Governor's Address by Dr. C.L. Stals, Governor of the South African Reserve Bank,at the seventy-fourth ordinary general meeting of shareholders of the Bank on 1994-08-23  1. IntroductionThe long awaited recovery in the South African economy finally materialised during the past twelve months. The country entered its longest post-war recession as far back as March 1989, while the protracted downward phase only levelled out during the first half of last year. Since the third quarter of 1993, total economic activity has clearly been on a recovery path. This new upward phase wavered in the first quarter of 1994, but then regained some momentum in the second quarter of this year. The challenge facing South Africa now is to maintain economic growth at a steady rate during the years ahead. The maintenance of overall financial stability is a prerequisite for such sustainable growth.The recovery in the economy was partly of a cyclical nature. During the contraction of the economy over an extended period of about four years, the country's capacity to provide for the multitude of growing needs of our community was eroded to a point where it must now be expanded again. The current recovery was also fostered by favourable weather conditions which led to a sharp increase in agricultural output, and by higher growth in some industrial countries which further promoted export volumes.Most important of all was, of course, the good progress made in South Africa over the past year in the political and social reforms which culminated in the widely supported democratic election of 1994-04-27, and in the subsequent inauguration of Mr Nelson Mandela as the new President. In the period leading up to the election, initiatives were launched for the withdrawal of international sanctions and other punitive economic actions applied against South Africa in terms of United Nations resolutions. With the progressive termination of these actions, South Africa's international economic relations were gradually normalised, and the facilities offered by such institutions as the International Monetary Fund and the World Bank became accessible once again.In the interim, however, total economic activity continued to reflect the vicissitudes of political events in the country. During the first four months of 1994, when many uncertainties still existed about the finalisation of the new constitution and the general participation of the major political groups in the pending election, and when doubts also developed about the general acceptance of the election results, the economic upswing faltered. Fortunately, however, the final outcome of the election and the favourable reaction by most South Africans as well as the international community paved the way for a resumption of the recovery in total economic activity from May onwards.South Africa now offers vast opportunities to realise its great economic potential in the interest of all its people. With the political reforms in place and a national commitment to a major programme of economic reconstruction and development, the attention of all participants in the economic development process, including potential international investors, is being focused more and more on the country's economic prospects. South Africa has arrived at a momentous stage in its history of development and must now display national responsibility for good economic governance and selfconfidence in its future. The country must now create and support a climate that will be conducive to sustainable economic growth in the medium to longer term. Sound economic and financial policies must be adhered to that will attract and not deter foreign investors. There must be lasting confidence within the business community to expand the country's production capacity. All South Africans must of course benefit from economic growth.The Reserve Bank is also committed to making its contribution to the success of South Africa's process of economic reconstruction and development. As proved in many other successful countries, the most important contribution that the c