Clues to Russia’s Future in South Africa’s Sanctions Past
But there is another commodity exporter whose experience offers less obvious lessons for sanctioning nations and for Moscow: South Africa. Faced with the ignominy of its apartheid policies, repression and military aggression beyond its borders, Pretoria found itself isolated and severely constrained from the mid-1980s, during a period that lasted until opposition leader Nelson Mandela was released from prison in 1990. Yes, Russia is a much bigger economy, and it exports oil instead of importing it. The world is more integrated than it was then, which increases the cost of imposing pain.
It is still striking that four decades ago, despite the moral outrage that prompted the measures, sanctioned nations left loopholes because they wanted natural resources, and how South Africa was able to find alternative trading partners, just like Russia. While there have been unintended consequences for Pretoria’s national economy, not all of them have been negative – a familiar story. And yet, despite all these weaknesses, the restrictions contributed to the demise of white minority rule, largely because South Africa in the early 1980s, like Russia in 2022, was already an uncompetitive economy. too dependent on extractive industries when the measures hit. The building collapsed.
Today, not only is the Russian economy shrinking – two out of three scenarios in an internal report seen by Bloomberg News last week suggested that it would not return to pre-war levels until the end of the decade or later, thanks to transport blockages, technological and financial restrictions – but he struggles on the battlefield. In the space of just over a week, Moscow has seen months of gains reversed as a Ukrainian counteroffensive advances rapidly. It caught Russia off guard and unsettled even pro-Kremlin hawks.
South Africa is a timely reminder that when things are already tough, additional constraints encourage elites to push for credible negotiations.
The apartheid regime began in earnest in the late 1940s, when the National Party took power and passed the set of racial laws that came to underpin the system. Boycotts then slowly took hold, following the Sharpeville massacre of 1960 and the violently suppressed Soweto uprising of 1976. Restrictions accelerated in the 1980s as patience ran out and perestroika reforms in the Union Soviet suggested that the United States would no longer be needed. in particular to tolerate this bulwark against African communism. International investors left, and the punishment culminated with the Comprehensive Anti-Apartheid Act of 1986, when Congress finally overcame President Ronald Reagan’s reluctance to sanction.
Much like Russia, it’s obvious at a glance that trade sanctions were never the immobilizing blow they were meant to be, in part because the world needed metals and fuel. It was a porous system. South Africa remained an exporter of coal even to European countries and increased its sales to Asian economies. There was a lot of mislabeling and re-exporting – Britain apparently importing through the Netherlands – tactics that are also used today. The country was still selling gold, in ingots if not in Krugerrands. He succeeded in forcing landlocked Botswana and Zimbabwe to break the sanctions. More importantly, although oil was South Africa’s “Achilles’ heel”, it was never cut off from international markets, thanks to Iran and others, and had previously invested for years extracting oil from coal.
Sanctions evasion drove up costs as terms of trade deteriorated, an ‘apartheid rebate’ was applied to exports and a ‘pariah cost’ to imports, but ultimately the ability to access what it needed kept South Africa and its white elites in business – for a while. Taiwan and Israel stepped up. It’s an all too recognizable image, as Russia, rebuffed by the West, pushes its oil and coal to other markets. Even the divestment of Western companies did not immediately dampen growth. As now, the assets were simply sold cheaply to the locals.
Financial markets were a bad weathervane when it came to the true state of the economy. The ruble is the best performing currency in the world this year, but less because of its real strength than because of capital controls. In South Africa, a dual exchange rate system served as a useful camouflage. The stock market also looked too healthy as, with cash trapped, companies simply turned into heavyweight conglomerates, while the real economy languished.
At least in South Africa, the financiers could openly despair. “These days, economic self-sufficiency does not exist, and we are kidding ourselves if we think we are different,” said Henri de Villiers of Standard Bank Investment Corp., the famous lender’s investment arm, in 1988. .(1) “South Africa needs the world.”
But perhaps the most relevant detail is the fact that the sanctions did not create the problem, they fatally exacerbated it. Thus, in South Africa, it was not a big deal that punitive measures were fallible, because the system was already creaking, growing at just 2% per year on average in the decade to the mid-1980s, and investments were declining. Apartheid labor market regulations and other distortions made it difficult to allocate capital efficiently even before economic and diplomatic isolation locked the country in a bind. The same is true in today’s Russia, where a repressive autocracy, the annexation of Crimea and an excessive focus on military industry and natural resources at the expense of more innovative small businesses, for example, have weighed on growth and real disposable income. before 2022.
Import substitution works, but comes with high costs and reduced productivity. “Parallel imports”, for what cannot be grown locally, are even more inflationary, as Russia is already seeing for technological necessities. Take the automotive sector: in South Africa, big international investors like GM Corp have left, expensive high-tech imports have driven up prices and quality has slumped. In Russia, Autostat statistics suggest that the average price of a domestic car in the first half of 2022 has climbed by almost a third compared to last year, while anecdotal evidence points to a much stronger increase, with a standard subcompact Lada model up to three times pre-war prices. Instead of Renault, Moscow brought back the Moskvich.
And then there is the cost of maintaining sufficient military strength to sustain the regime and maintain occupation and foreign adventurism. The erosion of Russia’s ability to fight in Ukraine is one of the main ambitions of Western sanctions. The experience of South Africa, where this was also part of the general objectives, suggests that this is having an impact. Pretoria lacked spare parts for aircraft and struggled to modernize; its air superiority over its northern neighbors declined. Hardware is a growing problem for Russia, especially after last week’s performance in Ukraine.
To be sure, there have also been embarrassing unintended consequences that keep repeating themselves. South Africans felt tighter as leader PW Botha, in particular, reacted badly to Western outrage. Import substitution policies have helped to create (expensive) jobs and to develop domestic industry, for example in defence. Cultural boycotts have created a proud isolationism among some.
And yes, other ingredients contributed significantly to the end of white minority rule – the presence of an opposition, the declining profitability of South Africa’s gold mines, the collapse of the Union, public pressure on private companies and the perception of increased risk on the part of leaders. themselves. But punishment at a time of weakness made the difference, and tougher punishments from a wider group of nations would likely have hastened the end, when the benefits for the elites no longer outweighed the costs.
Russia is bigger and more repressive, so it can withstand stagnation longer. But the tension is felt and the losses on the battlefield are piling up. There is certainly no guarantee of success. But as Archbishop Desmond Tutu said in a speech published in The New York Times in 1986, sanctions are at least a risk with an opportunity.
More from Bloomberg Opinion:
• Time is not on Putin’s side in Ukraine: Leonid Bershidsky
• Return of Iran would replace Russian oil in Europe: Julian Lee
• Russian oil sanctions cause chaos. Gold does not want: David Fickling
(1) Quoted in Patti Waldmeir, “Anatomy of a miracle: the end of apartheid and the birth of the new South Africa”, Viking, 1997
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Clara Ferreira Marques is a Bloomberg Opinion columnist and editorial board member covering foreign affairs and climate. Previously, she worked for Reuters in Hong Kong, Singapore, India, UK, Italy and Russia.
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