTELLIGENCE
Intelligence Memorandum
Economic Conditions in South-West Africa
Confidential
ER IM 68-125
October 1968
Copy No. 54
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WARNING
This document contains information affecting the national
defense of the United States, within the meaning of Title
18, sections 793 and 794, of the US Code, as amended.
Its transmission or revelation of its contents to or re-
ceipt by aii unauthorized person is prohibited by law.
GKOL` 1
Ectlud.d from aoIomallt
downOrodin and
drelattificollon
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CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
October 1968
Economic Conditions in South-West Africa
Summary
The economy of the Territory of South-West
Africa has expanded rapidly in recent years under
the stimulus of public and private investment.
Administrative and technical help from the Republic
of South Africa has also been important. Develop-
ment of agriculture, mining, and fishing (see the
map, Figure 1) was reflected in the growth of gross
domestic product (GDP) at an average annual rate
of almost 12 percent from 1962 through 1966. Ex-
ports have increased 20 percent annually since 1963
and in 1966 reached approximately $300 million.
Most of the Black population is engaged in subsistence
farming, while the minority White group dominates
commercial agriculture, which consists mainly of the
raising of cattle for export and Karakul sheep for
the export of pelts. Mining -- particularly gem
diamonds, copper, and lead -- accounts for about
half of the GDP. Fishing, the newest and most rapidly
growing industry, has considerable potential, although
the appearance of foreign fleets in South-West African
waters and general resource depletion may restrict
future growth.
South Africa has ignored the UN General Assembly
resolution of 1967 terminating its mandate over the
Territory of South-West Africa and has begun to
implement a master plan for political and economic
development of that area. Under this scheme, South
Africa will plan, finance, and control economic develop-
ment; most administrative functions of government will
Note: This memorandum was produced soZeZy by CIA.
It was prepared by the Office of Economic Research
and was coordinated with the Office of Current
Intelligence.
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be transferred from the Territory to Pretoria; and the
Territory will be divided into six "homelands" de-
termined by ethnic composition. Whites, who consti-
tute only 16 percent of the population, will continue
to dominate the economy and receive the bulk of the
national income. A migratory labor system will
rotate Blacks between their homelands and places of
employment.
South Africa desires to assimilate the Territory
mainly for strategic-political reasons, although its
economic value to the Republic has increased steadily
in recent years. Benefits derived by South Africa
are a high return on private investment in South-West
Africa, particularly in mining, and considerable
foreign exchange earnings from the Territory's ex-
ports -- about $250 million a year. Although South
Africa has spent large sums of money on South-West
Africa's development, much of it was spent on goods
and equipment purchased in South Africa and very
little on imports from foreign countries.
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Swakopmund
SOUTH-WEST AFRICA
(INTERNATIONAL TERRITORY)
ECONOMIC ACTIVITY
0 Sheep grazing
M Cattle grazing
C] Fishing
Diamond mining
5Z Copper mining
Railroad
Road
0 100 200 Miles
0 100 200 Kilometers
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UUIN t'll)ENTIAL
Background
1. South-West Africa covers an area of about
318,000 square miles, or about twice the area of
California, while its population, estimated at
610,000, is no larger than San Diego's. With less
than two people per square mile, South-West Africa
is one of the most sparsely populated countries in
the world. Fewer than 100,000 Whites live in the
Territory, while Blacks, constituting seven major
ethnic groups and a number of minor ones, number
more than 500,000, including some 30,000 of mixed
ancestry.
2. Much of the population is engaged in agri-
culture, although the land is poor and the Territory
is subject to extremely severe droughts. Livestock
herding is the dominant agricultural activity and is
virtually the sole form of commercial agriculture.
Crops are produced only by the Blacks for subsistence.
About 12 percent of the economically active population
is employed in services, and 17 percent is distributed
almost equally in construction, mining, and commerce.
3. South-West Africa was a German colony from
1884 to 1915 and was mandated to South Africa by the
League of Nations in 1920. The United Nations has
repeatedly claimed jurisdiction over South-West Africa
on the grounds that it is the successor to the League,
but South Africa, while acknowledging a nebulous in-
ternational responsibility for the Territory, has re-
jected the UN claim and has continued to administer
the Territory as an integral part of its own economy.
South Africa has begun to implement a plan to finance
and to control further the economic development.
Most governmental functions will be transferred from
the Territory to Pretoria, and the Territory will be
divided into six ethnic "homelands" (see the map,
Figure 2). Barring direct international intervention,
this close relationship, which is responsible in large
part for the growth of the South-West African economy,
is likely to continue for the foreseeable future.
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Links with South Africa
4. South Africa's determination to maintain
control of South-West Africa in defiance of the
UN and world opinion is based on stia?cegic-
political considerations. The economic ties with
the Territory, which have grown as a result of
South African investment, both public and private,
and administrative and technical guidance, are the
result of South Africa's efforts to create an ef-
fective buffer between itself and Black Africa by
overwhelming dominance of the Territory economically
and politically. The economy of South-West Africa,
with a GDP equivalent to only 3 percent of South
Africa's, is not vital to South Africa's prosperity
although the Territory's economic importance to the
Republic is increasing.
5. In addition to establishing firm political
control and providing a favorable investment climate,
South Africa has spent approximately $258 million
through the South African Railway and Harbor Adminis-
tration to build the Territory's infrastructure,
primarily roads, railroads, and the port of Walvis
Bay. The development of the infrastructure has been
an inducement to private interests to invest in
South-West Africa's mineral resources, and the rail-
roads in particular have contributed substantially to
the growth of the cattle industry. Improvements in
Walvis Bay port facilities have been a boon to the
growing fishing industry and have facilitated export
of primary products to overseas markets. The number
of ships calling at Walvis Bay more than doubled
during 1965-67, reaching a record high in 1967 of
1,267 calls and 1-1/4 million tons of cargo handled.
6. Private investment from abroad has played a
major role in the development of South-West Africa's
major industries. Estimated foreign investment (not
including South African) in fish processing, mining,
and manufacturing amounted to close to $70 million,
or about 53 percent of the total invested in these
industries in 1965. Whereas foreign capital accounted
for only 14.5 percent of the total investment in
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Figure 2
-ZAMBIA
SwakoPmuk V WINDHOEK
WALVIS BAYA
OutIo%
'otliwarood ,' / HEREROLAND
OKAVANGOLAND
.Taumeb
Grootfontein
REPUBLIC
OF
SOUTH AFRICA
1 ~
SOUTH-WEST AFRICA
(INTERNATIONAL TERRITORY)
HOMELANDS
CI(oY en 4:.n
51.x??.
BOTSWANA
NOUNOARY REPRESENTATION 12
NOT NSCESIARILY AUTHORITATIVE
Homeland area
White area
Game reserve
Desert area
(government land)
0 100 200 Miles
0 100 200 Kilometers
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fish processing ($23 million), it controlled 61.4
percent of the $107 million invested in mining and
manufacturing. Nearly all of the remainder of in-
vestment in these sectors was from South African
funds.
7. South-West Africa obtains 90 percent of its
import needs from South Africa, in many cases at
prices below world market prices. Other benefits
are derived from South Africa's proximity and its
efficient distribution system. Approximately half
of South-West Africa's total exports, including all
livestock exports, a significant portion of fishery
products, metals, and minerals, and all of its
diamonds are sold to South Africa. Much of the
metals, fish products, and practically all of the
diamonds are reexported by South Africa. Absence
of trade barriers and preferential treatment,
particularly in the case of cattle sales, add to
the attractiveness of South Africa as a market.
8. South Africa provides the administrative
personnel to run the Territory's government, and thus
insures a favorable political and economic climate
for its own interests. Although South-West African
Whites have at times expressed resentment over the
extent of South African hegemony, a majority of the
Territory's Whites consider the Republic's con-
tinued presence to be their only sure defense
against external political pressures. The coopera-
tion of the South-West African Whites has facilitated
coordination and integration of governmental functions
with those of the South African government. This
union perpetuates the vested interest of the Whites,
while the application of South Africa's political
philosophy of apartheid to the Territory is designed
to assure the ccntinued political and economic sub-
jugation of the Black residents.
9. The economic benefits to South Africa are
not publicized, but are probably considerable,
given the
sma
ll size of the Territory's economy.
The return
on
South African investments in the
territory
is
probably high, and there are no re-
strictions
on
repatriation of profits by South
Africans.
A
conducive investment climate is
assured by South African control of the adminis-
tration, which provides stability, safety, and a
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cooperative atmosphere for private investors unusual
in most of the African continent. Moreover, South-
West Africa's exports contribute substantially to
South Africa's foreign exchange earnings both directly
and indirectly. Since South-West Africa and the
Republic have a common currency, customs, and banking
system, South-West Africa's exports, whether direct
to other countries or to the Republic for reexport,
earn foreign exchange for South Africa. This foreign
exchange constitutes approximately 15 percent of the
Republic's export earnings, excluding gold, and
nearly 10 percent, including gold. With only 10
percent or so of the Territory's imports originating
outside South Africa, the Territory's foreign trade
provides annual foreign exchange earnings of about
$250 million for South Africa. The repatriated
earnings of foreign (except South African) companies
probably exceed new investment, but in balance
South Africa undoubtedly gains considerable amounts
of foreign exchange from its economic union with
South-West Africa.
The Economy
10. Agriculture, mining, and fishing are the
three mainstays of the South-West African economy,
accounting for more than two-thirds of the GDP
and virtually all of the Territory's exports.
Mining accounts for close to half of GDP, while
agriculture's share has declined in recent years to
17 percent. Although fishing accounts for less than
5 percent of GDP, it contributes 23 percent of ex-
ports. Exports generated by all three sectors totaled
nearly $300 million in 1966 (see the chart, Figure 3)
while GDP, at factor cost, reached $330 million. The
three sectors employ about 65 percent of the economi-
cally active population, of which approximately 95
percent are from the Black indigenous population (see
Table 1)'. Many of the latter, however, are subsistence
farmers who earn small cash incomes from livestock
raising and seasonal employment.
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UUN t'11)r,N 1 1AL
SOUTH -WEST AFRICA
EXPORTS, BY MAJOR CATEGORY, 1963-66
297.3
Fishery
Products
Agricultural
Products
48.4
91.1
11. A considerable part of the income earned in
these activities, however, does not benefit the
South-West African population. National income is
estimated at only $174 million, which implies a
GNP of probably less than $250 million, or some
$100 million smaller than the GDP. This difference
between GNP and GDP represents incomes earned by
foreigners in South-West Africa, consisting mainly
of the profits of foreign-owned businesses but
including also the wages paid the South African
employees in the government and private enterprises.
A large part of the profits and wages of foreigners
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South-West Africa: Distribution
of the Economically Active Population
1960
Whites
Blacks
Percent
Percent
of
of
Number
Total
Number
Total
Agriculture and fishing
6,500
24
112,500
64
Commerce
5:900
22
4,700
3
Construction
2,800
10
9,600
5
Manufacturing
1,800
7
4,900
3
Mining
1,700
6
10,200
6
Services
5,000
18
19,300
11
Transport and electricity
3,100
11
4,300
2
Unspecified and unemployed
500
2
10,300
6
27,300
100
175,800
100
probably are repatriated, which would account for
the low level of imports (about $215 million) rela-
tive to exports (about $300 million in 1966) in spite
of an inflow of new investment funds.
12. Manufacturing is confined mainly to processing
perishable products for local consumption, to finish-
ing and assembling materials obtained from South
Africa, and to specialized repair and small-scale pro-
duction work. Total output of the manufacturing sector
in 1963 was about $25 million, of which food products
constituted more than $18 million. Employment in
the sector was only about 3 percent of the labor
force.
13. The economy has experienced rapid growth
since 1962; the average annual increase in GDP has
been nearly 12 percent. The mining sector accounted
for most of this growth, more than doubling its out-
put between 1962 and 1966. The rest of the economy
grew by less than 10 percent during the four-year
period.
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fgriculture
14. The principal commercial agricultural
activities in South-West Africa are cattle raising,
mainly for shipment to South African markets, and
Karakul sheep breeding for pelts, which are sold
on Western fashion markets. Crops are produced
mainly for the farmers' own subsistence needs. Al-
though the great majority of the population is en-
gaged in agriculture, it accounts for only about
17 percent of GDP. As fishing and mining have in-
creased in importance in recent years, agricultural
products have declined as a percentage of exports,
falling from 28 percent in 1963 to 17 percent in
1966. Cattle and pelt exports, however, have con-
tinued to increase slowly and in 1966 attained a
record level of $45.7 million.
15. South-West Africa's agriculture is vulnerable
to frequent destructive droughts. Rainfall through-
ou?,: the country is highly variable, both in amount
anti distribution. Conditions are especially poor
in southern sectors, where drought is more the rule
than the exception. The climate precludes self-
sufficiency in foodstuffs, and the bulk of the
country's grains, vegetables, and fruits are imported
from South Africa. The southern sectors are almost
totally dependent on imports to meet their food
needs, whereas the northern and northeastern areas
in years of good rainfall are able to harvest enough
maize, sorghum, wheat, and corn to support their
residents. In drought years, however, the north also
must rely on imports from South Africa.
16. Livestock exports have accounted for the
bulk of agricultural earnings during the past
decade, but the Karakul pelt industry has gained
in importance in recent years and now contributes
more than one-half the earnings. The export value
of Karakul pelts more than doubled from 1960 to
1966 (see Table 2), rising from $12.1 million to
a record $26.5 million. Earnings in this industry,
however, are subject to market and price fluctuations,
as demonstrated by the more than $7 million decline
in earnings for 1967, reflecting a drop in demand
among the principal West European buyers, West Germany,
Italy, and France.
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(JON r'll)JN'I'IAL
South-West Africa: Karakul Pelt Exports
1960-67
Average Price
Year
Thousand Pelts
per Pelt
(US $)
Value
(Thous and US $)
1960
1,976
6.13
12,115
1961
2,022
6.51
13,162
1962
2,346
7.56
17,732
1963
2,274
9.90
22,506
1964
2,864
6.72
19,246
1965
2,241
8.76
19,638
19666
2,977
8.92
26,550
1967
2,896
6.64
19,221
17. The dominant agricultural activity of the
northern and central areas, where the climate is
relatively moderate, is cattle raising for shipment
on the hoof to markets in South Africa. The South
African market is regulated by the Meat Industry and
Control Board, which sets prices for grades of beef
and establishes quotas for imports of South-West
Africa's cattle. Earnings from cattle exports in-
creased from $23 million in 1960 to $32 million in
1967 (see Table 3), principally because of an im-
provement in the quality of beef. Annual fluctua-
tions in exports result from recurrent drought and
cattle diseases. The meat processing industry of
South-West Africa is small and plays only a supple-
mental role in years when the South African market
cannot absorb all the cattle offered. Processed
meat is sold on the European market. Small amounts
of dairy products, principally butter, also are
sold to South Africa on a subsidized basis.
Mining
18. Mining is the most important economic activity
in South-West Africa, accounting for about 50 per-
cent of GDP. Although the mining interests are
held by foreign investors, primarily South African,
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South-West Africa: Live Cattle Exports
to South Africa
1960-67
Year
Thousand
Head
Average Price per
100 Founds
(US $)
Value
(Million US $)
_
1960
300
N.A.
23
1961
233
N.A.
16
1962
170
17.A.
12
1963
263
16.37
21
1964
256
18.19
23
1965
247
21.36
23
19E'6
177
23.27
19
1967
240
27.16
32
British, and US, mining activity contributes sub-
stantial amounts to the local economy in the form
of export duties, fees paid to the South-West Africa
Administration, wages and salaries, and transporta-
tion charges. Diamond recovery is the most im-
portant mining activity, representing about 65
percent of mineral exports, followed in importance
by blister copper, refined lead, and complex lead-
zinc-copper concentrRt.es (see Table 4). These four
account for nearly all of the mineral exports, which
in 1966 amounted to $179 million.
19. South-West Africa ranks second to South Africa
among the world's producers of gem diamonds (gems
represent 86 percent of South-West Africa's diamond
production), and accounted for about 20 percent of
world gem sales in 1966. The production of South-
West African gem and industrial diamonds rose from
931,000 carats in 1959 to about 1.7 million carats in
1966, when exports earned slightly more than $119
million (see Table 5). Consolidated Diamond Mines of
South-West Africa, Ltd. (CDM), an Anglo-American sub-
sidiary that accounts for more than 90 percent of
South-West Africa's diamond production, does nearly
all of the onshore mining. Thus far, offshore
mining -- dredging of the sea bottom -- has been
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1963 1964 1965 1966
Million Percent Million Percent Million Percent Million Percent
Category US $ of Total US $ of Total US $ of Total US $ of Total
91 100 131 100 161 100 179 100
n Diamonds 61 68 84 65 98 61 119 66
Blister copper 11 12 20 15 21 13 27 15
Refined lead Negl. Negl. 10 8 21 13 17 10
Lead-zinc-copper
d N concentrates 15 16 11 8 14 9 11 6
Other minerals 4 4 6 4 7 4 5 3
y
a. Production figures are not available. Export figures approximate production, since
C' domestic consumption is negligible.
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unprofitable, but it is hoped that improvements in
equipment and techniques will make it an increasing-
ly important and profitable source of diamonds.
South-blast Africa: Diamond Exports
1962-66
Year
Weight
(Thousand Carats)
Value
(Million US $)
1962
943
48
1963
1,330
61
1964
1,527
84
1965
1,585
98
1966
1,696
119
20. Base metals -- primarily blister copper, re-
fined lead, and lead-zinc-copper concentrates --
account for a1.mnct all of the remaining 35 percent
of mineral axports. Mineral exports other than
diamonds declined from $503 million in 1965 to $60
million in 1966 as the world market for refined lead
weakened, but there was an increase of nearly $6
million in the sales of blister copper, because of
higher prices on the world market.
Fishing
21. Fishing is the fastest growing economic
activity in South-West Africa and contributes an in-
creasingly important portion of GDP and export earn-
ings. The pilchard (primarily sardire) industry, which
markets canned fish, fish meal, and fish oil, is the
most important; the other two major products are
rock lobster and whitefish (edible fish). The value
of fish exports more than doubled from 1963 to 1966
(see Table 6) , rising from about $32 million to $69
million, but declined to $64 million in 1967.
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CON F'IL)ENI IAL
Product
Canned
Fish meal
Fish oil
Million
US $
1963
1964
1965
1966
1967
8
14
19
20
25
16
19
28
31
25
2
8
7
7
5
Whitefish (snoek,
steepbras, kabcl-
jou, maasbankers,
and the like) 1 1 1 1 3
a. Because of rounding, components may not add to
the totals shown.
22. Fishing activity off the coast of South-West
Africa by South African, South-West African, and
foreign fishing fleets has been increasing in recent
years. Walvis Bay, legally a South African enclave
but often viewed as an integral part of the Territory,
is the center of the pilchard industry, and the port
of Luderitz is the hub of rock lobster and major
whitefish interests. With the rapid growth of the
fishing industry and because of increasing concern
over the presence of foreign fishing fleets, the
South-West Africa Administration appointed a
Commission of Inquiry to study the industry. The
findings of the commission, published in early 1967,
emphasized the development of a large, efficient
whitefish industry to be centered at Luderitz. To
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protect the companies and resources in South-West
Africa, the commission also urged increased sur-
veillance of South-West Africa's territorial waters
and an increase in duties and fees for transshipment
at Walvis Bay in order to reduce the activities of
the 17 nations fishing off the coast.* These foreign
fleets catch an estimated 1 million tons annually.
In addition, the commission made recommendations
designed to halt depletion of the rock lobster and
pilchard resources and to improve present port
facilities while plans for an additional port on
the northern coast are under way.
Prospects
23. The outlook for continued growth of the economy
of South-West Africa is good. South-West Africa is
relatively well endowed with natural resources, and
has the advantage of extensive South African aid.
Prospects for mining, the principal industry, are
quite favorable. Present levels of production can
be maintained for about 15 years, without additional
discoveries. Development of infrastructure, moreover,
is expected to bring into production some known but
hitherto unexploited mineral deposits, while exten-
sive exploration continues for oil and other minerals.
Foreign investment in mining may, however, be
hindered by the new mining law which took effect in'
1967. The law is designed to increase the participation
of South and South-West Africans in mining by pro-
viding that all new "foreign"-controlled companies
seeking exploration or mining rights in South-West
Africa must offer up to 50 percent of their equity
for purchase by South Africa "nationals," a designa-
tion that includes White South-West Africans.
24. Agricultural production should also increase
as a result of improved stock raising methods ,nd
as the proposed irrigation schemes, which are being
coordinated with hydroelectric power projects, are
completed. Fishing too will almost certainly grow
in importance as conservation techniques are im-
plemented, if the problems of foreign incursion are
successfully dealt with.
* The largest and most important are the USSR, Spain,
and Japan.
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25. Prospects for the South-West African economy
will not be greatly altered by the further application
of the master plan for development. The removal of
Blacks from centers of economic activity to tribal
homelands may cause some labor shortages, but these
probably can be handled by rotation of unskilled
Black labor between fobs in the money economy and the
homelands. Economic development under the master plan
calls for a total investment of $137 million including
$64 million from South Africa. Part of the planned
expenditures have already been made. Funds are being
allocated to development of water supplies and
irrigation, road building, schools, offices, hospitals,
airfields, and the purchase of White-owned lands in
the designated homelands areas.
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