THE SOUTH AFRICAN NATIONAL DEBT. 



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LklBRARY 



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By Prof. Robert A. Lehfeldt. B.A., D.Sc 



rhe history of the South African national debt begins with 

 a Loan of £12,500 authorised in 1852 for works at the Kowie 

 Harbour; an unfortunate start in public works, but one that has 

 been made up for since. At the present date — sixty years later — ■ 

 the total debt is well over one hundred millions, most of which is 

 represented by substantial assets, such as railways and harbours. 

 The earliest loans, both of Cape Colony and of Natal, were made 

 at six per cent., from which the rate fell steadily till in the excep- 

 tional period at the end of last century it nearly reached three per 

 cent: since when it has risen. The change in this respect may he 

 analysed into two parts, that due to world-wide fluctuations in 

 the rate of interest, and the special insurance premium charged 

 to the Colonies when their financial reputation was still new. 

 Fortunately the early loans, at high rates, have been so outgrown 

 by the steady advance of the Colony in wealth that they are no 

 appreciable burden. The bulk of the debt is comparatively 

 recent, and was contracted at moderate rates of interest. 



In estimating the rate of interest it is, of course, necessary 

 to take into account the price actually paid by lenders for the 

 -took, and the redemption rights attached to the loan — e.g., in 

 November, 1893, Xatal issued some 3^ per cent, stock at an 

 average price of £9,527 per £10,000 stock; this gives a yield of 

 3.67 per cent, per annum. But as the Government is bound to 

 repay the stock in full not later than 1939 the holder will receive 

 a bonus of £473 per £10,000 stock. This is equivalent to being 

 paid 0.04 per cent, interest during the currency of the loan. The 

 total yield to the investor is therefore 3.71 per cent. The interest 

 paid by the Government of Natal is another thing, however, for 

 the Government did not receive the £9,527 paid by the lender, a 

 part being absorbed in expenses. In the older loans it is often 

 difficult to disentangle this amount. Of late years public accounts 

 state the matter quite clearly, and in the Cape Blue-books the net 

 interest paid on certain recent loans has been stated in the most 

 forcible manner. Expenses of flotation consist of the British 

 Government tax, brokerage, and underwriting charges. This 

 money, of course, goes to London, at the cost of the Colonial 

 borrower ; and of late it has averaged 2^ to 2f per cent, of the 

 total money received by the borrower. The result is to make 

 the true interest as paid by the Government from 0.10 to 0.15 per 

 cent, higher than that received by the investor. 



If a diagram be drawn giving the interest paid on all the 

 successive loans, the trend of the rate of interest is very clearly 

 seen. (It is no use trying to draw such curves with too great 

 accuracy, as the true meaning would then be obscured by acci- 

 dental variations.) The credit of the Cape and Natal has been 



