Rhodesia MANY FACTORS INFLUENCE POWER TO “GO IT ALONE”

Press, Volume CIV, Issue 30880, 13 October 1965, Page 18

Rhodesia MANY FACTORS INFLUENCE POWER TO “GO IT ALONE”

/By

CHRISTOPHER JOHNSON.

foreign editor of the "Financial Timer.")

(Reprinted from the “Financial Times” by arrangement. I If Mr Smith is all set to declare independence unilaterally when the “final” talks break down—as it seems they must—Britain’s main weapon of dissuasion is the threat of economic sanctions. Both Mr Harold Wilson —in a reverberating statement last October—and his Commonwealth Secretary, Mr Arthur Bottomley, are committed to sanctions if a unilateral declaration of independence takes place.

But the British Government has never spelt out—not in public, at any rate—exactly how severe its sanctions would be.

This may depend on how the African Commonwealth countries react. The Association of Rhodesian Industries, in a report published in May. argued that, if Britain applied maximum sanctions, the result would be economic disaster for Rhodesia. But Mr Smith may think it worth gambling on a British preference for half measures. The issue is made even more unpredictable by the possibility that the Security

Council of the United Nations —which has already shown a close interest in Rhodesia—might join Britain in an economic sanctions campaign mandatory on all member States.

Speed is in any case a vital factor, because if Rhodesia can survive six months of unilateral declaration of independence as a going concern—even with a certain amount of belt-tightening— British and international resolve mav begin to falter. From this point of view, Mr Smith has picked his moment well. This year’s tobacco crop has now been disposed of, and next year’s auctions do not begin until March. To take the most obvious step first, the loss of Commonwealth preference would not be a disaster for the Rhodesian economy, certainly not in the short run. Mr Smith has made it clear that the loss of Commonwealth membership is a price he is prepared to pay for independence.

Tobacco Crop Disposal

The loss of the Is 6|d a pound tobacco preference, with an average price this year of 2s 9d, could affect the long-term prospects substantially, but British purchases —ll2 million out of a total 245 million lbs crop this year —are governed as much by a rolling three-year agreement as by price. A British embargo on tobacco imports from Rhodesia would be a very different matter. Although it would not begin to bite until next year’s season, it would mean that the British importers would seek other long-term agreements

to ensure supplies. Other Commonwealth countries such as Canada and. India would benefit, and the United States stockpile of some 700 million lb would ensure that no shortage could develop. Rhodesia might have some hope of finding alternative buyers for her tobacco crop if Britain were the only country to impose an embargo. But other members of the Commonwealth and the United Nations might join in, leaving only the uncertain prospect for Rhodesia of smuggling her exports out through Mozambique or South Africa. A unilateral declaration of independence would probably mean that the Rhodesian Government would have to finance the growing of next year's crop—and pay for it to be stockpiled too, if need be.

The loss of high preferential prices would be a rather greater blow to Rhodesia’s rapidly expanding sugar industry, which has this year exported about 200,000 tons out of a total crop of 278,000 tons. Only about one-tenth of exports were at the depressed world price of about £2O a tonmost were sold under the Commonwealth Sugar Agree-

ment or special quota arrangements with the United States.

To take the economy as a whole, exports have been rising rapidly, to £126 million in 1964, leaving a visible surplus of £34 million which should increase to £4O million this year—more than compensating for the £3O million deficit on invisibles. But this very success has left Rhodesia unusually depen-i dent on external trade: exports account for 37 per cent of the gross national product. Britain takes a quarter of Rhodesia’s exports, and supplies 30 per cent of her imports; this gives her a commanding position over the country’s economic future. The financial consequences of a Unilateral Declaration of Independence are less easy to assess than the trade outlook, but in the short run they could be more decisive. Britain might begin by freezing Rhodesia’s sterling reserves—which came to £3O million when the Federal finances were finally unscrambled only last May—although the Bank of England is known to have qualms about getting the sterling area system involved in politics. This, coupled with a trade embargo, and perhaps total exclusion from the sterling area, might well force a devaluation of the Rhodesian pound and a collapse of business confidence. Role of British Banks The subsidiaries of British! banks and other businesses, which play a dominant part] in the Rhodesian economy,] might be prohibited by Her: Majesty’s Government from] paying taxes to a “rebel" government, and from help-1 ing it by, for ex-ample, sub-1 scribing to its loan issues.] They might, under international law, feel justified in ex-1 tending a certain minimum cooperation to a government that had proved its ability “de facto” to run the country. But feats such as the recent subscription of £9 million of] Government loans in one day, —£s million of it for 25 years i at 61 per cent-r<ould hardly] be repeated without the help of the banks. Rhodesia, like South Africa, has been able to combine a 5 per* cent growth rate with sound finance, by means of ever tightening exchange control Investors are now limited to £5OO of foreign shares, so as to deal with the payments deficit on capital account. Last year the burden of Federal debt repayment almost cancelled out the £7.51 I million of long-term investI ment entering the country. : much of it from British companies. If there were a unilateral declaration of indeoendence. British and other investments would dry up at once —as Mr Wrathall. the Minister of Finance, is no doubt discovering from his City contacts. But Mr Smith might well put a moratorium on Federal debt repayments, as a counter to British sanctions. This, together with Draconian exchange control measures, could help to avert for a time at least, an external financial crisis. Much would depend on how much help South Africa felt able to provide. The Republic has entered into a trade agreement giving better terms to Rhodesian exports of manufactures, but the overheating of its own economy reduces its ability to bail

Rhodesia out in time of crisis. Dr. Verwoerd will also be careful before doing anything which could be construed by the United Nations as a pretext for intervention in South Africa.

] A unilateral declaration of ] independence would certainly give added point to the proposed rail link from Salisbury to the South African frontier at Beit Bridge. The only rail link between the two countries at present runs through Bechuanaland and Britain, as the protecting Power, would have the right to close it to Rhodesian traffic. But a “rebel" Rhodesia (would depend much more on Portuguese Mozambique than on South Africa for its continued existence as a viable economy. Dr. Salazar's Position It should not automiiticall.v ;be assumed that Portugal will recognise a unilateral declaration of independence. Dr. Salazar has shown, in the case ! of Mr Harry Reedman. Rhodesia’s new representative in Lisbon, that he likes to keep in with both sides. His attitude to Rhodesia may depend on what pressures Britain and other members of th

United Nations bring to bear on him—and, perhaps even more, on whether he thinks a unilateral declaration of independence is going to be successful. The Frelimo rebels are being increasingly active in northern Mozambique, so Dr. Salazar may wish to avoid offending African nationalist opinion still ]more. Put he must also weigh lup whether the economy of Mozambique would be viable without the income generated by the transit of Rhodesian freight through its railways and ports. Attitude of Zambia The attitude of Zambia will also be important, because it takes a quarter of Rhodesia's exports, and provides much of its invisible earnings. But President Kaunda is likely to be restrained by the certainty that Zambia’s economy will suffer far more than Rhodesia's if he closes the Zambesi frontier. The Copperbelt would have insuperable difficulties in replacing in full Wankie coal and Kariba power, and the Benguela railway could at present take only a fifth of the copper exports which now all go out through Beira. Zambia has been making contingency plans—one is to borrow dozens of locomotives to increase the Benguela line’s capacity,—but world copper suppliers, of which the Copperbelt produces one-eighth, would be badly hit by a show, down, unless it brought very quick results. , The economic consequences of a unilateral declaration of independence and sanctions ]thns depend on interrelated ] political decisions that will i have to be made—and not only in Whitehall. If sanctions are to have any effect—either I by changing the views of the Whites, or more likely, by encouraging them to leave for South Africa—the hope on all sides must be that it happens quickly, without damaging one of the most flourishing econ'omies in Africa. An economic war of attrition would mean suffering for White and Black ] alike.

This article discussing Rhodesia’s power to “go it alone” was written before the Rhodesian Ministers and the British Government reached a stalemate in their talks in London.