The paper critiques the post-apartheid South African Government’s adoption of neo-liberal-style financial liberalization. The end of apartheid and the relatively peaceful transition to democracy, combined with the introduction of slow-paced neo-liberal-style financial market liberalization from 1995, led to large increases in net short-term capital inflows into South Africa. The paper examines the effects of increased domestic liquidity as a result of accelerated net capital inflows since the end of apartheid and shows that the surge in net capital inflows from the early-1990s was not associated with increased investment, and therefore employment. Instead, it was associated with increased speculation in equities, higher levels of consumption, more imports of consumer goods, and increased capital flight. All this led to increased volatility of the economy and the fragility of financial markets.

March 10, 2007.