Try, beloved country: rumors of South Africa's decline are greatly exaggerated.

IF YOU BELIEVE what you read and hear about South Africa, you'll think the country is in horrible shape, with 42 percent unemployment, runaway crime, and 5 million people dying of AIDS. After nearly a decade of democracy, sub-Saharan Africa's crown jewel is, many pessimists warn, even more damaged than it was under the apartheid system.

But if you believe your eyes more than the press, and conversations with individual South Africans more than misleading statistics, a different picture emerges. Having spent time in South Africa in the mid-1980s and mid-1990s, I was anxious to return and see for myself just how much truth there was to these disturbing and depressing reports.

Last August I spent 10 days poking around the greater Johannesburg area, from the ravaged Central Business District to the squatter camps, from the townships to the wealthy suburbs. I talked to taxi drivers, scholars, businessmen, squatters, politicians, reporters, lobbyists, hawkers, doormen, a chief, and an ex-president. The society I observed was far from doomed. Rather it was dynamic and growing, with healthy political debate, teeming shops and malls, and a vibrant private sector. South Africa, for all its very real troubles, is a basically free country that's improving by the day.

Rise of the Vendors

"What is the big difference between now and 10, 20 years ago?" I asked Lawrence Mavundla, president of the African Council of Hawkers and Informal Business (ACHIB), a nongovernmental advocacy group that writes model street commerce laws designed to influence legislation in South African cities. We were sitting in the office above his tire service business in the Central Business District of Johannesburg, under portraits of past President Nelson Mandela and current President Thabo Mbeki, who took office in June 1999 and was re-elected last April. Across the road loomed the notorious headquarters of the South African police force, out of whose 10th-story windows many unfortunates "slipped" during the apartheid years.

Mavundla smiled widely. "Now we can talk openly without fear of repercussions," he said. "The difficulty is that the officials who enjoyed enforcing apartheid are still there. These officials do not buy fruits on Friday because they know they are going to raid the hawkers."

ACHIB was founded 17 years ago by 250 street vendors as a reaction to police brutality. Today it has 110,000 members; many have built big businesses; others have gone into politics. President Mbeki's roots are firmly planted in this sector; his mother still runs a spaza shop (a small informal supermarket) where the president worked as a young boy.

Mavundla himself was fired from his position as shop steward at the East Driefontein gold mining company in 1985 after organizing a strike to protest the poor treatment of his fellow black miners. "The black mine workers were being asked to eat the insides of the cow, while the whites were getting all the meat," he said. "That was it. Whites could eat whatever they wanted, but management was deciding for us." He left his job with a mere 400 ($60) rand in his pocket. Not much, but enough to start him off selling cosmetics on streets and trains.

Today this former hawker has his fingers in several enterprises. One of them, his tire business in the Central Business District, sells mainly Goodyear products to a customer base that is now 90 percent black. "I just today employed my first white guy on wheel alignment," Mavundla said, laughing out loud at the irony of his black customers' demanding a white man to perform a technically complicated job. But, he said, "the customer is king!"

Mavundla is confident about his company's future. "Even if my price is higher than a white company's," he said, "I'll get the government contract." How does this favoritism square with his free market rhetoric? Mavundla's justification: "Certain changes must happen, and we need time. White businesses have had lo years to change, and they haven't. However, in another decade things will have changed so much that white and black will be together in owning businesses, and there will be no such thing as a 'white' business or a 'black' business."

This persistent divide between black and white is, of course, one of apartheid's many terrible legacies. The racial tension manifests itself in many ways, some subtle, others not.

South Africa's complex, one-of-a-kind history has resulted in a country with H official languages and a racial mix of 75 percent black, 13 percent white, 9 percent "colored" (of mixed white and nonwhite descent), and 3 percent Indian/Asian. Its Gini coefficient--a 0-to-1 index that measures the distribution of wealth, with o being absolute equality--is an extremely disparate 0.62, meaning that the poorest 20 percent get 3 percent of the income and the richest 20 percent get 63 percent. Europe, by comparison, is just below 0.30, and even the "grossly" capitalist U.S clocks in at only 0.35.

You can see these numbers come to life just by looking around Johannesburg. It's only a 45-minute drive from the Gucci outlet in Sandton Square ("the only Gucci shop in Africa") to the squatter settlement behind Chris Hani Baragwanath Hospital in Soweto. But such makeshift camps are small, and you have to search for them, unlike in the rest of Africa and many parts of Latin America, where they are ubiquitous. According to the South African Housing Ministry, about 5 million South Africans (out of a population of 45 million or so) live in the 1,066 informal settlements spread across the country's nine provinces.

An informal settlement is one that does not conform to government town planning rules. Settlements develop spontaneously, generally on land owned by the central, provincial, or local government in urban areas, though they occasionally develop on private land as well. In the rural areas the informal settlements are generally on traditional community land currently held by the state but soon to be transferred to the communities under recently enacted legislation. Initially, no services are provided, but in time the government adds roads, electricity, and water. There is great political pressure on the current government to upgrade services in all these areas. A certain amount of tension exists between formal townships and adjacent informal settlements because the latter are seen to undermine the value of the former. This happens regardless of the race of the formal township dwellers. Many of these settlements are the consequence of migration from rural to urban areas.

A multitude of cultural influences exists side by side in South Africa. At a supermarket in the Parkmore suburb (where our car was thoughtfully observed from a 30-foot-high iron watchtower by a private, probably armed security guard), each product is available in a mix of local, British, and American brands (except for the candy, which for some reason was predominantly British).

On a Sunday morning walk around an outdoor arts and crafts fair in a local suburban park, I was struck first by how many large, loud, and unruly dogs were being walked, second by the fast food corner: Just next to the stall selling biltong (a local dried meat product similar to jerky) was a donut booth (U.S.) and a sausage roll stand (U.K.) where the meat was encased in pastry. (If you don't already enjoy them, it's best not to ask.)

On the first day of my return to South Africa following an eight-year absence, from the shadows of the monster-sized police station--it would dwarf London's New Scotland Yard--we drove through the declining Central Business District. "Johannesburg picked up her skirts and moved to Sandton," explained Theresa Griessel, my Afrikaans-born friend and volunteer guide for that day. Sandton, in the north of the city, has been transformed from sleepy agricultural land to a busy new cluster that is home to many of South Africa's top companies, such as Investec and Old Mutual, as well as the Johannesburg Securities Exchange.

Our destination was the high-tech Rivonia Park, which looks like something out of Florida more than out of Africa. We were greeted by 36-year-old birthday boy Mthunzai Mdwaba. Originally a lawyer; today Mdwaba heads Sourceman Technology Solutions, whose client list features many of the giants of the computer industry: Cisco, Microsoft, Oracle, Open Source, Citrix, CompTIA. Sourceman also has a division that provides computer training for 1,000 youngsters.

"You provide this education for profit?" I asked in surprise. "Yes," he replied, explaining that, compared to any state agency, "we get better placement percentages!"

Now president of the historically white Information Technology Association, Mdwaba said his goal for the country is to create "an economic rainbow nation." "The dominant theme of public life," he explained, "is transformation and black economic empowerment. Unlike [Robert] Mugabe [in Zimbabwe], we have made some good strides in returning land to the people."

Driving Lessons

Soweto, which stands for "Southwest Township," is the hugely populous black township outside Johannesburg where many of the city's workers live. Driving through the neighborhoods there, I was struck by how utterly different the homes looked. On previous visits, in 1984-85 and 1995, I had seen nothing but overgrown matchboxes in identical military-style lines. Today it's hard to find an unimproved house "where the steel government door has not been replaced by a nice wooden one," as one white South African friend put it. "Once they own it, they go home with a tin of paint, not a bottle of brandy," he added. It is a winning advertisement for the benefits of private property and the pride of home ownership.

But much still remains to be done to encourage private property in South Africa. While whites have always been free to dispose of their land as they see fit, whether by sale, donation, or inheritance, blacks were not free to do so under apartheid. Improvements, while noticeable, are slow. For instance, those who squat on tribal land under "permission to occupy" rules are still subject to severe restrictions on their ability to transfer their rights to other people.

If land was acquired with state assistance, the right to sell is often curtailed (for fear that people will sell the land and squander the cash). Lack of access to financing is another constraint, as banks are very reluctant to get involved in the low-income housing market. And the bureaucracy has moved at a glacial pace: In 1992 the government announced that houses would be transferred to existing occupants, but the first title deeds were not issued until a full 10 years later, and 750,000 South Africans are still waiting.

More is wrong with the South African economy than lack of property rights. Despite shopping malls such as Sandton City Centre and Sandton Square, which give anything I've seen in Europe or North America a run for its money, evidence abounds that this is still a developing nation.

As I was told by Michael MacDonald, the white manager of Norman's Toyota car dealership, the country's dearth of public transit means an estimated 30 percent to 50 percent of the average net wages of blacks are spent paying for work commutes, which frequently take several hours a day. I was so staggered by this estimate that I asked about it wherever I went. Numerous other people confirmed the sad fact.

But while that fact makes things difficult, the transportation problems haven't destroyed initiative in South Africa. Nearly everywhere you drive--you do not walk because it just isn't safe, and there is little public transportation--there are roadside traders who rival in energy and inventiveness the finest hawkers anywhere in the world.

Leaving one private housing area, I was struck by the sight of two men standing in the middle of the road by the traffic lights (or "robots" as South Africans say) holding garbage bags. "Better than begging," explained Neil Emerick, a think tank analyst and my chauffeur at that moment. "When we stop it's a good time to de-trash the car and give them a couple of rand."

At another light a young man offered us "lubricated" condoms, the box clearly indicating these were a donation to the Republic of South Africa (RSA) from a First World charity. Apparently they had been taken from a clinic, and he was now "giving" them away. If we also felt like "giving" him some dollars, he wouldn't say no. But he wasn't selling them, exactly--just making sure they were in circulation rather than languishing in the clinic's storeroom.

The entrepreneurial-minded are pouring into South Africa. My taxi driver was from Mozambique. My hotel doorman was from Zimbabwe. Another street trader was from Senegal. Fully half of the economically active black people I talked to were not from South Africa at all. Far from indicating a lack of energy on the part of South Africans, this instead indicates that there is so much room for entrepreneurial activity in South Africa that the country is providing room for all, or at least a great many, comers.

The most memorable entrepreneur I met was Patrick Makone. Tall, fit, young, and handsome, he was selling geckos and other animals made out of wire on the street. "Ah, inexpensive gifts," I thought as he approached my table and asked permission before squatting down to show them to me. They ranged in price from 20 rand ($3) to 150 ($22.50). I bought a chameleon for my 12-year-old cousin Candice and a lizard for my 14-year-old son, James. Makone's English was superb. In exchange for a further payment, I asked for his story.

He was from Zimbabwe, where he made the animals. Once he'd made as many as he could carry, he would buy a city-to-city return bus ticket from Harare to Johannesburg, costing $37.50, with a further duty of $18 at the border.

"Duty, or bribe?" I asked.

"Duty!" he said emphatically.

Once in Johannesburg, or rather its prosperous nodes, Makone walks the streets until all his products are sold, then returns to Harare to start the cycle over again. Things were very bad in Zimbabwe, he said. Bread had gone up in price fourfold in just two months. Six days later, I heard from a refugee restaurateur that it was now up eightfold.

As Makone moved on, my lunch companion, Theresa, an employment and training consultant who does contract work all over Africa, offered the following observation: "Even though we are a basket case, we are still the economic destination of choice for the rest of Africa."

When Numbers Get Serious

South Africa's progress isn't only in big matters like economic growth and entrepreneurship. It's also reasserting itself as a major world power in international sports such as cricket and rugby. For 30 years, South African athletes were not permitted to compete internationally, meaning generations of athletes were denied the opportunity to reach the pinnacle of their profession.

Unlike in the U.S., where being blocked from international competition would have only a marginal effect on the careers of most professional athletes, South African sportsmen suffered greatly from their exclusion. The lifting of both the sporting bans ("We just beat England at cricket!") and commercial sanctions ("I can buy a Mac now!") has been a liberating experience for a country with global ambitions. South Africa has embraced its new freedoms and emerged from its isolation with an enthusiasm that is a joy to behold.

Yet the local newspapers were overwhelmingly negative: Everyone was either dead, dying, infected, unemployed, or committing a crime. "If you are not infected [with AIDS] then you are affected," goes the popular saying. Yet everywhere I looked and yes, I saw real problems, particularly in Soweto --I found reason to be suspicious of the official and widely reported figures of 42 percent unemployment and 5 million people about to die of AIDS as of August 2003.

First, one must distinguish between what Statistics South Africa, the government statistical agency, calls the "expanded definition" figure of 41.8 percent unemployment (total jobless among people between the ages of 15 and 65), and the "strict definition" figure of 30.5 percent (those who are actively and unsuccessfully seeking official employment). While the expanded definition may be an internationally accepted way of measuring unemployment, it does not take into account all those South Africans working in the "informal" sector. From what I saw, a significant portion of that 42 percent is already working in the thriving underground economy, running a staggering number of black-market businesses.

The official unemployment numbers "are definitely not counting on the fact that there are millions at work in the informal businesses you see all over the place," said Eustace Davie of the Free Market Foundation, an independent South African think tank founded in 1975. One estimate puts the number of such businesses at more than 3 million. And beyond the specific enterprises, plenty of individuals are employed informally. For instance, private security personnel now outnumber police by four to one, and many security guards in the informal sector would not be picked up in the government's employment figures because they are not officially employed by anyone.

Yes, there are young men on Soweto street corners doing apparently little and perhaps nothing at all. But the official figure is hard to believe. "It does not add up," said attorney Leon Louw, the executive director of the Law Review Project, based in the Johannesburg suburb of Sand ton. "Sales of cell phones, cars, and building materials are booming. There's a phone mast in even the poorest, most isolated village. If you go out on the ground, you simply cannot find the evidence to back up the scare stories. We just do not witness the scale of problems reported in the press. Subsistence agriculture is declining, but this is to be welcomed as it means people have found more productive things to do."

What of the HIV/AIDS epidemic? This is obviously a real and serious problem, but there are reasons to be skeptical of the officially promulgated number of 5 million infected. According to the Free Market Foundation's Davie, early extrapolations of the number of infected were based on tests that included a large number of pregnant women. There is a much greater likelihood of getting a false positive when the HIV test is conducted on a pregnant woman, so those early extrapolations were suspect.

While it is still impossible to give truly reliable estimates of AIDS in Africa in general and South Africa in particular, an increasing number of researchers are questioning the dire predictions. Horrific AIDS estimates, based on elaborate computer models, are being flatly refuted by actual on-the-ground testing in prisons, schools, and businesses in South Africa. For example, one widely cited computer-generated estimate projected that HIV infection was rampant at South African colleges, with one in four undergraduates expected to die within 10 years. But according to a report in the London Spectator, a physical test of 1,188 students at Rand Afrikaans University, which the computer had pegged with a 9.5 percent infection rate, revealed that the actual number was 1.1 percent.

Criminals and Regulators

One indomitable optimist I met was Michael Katz, introduced to me by a mutual pal in London as "South Africa's top lawyer." "When you were here in 1984, the crash was inevitable," he said forcefully. "By 1987 we were doomed.... Then we had the miracle of reconciliation, and then the second miracle of President Mandela and nation building." Two miracles in one sentence. The word is used here more often than in the Vatican, I thought. "It's night-and-day better," he continued. "Access to water, electricity, and sanitation has just soared."

And the South African constitution, Katz said, is "one of the best in the world" Before ratification in 1996, "Parliament could pass any law it wanted untested against principle," he said. "Now constitutional supremacy h as replaced parliamentary supremacy. We have a bill of rights. Laws can be struck down as not conforming to the constitution.... We have entrenched individual rights as opposed to group rights."

But crime continues to be a serious problem. Tom Bouwer, of a group called Business Against Crime, reported that "post-1994, crime exploded, but maybe there was more transparent reporting. Also, all societies that are going through change are targeted by syndicates. And hungry people are easy recruits for crime syndicates."

The Law Review Project's Leon Louw blamed the police. "They go for soft criminals and victimless crimes," he complained. "They go for hawkers, not real criminals."

Wherever the blame might belong, private initiatives aimed at increasing safety and discouraging crime are quite visible. You cannot spend five minutes in South Africa without noticing how careful and cautious everyone is--the locked car doors, the barred windows, the watchtowers, the 10-foot walls. Some neighborhoods block off all but one entrance road with illegal private "booms," or long prefabricated metal barriers that close the rest of the streets off to vehicular traffic. The chokepoint is patrolled 24 hours a day by armed guards, resulting in lower local crime but a sharp spike in vehicle traffic.

Getting inside a South African shopping mall is a bit like hopping on a plane in post-9/11 America. Of course, firearms cannot be taken into the malls, so one sees advertising for gun safes at the main entrances. There are closed-circuit television cameras, metal detectors, private guards, "24 Hour Armed Response" signs, and a pat down at the doors.

William Midgley, another prominent South African attorney, described the crime spike as a function of dynamic change. As noted, the commercial activity of the Central Business District has moved to the nodes or suburbs. Out there people once had big three-acre plots on quiet roads, Midgley noted; now the streets are clogged with traffic and business, and the land is "not secure, not maintainable. "The result is a huge "densification of the use of land" involving "massive ongoing changes of use." It's all very restless, very like America ... before it fell in love with development planning and containing "urban sprawl."

There is no real planning or zoning control. Big projects with expensive lawyers get permits, but for smaller ones public oversight has collapsed. Streets of bungalows have become offices. You do whatever you want. One of my hosts took me to his nice home and showed me a neighbor who was adding a new wing to his home with no permit whatsoever. The local bureaucrats "have no idea where the zoning plans are," my host explained.

"Are you freer today?" I asked John Kane-Berman, a key opinion leader and head of the South African Institute of Race Relations, a public policy organization. "In a broad political sense, yes," he replied. "But not in terms of moving around and personal safety. However, a P.C. tyranny has replaced apartheid. As an employer of 40 people, I face many new regulatory demands. Even under apartheid, I never had to break down my staff by race. Today as soon as my staff goes over 50 in total, the sex/race/disability plans I have to put in place involve forms as fat as the phone book."

Firms with more than 50 employees are required to hew to certain quotas based on race, gender, and physical disability. The "employment equity" rides have had the unsurprising effect of discouraging companies from expanding beyond 49 employees; instead they rely on subcontracting. The government has reacted by reclassifying major subcontractors as employees.

In addition, there are billions of rands' worth of unclaimed, unspent "training" levies. These levies, paid by all firms, go into a general coffer administered by the state. Those firms that provide training are then allowed to claim funds from the pot. Firms pay the levies but simply cannot be bothered to reclaim them, even when they provide a great deal of training, because the paperwork involved is so vast.

These new regulations place huge burdens on the types of business the government should be encouraging. "We're just cutting and pasting wholesale large volumes of legislation from the U.K., Germany, Canada, and Australia," said Neil Emerick of the Free Market Foundation. Furthermore, Kane-Berman continued, while the governing African National Congress is focused on building stable black middle and upper classes, unemployment has doubled since 1994 because of strict labor market laws, racial regulations, and the reintroduction of foreign competition.

Transforming Transformation

"Getting it right" was the theme of a think-in with President Mbeki on my last evening in South Africa, at the Little Brenthurst home of the Oppenheimer diamond dynasty. (That's little as in Robin Hood's Little John. British understatement transplanted.)

Nicky (a third generation Oppenheimer) and son Jonathan (fourth generation) addressed the two-hour gathering of the South African elite: businessmen, academics, political leaders, and the like. A year earlier, the African National Congress had made a well-intentioned but economically disastrous move to introduce a Mining Charter, which mandated that hiring in South Africa's mines be based on race, regardless of actual ability to do the job. Billions of rands exited the country, and now the Oppenheimers, at the prompting o fan Mbeki emissary, were considering the question, "How does one transform an economy like ours?" By transform, South Africans mean, among other things, changing the country's economic profile from mostly whites in boardrooms and executive suites to 80 percent or more blacks in the upper echelons, in order to reflect the wider population.

The Oppenheimers told this gathering that transformation should be portrayed as an opportunity for the established economic powers rather than a threat to them. They said the goal is a bigger economic pie over all, with a bigger portion going to blacks.

The Oppenheimers' proposed carrot to entice companies to engage in transformation is a reduced corporate tax rate: Those that make a middling attempt to change their demographic profile would stay at the current rate, while those that failed totally would face tax penalties. The view of many in the room was that it's better to incentivize than regulate.

A lone pure libertarian voice called out from the audience: "Why can't we just let growth in and of itself transform the opportunities of the great majority of South Africans?" It was Brian Kantor, a former professor of economics at the University of Cape Town, who works for Investec, an international specialist banking group that started in South Africa in 1974 and now operates in 11 countries.

"Unemployment will doom us to a downward spiral--we just don't have the time," came the answer.

Transformation has its critics. Nobody I met defended the current distribution of income. But there are many who claim that reform has helped only a handful of elite blacks while neglecting the masses. "Every white company is trying to buy a black one," the Free Market Foundation's Emerick said. That creates instant "transformation," of a sort. "There are a small group of blacks on many boards, usually the same people!"

There are the optimists of all races who have elected to stay on and tough it out. But there are still many pessimists. A great debate is raging over how to stop newly trained white doctors and dentists from skedaddling to Australia and the U.K. upon graduation without paying back one rand to the government that provided their education. "Those of us who are left are united on transforming the economy," President Mbeki told the Oppenheimer group.

What's really needed are the sort of popular Thatcherite measures that will bypass the tiny in-crowd and truly empower the tens of millions of poor people. After Britain's 1980 reforms, the number of people owning shares catapulted from 6 percent to 30 percent; South Africa, too, needs to open up ownership to the masses. The Law Review Project's Louw is very clear: "The fundamentals are in place. Apart from thousands of new statutes we call 'petty' regulation, the rhetoric is right and so is the policy. We have a good constitution that protects the people, and we have a surprisingly good Constitutional Court that upholds the rule of law. Other than the nationalization of mineral rights, capitalism is rampant and socialism completely defeated."

His colleague Eustace Davie added: "while we are subject to crime, we are all freer from government. After 20 years of no growth, and even negative growth prior to 1994, we are now going up." The annual growth rate in South Africa is estimated at 3 percent.

In the end I went with my eyes, and my training as an economist, in judging South Africa's prospects. Yes, there is crime, unemployment, and AIDS. But from my perspective on the street, in the heart of it, I don't believe the problems are as big as the reports make them out to be, or as insurmountable as the naysayers would have them seem. With a black majority that is stunning in its patience, understanding, and willingness to find a way, South Africa will not only survive but thrive.

John Blundell ([e-mail]) is director general of the Institute of Economic Affairs in London.