The Economics of Isolation, Trade and Investment: Case studies from Taiwan & apartheid South Africa¶
Kerby, Edward M. (2016). The Economics of Isolation, Trade and Investment: Case studies from Taiwan & apartheid South Africa. PhD thesis, Department of Economic History, London School of Economics and Political Science. London School of Economics and Political Science.
| Type | thesis |
| Scope | Economics and economic history of apartheid |
| Method | mixed |
| Period studied | 1948–1994 |
| Regions | South Africa, Taiwan, KwaZulu/Natal, Free State (Botshabelo/Thaba'Nchu), Eastern Cape/Transkei/Ciskei, Pretoria-Witwatersrand-Vereeniging (PWV), South African homelands |
| Themes | manufacturing industrial policy, bantustans removals influx, sanctions divestment, business and state, labour markets wages, macro fiscal finance debt, methods data sources, comparative theory, inequality poverty unemployment |
| Citation key | kerby2016 |
Argument¶
The thesis reconstructs the forty-year Regional Industrial Development Programme (RIDP), South Africa's homeland industrial decentralisation policy, in three phases (Grand Apartheid, Growth and Benevolence, Desperation). It argues that Taiwanese investment and trade under sanctions cannot be explained by pariah-state diplomacy alone. Taiwanese offshoring, MFA quota pressure, currency appreciation, South African incentives and treaty protection converged. Using new archival series on incentives, wages, demographics, trade, migration and firm location, it argues that Taiwanese clustering in a few RIDP zones reflected economic geography, incentives and co-ethnic production networks interacting, with incentives not the primary determinant. It also argues that RIDP overall failed to create homeland employment.
Evidence and method¶
Declassified Board for the Decentralisation of Industry (BDI) annual reports and licence applications, Permanent Committee for the Location of Industry reports, Tomlinson Commission report, Hansard, homeland development corporation archives (Transkei, KwaZulu, QwaQwa), SALDRU newspaper clippings for wages, Carnegie working papers, 1980 and 1985 censuses, SARB foreign liabilities registers, DTI/SARS/Garner/IMF trade series, African Taiwanese Chamber of Commerce almanac (306 firms geocoded), railway tariff data with GIS path distances, UK Whitehall declassified reports, and interview transcripts (PARI).
Place in the debates¶
- liberal vs radical/revisionist on apartheid, capitalism and decentralisation (see Homelands, separate development, decentralisation and removals). Declares some truth on both sides. Policy aimed at anchoring Africans in the homelands (political motive) and at cheap-labour competitiveness, as exposed by Taiwanese inflows.
- spontaneous decentralisation (Bell) vs incentive-driven decentralisation (Wellings and Black; Pickles and Woods) (see Homelands, separate development, decentralisation and removals). Finds Phase 2 incentives roughly flat and infrastructure spending more important, supporting Bell on that phase. For Taiwanese firms argues geography, incentives and networks interacted, with incentives not the primary driver.
- why Taiwanese firms invested and clustered in South Africa: diplomacy and pariah-state alliance vs economic motives (see Homelands, separate development, decentralisation and removals). Argues economic factors (MFA quotas, NT$ appreciation, rand weakness, labour costs, incentives) and ethnic networks, not only diplomacy, explain investment and clustering.
- migrant-trade effect (Rauch and Trindade; Gould) in an isolation context (see Homelands, separate development, decentralisation and removals). Suggests, non-causally, that Taiwanese migration and investment raised and diversified exports to Taiwan, while acknowledging sanction-busting and re-export as alternative explanations for homogeneous exports.
- effectiveness of regional incentives and growth poles (see Homelands, separate development, decentralisation and removals). Concludes RIDP largely failed to generate labour-absorbing employment (214,394 jobs by 1992) and mainly relocated jobs, though a Taiwanese production-network agglomeration emerged.
Findings¶
-
The Tomlinson-inspired programme was drastically underfunded; the state redirected assistance to state monopolies and peri-urban points. (p. 45)
The programme fell far short, receiving only £ 48,000,000, or an equivalent R 79,735,000 of the £ 104,000,000, none of which came from the private the sector.
-
Phase 1 job creation in the homelands fell short of the Tomlinson target. (p. 48)
This represented an annual increase of 5,400 additional unskilled employment opportunities per year. This was well below Tomlinson’s projected growth rate of 9,000 unskilled jobs
-
Phase 2 incentive outlays were flat, so growth in decentralisation may reflect infrastructure spending rather than incentives. (p. 51)
-
The state used a push policy via the Physical Planning Act restricting African employment in the metropoles. (p. 50)
In 1975, an amended Physical Planning and Utilisation of Resources Act severely limited any additional employment of Africans in manufacturing in three of the four metropolitan regions
-
Domestic manufacturers showed little interest in relocating to homeland zones despite Good Hope incentives. (p. 66)
there is an underwhelming trend for existing industrialists to relocate or expand to the decentralised zones, with only 35 % of the sample indicating they would consider relocating between 1980 - 1985.
-
Taiwanese applicants dominated RIDP foreign licence applications. (p. 68)
The results show that 57 % of the RIDP applicants before 1985 were Taiwanese industrialists. These results are demonstrable of Taiwan’s importance, growing to 88 % of the applicants by 1992.
-
RIDP failed on its employment aim by 1992, with high cost per job. (p. 70)
the RIDP appears to have been a failure with only 214,394 additional jobs created by 1992. This is far below the estimated 300,000 that the RIDP had projected for the Taiwanese cohort alone.
-
Taiwanese FDI was concentrated in a handful of RIDP sites. (p. 151)
only 11 of the 63 RIDP sites attracted 84 % of all Taiwanese investment
-
Taiwanese holdings in South Africa's Asian liabilities were large and skewed to long-term assets in 1992. (p. 97)
Taiwan is found to posses R 3,113 million or 58 % of all the Asian investment in South Africa.
-
Taiwanese firms chose sites in part for trained, immobile female labour, with female:male ratios of about 2:1 in prime working ages. (p. 159)
In most zones, the ratio of females to males exceeded two to one.
Evidence ledger¶
Sources used¶
| Source | Kind | Period | How used |
|---|---|---|---|
| Board for the Decentralisation of Industry (BDI) annual reports 1970-1992 and related RIDP incentive/disbursement records (National Archive Pretoria, TAB 7869-ZA etc.) | state archives | 1970-1992 | Builds the time series of incentives, concessions, employment and capital spending used to describe the three phases and to measure incentive variation across zones. |
| BDI business license applications almanac (Foreign Investment Business License Applications, National Archive Pretoria, TAB 39149-ZA) | state archives | 1980-1992 | Provides applications/take-up by country of origin and a proxy for annual Taiwanese migration and firm numbers. |
| Permanent Committee for the Location of Industry reports (1969, 1971) | commission or official report | 1960-1971 | Used to quantify Phase 1 state assistance, shares going to private vs state monopolies, and employment in homeland industries. |
| Bantu Investment Corporation (1975) Homelands: the role of the corporations in the Republic of South Africa | company records or reports | 1960-1975 | Source for capitalisation of BIC, number of agency factories, and permanent jobs created in Phase 1. |
| South African Government Information Services (1979), Economics and Finance in South Africa's Black Territories (National Archives Pretoria) | official statistical series | 1972-1979 | Provides infrastructure spending by homeland and employment/capital investment by homeland for Phase 2. |
| Parliamentary Hansard (various: 1972, 1977, 1978, 1979, 1982, 1986) | parliamentary debates | 1972-1986 | Quoted for policy intentions of ministers (anchoring Africans, labour-intensive industry, incentive generosity) and parliamentary debates on decentralisation and Taiwan productivity. |
| Federated Chamber of Industries archival reports on decentralisation (1972, 1985), IDC Archives Sandton | employer association records | 1972-1985 | Evidence that industrialists opposed push policies and that infrastructure rather than incentives drew firms in Phase 2. |
| SARB Quarterly Bulletin: public-sector infrastructure gross fixed capital formation series | national accounts macro | 1960-1996 | Index of infrastructure investment used to argue Phase 2 decentralisation was driven by infrastructure rather than incentives. |
| Industrial Development Corporation Archive (Sandton) and National Archives data on foreign-owned manufacturing plants circa 1979, with Rogerson (1982) estimates | company records or reports | 1979 | Establishes Western inward FDI stock, plants and employment by source country before Taiwanese entry. |
| Declassified UK report 'United Kingdom's Interests in Southern Africa' (1980), National Archive Kew | state archives | 1980 | Supports the scale of UK economic stake in South Africa before sanctions. |
| Study Group on Industrial Development Strategy (1983) Report; Good Hope Plan documents and Government Gazette on incentives | commission or official report | 1979-1983 | Describes the Good Hope Plan, consultations and revised incentive structure for Phase 3. |
| Black (1984) survey of domestic manufacturing firms, via Wellings and Black (1986a) | secondary literature compilation | 1980-1985 | Only national firm survey showing domestic firms' reluctance to relocate to RIDP zones, used as a contrast to the Taiwanese case. |
| Development Bank of Southern Africa (1989) evaluation of the RIDP | commission or official report | 1989 | Cited for the finding that zones were too numerous and firm location not aligned with comparative cost advantage. |
| South African Reserve Bank register of foreign liabilities (Quarterly Bulletin, Appendix S71), 1979-1997 | national accounts macro | 1979-1997 | Used to show Asian and Taiwanese foreign liabilities and the direct versus non-direct asset composition. |
| South African Reserve Bank exchange-rate series (commercial rand, financial rand, NT$:Rand) | international trade or finance data | 1972-1996 | Documents rand depreciation against the NT dollar and dual-currency system to explain investment motives. |
| Foreign Trade Statistics 1975-1985 (Department of Customs and Excise/Trade), with DTI declassified returns 1985-1992, SARS balance of trade database 1992-1995 | official statistical series | 1975-1995 | Core source for the new bilateral trade series by SIC/HS category used to measure export diversification to Taiwan. |
| Taiwanese firm-level data: BDI declassified reports (TAB 9879/987) and African Taiwanese Chamber of Commerce (ATCC) almanac, Taipei Liaison Office archive | company records or reports | 1979-1992 | Geocoded dataset of 306 Taiwanese firms by zone, sector and start year underpinning the agglomeration analysis. |
| Homeland/RIDP wage data: SALDRU newspaper clippings archive, RIDP almanac and homeland trade periodicals (Transkei Today, KwaZulu publications) | newspapers periodicals | 1978-1992 | Triangulated to construct the first interregional African manufacturing wage series for homeland zones. |
| Official wage sources: Bureau for Economic Research (1976), Gottschalk (1977), Carnegie Commission working papers (Thomas, Abedian, Ardington, Bank, McCarthy 1983-84) and Wilson and Ramphele (1989) | commission or official report | 1971-1985 | Used to test and supplement unofficial wage estimates and identify the lowest-wage zones. |
| Homeland development corporation archives and trade publications (TDC Mthatha/Umtata, KFC Pietermaritzburg, QwaQwa/Free State DC) and Free State/KwaZulu almanacs | company records or reports | 1977-1994 | Provide qualitative accounts of Taiwanese firm behaviour, marketing in Taipei, recruitment and location reasoning. |
| Railway and harbour data: South African Railways and Harbour Gazette (1980) and Annual Reports, railway maps (Transnet archive), GIS path-distance calculations | maps spatial data | 1978-1991 | Used to compute railway distance and subsidised container costs from each zone to ports. |
| Newspaper and periodical clippings (Business Day 1982, Weekly Mail 1988, The Star 1903, Free China Times 1980) | newspapers periodicals | 1903-1988 | Anecdotal evidence on apartheid snags for Taiwanese investors and the currency motive. |
| ROC-RSA Bilateral Trade Agreement (26 Feb 1975) and ROC Embassy / Taipei Liaison Office reports on Premier Sun's visit | legislation gazette | 1975-1980 | Establishes legal protections (MFN treatment) and later agreements underpinning investment confidence. |
| Physical Planning and Utilisation of Resources Act (1968/1975) and other legislation (Land Act 1913, Group Areas Act, Population Registration Act) | legislation gazette | 1913-1975 | Documents the 'push' labour-ratio controls on urban firms and the legal framework of segregation and Chinese status. |
| Small Business Development Corporation and IDC financing records; Department of Trade and Industry manual (1982), National Archive Pretoria Ref G 68 E INDU 86 MANU | state archives | 1981-1985 | Used to show SBDC and IDC finance largely bypassed Taiwanese firms and to describe relocation allowances. |
New data¶
Author-built datasets: (1) bilateral trade series 1975-1995 for seven sample countries by SIC/HS category (68% of 1975 trade) assembled from declassified returns, SARS and Garner; (2) annual Taiwanese migration proxy from BDI license applications 1980-1991; (3) geocoded dataset of 306 Taiwanese firms in 63 RIDP zones by sector and start year (1979-1992); (4) RIDP incentive time series 1971-1992 and zone-level incentive schedule; (5) interregional African manufacturing wage series for up to 57 zones (1978-1991); (6) zone-level demographic/gender-imbalance data from 1980 census enumeration areas; (7) GIS railway path-distance and transport cost estimates for 63 zones.
Inference¶
Quantification: Descriptive tables.
Archival reconstruction and descriptive tabulation. Chronological narrative of three RIDP phases; comparison of trade shares across partners and over time with a migration proxy (explicitly not causal); cross-sectional ranking of Taiwanese firm counts against zone wages, rebates, transport costs and gender ratios (Table 5.9, 5.10); and qualitative archival quotations on network and chronological clustering. The 'location choice methodology' is announced but no regression is estimated.
Key claims¶
| Claim | Basis | Strength |
|---|---|---|
| Phase 1 decentralisation fell far short: only £48m of the £104m Tomlinson plan was spent, none from private sector, with most funds going to peri-urban areas and state monopolies. (p. 45) | Permanent Committee for the Location of Industry reports (1969, 1971), BIC (1975), Tomlinson Commission report; Table 2.1. | Partial data |
| In Phase 2 incentive disbursements were roughly flat, so growth in decentralisation was likelier driven by infrastructure expansion than by incentives. (p. 51) | BDI annual reports (Table 2.2), SARB infrastructure GFCF index (Fig 2.3), infrastructure spending table 2.4, FCI reports. | Partial data |
| Taiwan became the dominant source of foreign RIDP manufacturing applicants (57% before 1985, 88% by 1992), while the programme overall created only 214,394 jobs by 1992. (p. 68) | BDI business license applications (Table 2.9) and BDI 1992 firm summary (Table 2.10). | Systematic data |
| Taiwanese investors held longer-term, more permanent assets than other Asian investors, which the author links to diplomatic protection and migrant presence. (p. 97) | SARB register of foreign liabilities, available at country level only from 1992 (Tables 3.4, 3.5). | Partial data |
| Taiwanese firms were highly concentrated: 11 of 63 RIDP sites hosted 84% of the 306 Taiwanese firms, with three or four industrial complexes dominating, while only 29% of domestic firms were in those sites. (p. 151) | Geocoded BDI/ATCC firm data (Table 5.6, 5.8). | Systematic data |
| Incentives were not the primary determinant of Taiwanese clustering; economic geography (market access, transport, female labour) and co-ethnic production networks interacted with incentives. (p. 125) | Cross-tabulation of firm counts vs wage rebate gap and transport cost (Table 5.9), gender ratios (Table 5.10), chronological and sector clustering plus archival quotations and interviews; no multivariate test. | Illustrative or anecdotal |
| Homeland zones had large female labour surpluses (female working-age labour up to 50% above male in the 19-29 band) that may have attracted labour-intensive firms. (p. 24) | 1980 census, five percent African census and BENSO data matched to zones (Fig 1.6-1.7, Table 5.2, 5.10). | Partial data |
The author's caveats¶
The author notes that apartheid and sanctions-era data were embargoed, unreliable and exaggerated by propaganda; census data omitted African wages and homelands; wage estimates rest on triangulated newspaper, advertorial and secondary sources that 'need to be treated with caution'; trade data for 1986-92 depended on Garner and IMF interpolation; Taiwanese migration is estimated from BDI license applications with take-up rates; SARB country-level data exist only from 1992; and results are 'not causal'. The thesis also concedes that manufacturing census coverage excluded the homelands, limiting spatial identification.
Gaps in the evidence¶
The location-choice argument lacks a multivariate model with controls; with only 63 zones and a single 1992 cross-section, the claim that networks matter more than incentives rests on ranking tables and anecdotes. Firm-level micro data (plant output, wages actually paid, exports by firm) and customs data linking exports to Taiwanese firms would be needed to test the migrant-trade effect, and some may exist in company or Taiwanese customs records. Wage series are patchy and mixed in provenance, and Taiwanese capital flows before 1992 are not available at country level in the SARB data.
Replicability: Data described but not public.