FROM THE OFFICE OF PUBLIC AFFAIRS

It is a pleasure to speak with you today and I am delighted to be in South Africa, and here in Soweto at Vista University. Soweto is a place that for the many people of your nation and for many around the world is a symbol the struggle to achieve political rights, social stability and economic opportunity. After visiting some entrepreneurs here this morning and looking out at this audience of students, I see Soweto also emerging as a place of hope.

This is my first visit to South Africa, indeed, my first to Africa and I come with great enthusiasm and interest. Part of the purpose of this trip is to continue the process President Clinton began with his trip in March: first, to establish regular focus and discussion among senior officials of our country and those of Africa to further improve our working together on the great array of issues of mutual concern, and second, to help convey to Americans an accurate and balanced view of Africa and its many countries.

I'm here in my capacity as the U.S. Secretary of Treasury, but also as someone who spent 26 years in the highly entrepreneurial world of Wall Street. During the time I spent in the private sector, I lived first-hand the emergence of the global economy and global financial markets, events that helped developing countries around the globe attract investment, foster growth and lift millions out of poverty.

But just as those developments have brought enormous opportunities for nations around the world, so have they brought new risks. This was demonstrated most recently by the financial crises in Asia, which has affected nations in many other parts of the world including South Africa. However, as we all consider the implications of the Asian crisis for the development of African nations and their integration into the global economy, it is important to remember that many Asian nations -- while having underlying problems which eventually led to crisis -- by integrating into the global economy and attracting private capital, have had twenty to thirty years of high rates of growth. Countries like the Phillippines, Korea, Thailand, Malaysia, Singapore -- and the list goes on -- are far better off today than they were before the process of integration began.

South Africa now has the opportunity to learn from the Asian experience. Moreover, South Africa, as the largest economy in Sub-Saharan Africa, has an unique opportunity to be a force in Africa's economic development and integration into the global economy to the benefit of South Africa, the other nations of Africa, and the rest of the world.

Against that backdrop, today I want to discuss some of the economic challenges South Africa faces that are critical to promoting long term economic growth and social well-being. There are obviously many such challenges, as there are in any country, including my own, but I want to focus on three that strike me as particularly important for the South Africa of tomorrow: making the economy work for all South Africans; deepening the integration between South Africa and its neighbors, and furthering the integration of South Africa and other African nations into the global economy.

South Africa has achieved a great deal as it has undergone tremendous political and economic changes in the last few years. Those who believed that South Africa's economy would collapse under majority rule have been proven wrong. Macroeconomic policies have been strong and stable, and the GEAR program sets forth a medium term plan to keep them that way.

But as you know well, South Africa has enormous challenges ahead. More than half of blacks live below the official poverty line, and one out of three black males and almost half the black females are unemployed. And many black South Africans lack the basic necessities of life. About 67 percent of black households do not have running water, compared to less than 3 percent of white households.

As President Mandela and Deputy President Mbeki have stressed, the key for South Africa is to bring the majority population into the economic mainstream. In my view, no nation -- very much including the United States -- can ever achieve anything close to its full economic potential until its economy works for all its people. Moreover, this isn't just an economic imperative; it's also key to fostering social well-being and a sense of community.

My years in the private sector, followed by my experience in the public sector, have given me the opportunity to look at the U.S. economy and many others -- both developing and developed -- and from that experience to draw some observations about the essential elements for economic success. Each economy, of course, is different, but I would like to focus on four areas that seem to me critical to promoting growth in South Africa and broad-based participation in the benefits of that growth.

First is to continue pursuing the strong macroeconomic policies that have proven so critical to sustaining South Africa's financial stability during the transition from apartheid. Despite recent financial market pressures, I believe that South Africa's key macroeconomic policies, now embodied in the GEAR program, are on the right track.

Second is to provide quality education for all. In the global economy, economic success requires a well-educated workforce. South Africa has spent over 21 percent of its budget on education since 1990, but the legacy of apartheid has left the majority population undereducated. The challenge now is to give to the whole population access to quality education -- a challenge, I might add, that we are still working to meet in our country.

Third is to find ways to make labor markets more flexible while protecting the interests of workers. There are never easy answers, but it is important that labor policies and practices pay attention to those who seek jobs as well as to those who have them, and also to consistent and sustained growth in productivity. Productivity growth is the only path over time to competitiveness in the global economy, lower unemployment and higher standards of living.

Fourth is to expand access to capital. South Africa has a world class, sophisticated system of banking and finance. However, access to credit is very unequally distributed. This is partly a legacy of apartheid, under which large segments of the population were prevented from having title to property. And the South African banking sector did not serve the great majority of the population. One of the most important steps South Africa can take is to develop a formal banking sector to which all creditworthy borrowers -- be it to borrow to start a large or small business or to buy a house -- can gain access to credit. Let me comment about one aspect of access to capital which I feel could be especially important, microfinance to provide access to credit for people who currently lack such access. At a time when the existing formal economy does not create sufficient jobs, microenterprises and small businesses can offer the prospect of sustainable incomes and entry into the formal economy. Earlier today I visited a child care facility here in Soweto, a microenterprise that not only creates jobs, but also enables parents to more readily to go to work. I also participated in a round table discussion on this subject where the advantages that microfinance can bring to South Africa were made clear. I have participated in similar discussions in distressed inner cities in the United States, where we are experimenting with similar programs to expand access to credit in under-served areas. While circumstances are quite different in our two countries, I believe we can learn from each other in this area.

Let me turn now to the challenge of regional integration which I believe can be a force for growth throughout Africa.

South Africa has been a leader in regional integration through its participation in the Southern African Development Community. With its sophisticated financial system, global linkages and expertise in vital sectors such as mining, South Africa is well positioned to benefit from deepening and broadening economic integration with your neighbors. This will benefit your neighbors' economies in the process. By harmonizing laws, regulations and institutions, South Africa and its neighbors can achieve economies of scale, create larger markets, and promote better policies, all of which will promote investment and growth.

I know that some in the region worry that their economies are not yet strong enough to integrate with South Africa's much more developed economy. Likewise, many in South Africa worry that local industries will relocate to those economies where labor costs are lower. These sorts of debates also take place in the United States concerning our trade policies, but I think all the evidence is that trade among countries benefits all participants, whatever their relative stage of development. The key is to focus on education and training to maintain a competitive work force and help those who are dislocated as a result of trade or technology to re-enter the economy quickly.

All over the continent countries are coming together in regional groupings. On Monday, I met with eight central bank governors in Abidjan representing the nations of the West African Economic and Monetary Union, where we had an interesting discussion on their plans to develop a common external tariff, a regional stock exchange, cross border bank licensing, and common banking regulations in all eight countries, in addition to its existing common currency, exchange rate and monetary policy. Tomorrow I will travel to Namibia for a SADC conference and later this week I will travel to Kenya to discuss the revival of the East African Cooperation group among Kenya, Tanzania and Uganda.

Many of these efforts revolve around integrating financial markets, where I have spent my whole working life. I think there is no question that for financial markets to be successful they need to mobilize savings, attract capital and mobilize resources efficiently, and have a substantial infrastructure and appropriate regulatory structure. Uniting several economies into one financial system can meet these requisites better than a single economy can on its own.

Having said that, regionalism must be part of a larger strategy of global integration, not an instrument for erecting trade and investment barriers around the region and towards the global economy. Moreover, while regionalism can be very positive in raising all members to the policies of the most forward looking, it should not be used as an excuse to slow reform to the pace and level of the least forward looking.

This question of global integration is the third challenge I wish to discuss. As I noted earlier, emerging markets around the globe have benefited enormously from global integration, even taking into account the recent crisis. I know the recent pressure on the Rand has raised questions in South Africa about the appropriate path going forward. I believe strongly that South Africa should continue to follow the path of global economic integration. The experience of economically developed and developing nations around the world provides strong evidence that integration into the global economy produces sustained growth and higher standards of living by promoting internal competitiveness and encouraging an economy to make the best use of its resources. However, global integration must be combined with a strong commitment to prudent macroeconomic policies, a sound and well-regulated domestic financial system, and transparency in government and business operations.

Pursuing policies -- policies that are essential to success in the global economy -- is politically difficult in any country, and in the United States, we certainly have had throughout our history -- and continue to have -- real struggle around forward looking economic policy decisions. Moreover, this challenge may be heightened in South Africa, by the legacies of apartheid. But we can't and you can't turn away from these difficult political challenges. The politics of reform must keep pace with the policies of reform.

And as you pursue those policies, we are committed to standing with you and supporting you, because the success of South Africa and the other nations of Africa is not only in your interest but ours as well. That mutuality of interest is fundamental to President Clinton's Partnership for Economic Growth and Opportunity with Africa. One contribution the United States can make is to maintain and increase our traditional openness to trade to those countries that do the most to reform their economies. With South Africa we can even envisage the day when we can conclude a free trade agreement together.

This afternoon I have focused on broadening opportunity within the nation, regional integration and global integration because all three are critical to the future of South Africa, as well as other nations in the region. A nation that integrates globally will enjoy the maximum opportunity to raise their standards of living for their people. A region that integrates all its nations can offer a strong base from which to attract investment and promote growth. And a nation that integrates all its citizens economically will have an advantage in today's competitive economy.

As students representing South Africa's leaders of tomorrow you will bear the responsibility of creating a strong South Africa for the future, with an economy that works to the benefit of everyone. Let me say that I have been fortunate in my career, to have had an extraordinary experience during my time in the private sector, followed by the opportunity over the past five and a half years to bring that experience to bear on the great public policy issues facing our country. I've found that extremely rewarding and I hope that you will consider bringing your experience to bear, whether it be from the private sector or the public sector on the great challenges facing your country. I wish you the best as you face these challenges, and help South Africa prosper in the years and decades ahead. Thank you very much.