Address by Dr Chris Stals, Governor of the South African Reserve Bank, at a Conference on "South Africa in the Global Economy" arranged by The South African Institute of International Affairs Johannesburg. A. RECENT DEVELOPMENTS IN THE SOUTH AFRICAN ECONOMY1. Real economic activityAfter a period of economic stagnation running from approximately 1982 to 1992, the South African economic performance improved gradually over the past three years. Six out of the eleven years preceding 1993 produced declines in total gross domestic production, and the few outshoots during this period, for example in 1984 and 1988, were short-lived because of balance of payments constraints at that time. South Africa could not afford any strong upsurge in imports in reaction to increases in domestic expenditure at a time when it was committed and forced by the international community to repay substantial amounts of foreign debt.This situation changed dramatically over the past three years. The political and social reforms in South Africa brought with them the termination of international sanctions and trade boycotts, and the cessation of the disinvestment campaign and pressure for the withdrawal of foreign loans. South Africa, of course, welcomed the opportunity of being reintegrated in the world economy.In this new environment, economic growth gradually rose to a higher level. The rate of change in gross domestic product switched from minus 2,2 per cent in 1992 to plus 1,3 per cent in 1993, before increasing to 2,7 per cent in 1994 and 3,3 per cent in 1995. Were it not for adverse climatic conditions and a substantial decline in gold mining production in 1995, the growth rate would have been even better -- growth in the secondary sectors of the economy last year exceeded 7 per cent, with a particularly strong contribution emanating from private sector manufacturing.The expenditure or demand side of the economy showed even more resilience, and the rate of change in total gross domestic expenditure switched from minus 1,5 per cent in 1992 to plus 1,3 per cent in 1993, before accelerating to 6,7 per cent in 1994 and 5,6 per cent in 1995. It is clear that the South African economy at this stage needs but little demand stimulation -- the challenge remains to raise the production capacity to a higher level in order to meet the growing demand for goods and services.It is therefore good to note that, on the demand side, a particularly strong increase in private sector fixed investment provided the main stimulus to the expansion. In 1994, total gross domestic fixed investment in real terms rose by almost 9 per cent, and in 1995 by a further 10 per cent. On the other hand, consumption expenditure by general government increased only modestly, with steady growth of between 3 and 5 per cent for private consumption expenditure.It remains a major deficiency of the South African economy that not enough jobs are being created to provide employment for the growing labour force. Last year, however, saw the first year since 1989 that total employment increased, albeit by only 0,6 per cent compared with the level of employment in 1994. Despite the turn-around in the employment cycle during the course of 1995, it is estimated that nearly 280 000 people joined the ranks of the unemployed in the eighteen months up to the end of December 1995.It is also encouraging to note that the rate of increase in the average nominal remuneration per worker in the non-agricultural sectors of the economy tapered off from 12,0 per cent in 1994 to 9,6 per cent in 1995. Adjusted for inflation, the average rate of increase in the real remuneration per worker last year was only 1,0 per cent. Because of the relatively good growth in particularly manufacturing production in 1995, the average productivity per worker increased by 3,2 per cent, with the result that there was an actual decline of 2,1 per cent in the unit labour costs per unit of production in the South African economy last year.These important developments in the labour market deserve credit, not only because of the contribut