South Africa is a timely reminder that, when it is already difficult, additional restrictions encourage elites to insist on credible negotiations, writes Clara Ferreira Marquez.

After Russia’s invasion of Ukraine, allied countries imposed a set of sanctions so swift and extensive that there are no real precedents. Even restrictions on, say, Iran or Venezuela—both oil producers cut off from global finance—are necessarily imperfect.

But there is another commodity exporter whose experience offers less obvious lessons for the sanctioning countries and for Moscow: South Africa. Faced with disgrace for its apartheid policies, repression and military aggression beyond its borders, Pretoria has been in isolation and severe restrictions since the mid-1980s, during the period following the release of opposition leader Nelson Mandela from prison in 1990. Yes, Russia is a much larger economy, and it exports oil, not imports it. The world is more integrated than it was then, which increases the cost of inflicting pain.

It is still surprising how four decades ago, despite the moral outrage that led to these measures, the countries that imposed the sanctions left loopholes because they wanted natural resources, and how South Africa was able to find alternative trading partners, like because like Russia. Despite the unintended consequences for Pretoria’s domestic economy, not all were negative – a familiar story. And yet, despite all these flaws, restrictions contributed to the downfall of white supremacy, mainly because South Africa in the early 1980s, like Russia in 2022, was already an uncompetitive economy overly dependent on extractive industries. when measures hit. The building collapsed.

Today, Russia’s economy isn’t just shrinking — two out of three scenarios in an internal report seen by Bloomberg News last week show it won’t return to prewar levels until the end of the decade or later, thanks to transportation blockades, technological and financial constraints. — but fights on the battlefield. In little more than a week, Moscow has witnessed months of gains diminish as Ukraine’s counteroffensive progresses rapidly. This caught Russia off guard and unnerved even the pro-Kremlin hawks.

South Africa is a timely reminder that, when it is already difficult, additional constraints encourage elites to insist on credible negotiations.

The apartheid regime began in earnest in the late 1940s when the National Party came to power and passed a series of racial laws that became the foundation of the system. Boycotts have since begun slowly, following the Sharpeville massacre in 1960 and the violent suppression of the Soweto uprising in 1976. Restrictions accelerated in the 1980s when patience ran out and perestroika reforms in the Soviet Union showed that the U.S. would no longer the need in particular to endure this quagmire against African Communism. International investors withdrew, and the punishment reached its climax with the Comprehensive Anti-Apartheid Act of 1986, when Congress finally overcame the restraint of President Ronald Reagan’s sanctions.

As with Russia, it is clear at first glance that trade sanctions were never the deterrent they were intended to be, in part because the world needed weapons and fuel. It was a porous system. South Africa remained an exporter of coal even to European countries and increased sales to Asian countries. There was a lot of mislabeling and re-exporting – Britain reportedly imported via the Netherlands – tactics still used today. The country was still selling gold in bullion, if not krugerrand. It was able to get landlocked Botswana and Zimbabwe to break the sanctions. More importantly, although oil has been South Africa’s Achilles’ heel, it has never been cut off from international markets, thanks to Iran and others, and has already invested for years in producing oil from coal.

Sanctions circumvention drove up costs as the terms of trade worsened, the “apartheid discount” applied to exports and the “pari cost” to imports, but ultimately the ability to access what it needed kept South Africa and its white elite in business – for Chas. Taiwan and Israel stepped up. This is an all too familiar picture, as Russia, rejected by the West, is pushing its oil and coal to other markets. Even the divestment of Western corporations did not immediately stop the growth. As now, the assets were simply sold cheaply to local residents.

Financial markets have been a poor weather vane when it comes to the real state of the economy. The ruble is the best performing currency in the world this year, but not because of real strength, but because of capital controls. In South Africa, the dual exchange rate system has provided some useful camouflage. The stock market also looked too healthy because cash-strapped companies simply turned into hulking conglomerates while the real economy collapsed.

At least in South Africa, financiers were able to openly despair. “There is no such thing as economic self-sufficiency nowadays, and we are fooling ourselves if we think we are different,” said Henri de Villiers of Standard Bank Investment, the investment division of the well-known lender, in 1988. “South Africa needs the world.”

But perhaps the most relevant detail is that the sanctions did not create the problem, but fatally worsened it. So in South Africa it was not dramatic that the punitive measures were misguided, because the system was already creaking, barely growing at an average of 2% a year for the decade to the mid-1980s, and investment was shrinking. Apartheid labor market regulation and other distortions made the efficient allocation of capital difficult even before economic and diplomatic isolation drove the country into a tailspin. This is also the case in today’s Russia, where repressive autocracy, the annexation of Crimea, and an overemphasis on the military and the natural resource industry at the expense of more innovative smaller businesses, for example, have had a positive impact on growth and real disposable income by 2022.

Import substitution works, but is associated with high costs and reduced productivity. “Parallel import”, because what cannot be homegrown, causes even greater inflation, because Russia is already finding technical needs. Take the automotive sector: In South Africa, major international investors such as GM Corp have left, expensive high-tech imports have pushed up prices and quality has declined. Autostat statistics show that in Russia, the average price of a domestic car in the first half of 2022 increased by almost a third compared to last year, while anecdotal data points to a much sharper increase: the standard subcompact Lada model costs as much as three times. times the pre-war prices. In place of Renault, Moscow returned Moskvitch.

And then there’s the cost of maintaining enough military forces to maintain the regime and maintain occupation and adventurism abroad. One of the main goals of Western sanctions is to destroy Russia’s ability to fight in Ukraine. The experience of South Africa, where this was also part of the broader objectives, shows that it does have an impact. Pretoria was short of spare parts for aircraft and struggled to modernize; its air superiority over its northern neighbors has declined. The material is becoming more of a problem for Russia, especially after the performance in the last week or so in Ukraine.

Of course, there were also unpleasant unintended consequences that recur. South Africans felt a tighter grip as leader PV Botha, in particular, reacted poorly to Western outrage. The policy of import substitution has indeed helped to create some (expensive) jobs and build domestic industry, the defender says. The cultural boycott has bred a proud isolationism among some.

And yes, other factors significantly contributed to the end of the rule of the white minority – the presence of opposition, the decrease in the profitability of gold mines in South Africa, the collapse of the Soviet Union, public pressure on private companies and the sense of increased risk on the part of the leaders themselves. But punishment at a moment of weakness mattered, and tightening sanctions by a wider group of countries would likely hasten the end, the point at which the benefits to elites no longer outweighed the costs.

Russia is bigger and more repressive, so it can resist stagnation longer. But the strain is palpable, and casualties are piling up on the battlefield. Of course, there is no guarantee of success. But as Archbishop Desmond Tutu said in an address published in the New York Times in 1986, sanctions are at least a risk with a chance.

Clara Ferreira Marquez is a Bloomberg Opinion columnist and editorial board member covering foreign affairs and climate. News24 encourages freedom of speech and the expression of different views. Therefore, the views of columnists published on News24 are their own and do not necessarily reflect those of News24.

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