Reflecting on the South Africa of the late 1920s and early 1930s S.P. Viljoen, a leading economist, observed that few appreciate how poor South Africa as a mining and agricultural country was before the sharp rise of the gold price in 1933. By 1925 South Africa had a gross domestic product (GDP) of only R537 million, agriculture contributing 21%, mining 16.2%, and secondary industry just 7.8%. Viljoen added: ‘Since secondary industry tends invariably to act as the growth sector in a newly developing country, South Africa’s economic structure was then [in the 1920s] as undeveloped as those of most African countries now [during the early 1980s].’ By the late1920s industry was still starved of capital; more than half the profits from the mines were sent abroad as dividends. The government levied a tax of only 5% on the value added by the gold mines. Under the next government, based on a fusion of the parties of Hertzog and Smuts, the tax on the mining industry rose sharply to 15% by 1936.
In 1929 the economy received a hammer blow – the Depression, which started with the crash of the New York Stock Exchange, quickly spread through the developed world. It rapidly widened the gulf between fascists and communists, between socialists and nationalists. It gave Adolf Hitler the final push he needed to capture power. South African exports plummeted and a crisis in economic confidence developed on a scale never experienced before. In South Africa the despondency was compounded by a prolonged drought. By 1933 the output of manufacturing had dropped by one-fifth since 1929, and 22% of all coloured and white males were registered as unemployed. Workers resisted wage cuts and employers tried to smash unions. Agricultural income dropped by half; wool farmers now had to export four times as much wool to earn the same amount of foreign exchange as they had five years before.
By the mid-1930s the Depression and drought had reduced sheep flocks by fifteen million head. The price of maize, the major agricultural product, dropped by half between 1929 and 1933. Rising operating costs as a result of South Africa’s overvalued currency and lower prices drove numerous farmers into debt. Some threatened to repudiate their debts. There was a real danger that a number of the commercial banks might be fforced to close.