South Africa tries to regain confidence of foreign firms

Recent moves by South Africa to obtain large-scale loans from Western banks and to ease some restrictions on blacks in urban areas appear aimed, in large part, at restoring business confidence shaken by continuing strikes and rebellions.

Despite the biggest business boom South Africa is enjoying since World War II -- largely because of the skyrocketing price of gold -- direct investment by US companies in South Africa has been at a near-standstill since mid-1978. At present, direct US investment is hovering at some $2 billion, but US Department of Commerce sources say that most of some $230 million flowing into South Africa in 1979 was money reinvested by companies already there, and furthermore, that there was a net divestiture of $164 million last year.

Although US companies often find that their holdings in South Africa are among their most profitable, the combination of pressure from anti-apartheid critics, constraints imposed by the apartheid government, continuing strikes and guerrilla attacks, and political uncertainty has begun to make these companies wary of future commitments. Commenting on the successful strike at a Ford Motor Company subsidiary earlier this year, one US executive says, "Foreign companies are highly visible and will be targets of dissident blacks."

The most prominent divestiture is the huge conglomerate ITT, which is divesting its one-third interest in its subsidiary Allied Technologies Ltd. Though ITT officials refuse to discuss it, Commerce Department sources confirm that the move is, "at least in part, political."

Much of the direct US investment has been in key growth sectors -- manufacturing and high technology. But while South Africa's growth rate for 1980 is expected to be more than 6.5 percent, this is primarily because of the strength of the prices of gold and other metals.

The hesitation of American multinationals to expand in such an attractive business climate is seen as a sign by many analysts that apartheid is becoming bad for business. US executives say they are disappointed that there has been little movement toward dismantling the apartheid system. "We are not seeing any forward movement ," Brian King, director of Otis Elevator Company's South African subsidiary, said recently.

At the same time, the South African government has been seeking closer cooperation with foreign companies. After the wave of student protests, strikes , and guerrilla sabotage earlier this year, the South African Defense Force, according to Business Week, asked foreign companies to organize corporate militias among white workers and to pay for arms and communications equipment to be kept on company premises in case of civil unrest.

Although no US companies have gone along with the request so far, the move is an indication of the government's decision to batten down the hatches in the face of growing unrest. Commerce Department sources say companies are wary of getting caught in the cross fire of domestic turmoil and international criticism.

Joel Stern of Chase Manhattan Bank's financial policy division sees the roadblocks to black advancement as a serious obstacle to real economic growth. Though black unemployment is estimated at 25 percent, there is a shortage of skilled labor of some 700,000.

Privately, a US Chamber of Commerce official concedes that "anything beyond a five-year investment is considered risky." And a Commerce Department official says that "American companies are beginning to think that this really is not good business. Who knows what the future holds?"

Faced with shrinking confidence in the economic future of their nation, South African officials have begun an aggressive campaign to obtain large-scale loans on the Eurodollar market. In June Pretoria raised its first Eurobond since the 1976 Soweto rebellions, a $60 million Eurobond. This was followed by a $250 million credit syndicated in late September by a consortium of Western banks including Citibank. And according to State Department sources, South Africa is negotiating another loan "in the neighborhood of $200 million" with a group of European banks.

Its booming economy in the midst of a Western recession makes it a good credit risk, but experts are wondering why South Africa is borrowing so heavily when the gold boom has given it a healthy balance-of-payments situation.Most of the credits are five- or seven-year arrangements, and US officials say that the idea is to keep a high profile on Western credit markets. A State Department official noted that the South Africans are seeking "to resolve Western confidence in, and commitment to, them." Moreover, the official said, Pretoria is trying to demonstrate that it is a good medium-term credit risk.

But whether US multinationals will be enticed to enlarge investments in South Africa is an open question. Before it adjourned, Congress attached the "Evans Amendment" to an appropriations bill. The amendment requires companies seeking export-import loans for investments in South Africa to observe a code of conduct based on the "Sullivan Principles." This moderate code of business practices drawn up by tje Rev. Leon Sullivan, a Philadelphia-based black activist and board member of General Motors, calls for equal pay for equal work, desegragating company facilities, and more training for blacks. So far 138 US companies have endorsed it, but it has been criticized as having only a cosmetic effect, and Mr. Sullivan himself recently chided US companies for not doing enough in South Africa.

State Department sources say that Pretoria objects to the Evans Amendment and that so far only three companies have applied for loans under it. But the amendment underscores the tenuous situation of US companies investing in South Africa and suggests that until substantial reforms of apartheid occur, Americans will be reluctant to undertake any long-term investments.

About these ads
Sponsored Content by LockerDome

We want to hear, did we miss an angle we should have covered? Should we come back to this topic? Or just give us a rating for this story. We want to hear from you.

Loading...

Loading...

Loading...

Save for later

Save
Cancel

Saved ( of items)

This item has been saved to read later from any device.
Access saved items through your user name at the top of the page.

View Saved Items

OK

Failed to save

You reached the limit of 20 saved items.
Please visit following link to manage you saved items.

View Saved Items

OK

Failed to save

You have already saved this item.

View Saved Items

OK