S. Africa tries to cool expectations for reform. Profits, more than politics, are key to whether US companies stay
New York — Basing their decisions more on economics than on politics, US businesses are quietly deciding what their future will be in embattled South Africa. As protests over the imposition of emergency powers increase, many large companies seem prepared to stay. These include IBM, Honeywell, Fluor, and S. C. Johnson & Son.
``We have expressed an intention to remain and confront apartheid on a day-to-day basis,'' says Mike Dutton, a spokesman for IBM.
But other businesses are turning away from the controversial country, which practices racial separation and refuses to allow citizenship rights to its black majority.
Chase Manhattan Bank, one of the largest US banks, reportedly has stopped making loans to private investors in the country. Chase, along with other major banks, stopped making loans to the South African government several years ago. And last week Deak-Perera US Inc., a dealer in precious metals, suspended sales of the South Africa's gold coin, the Krugerrand, citing a likelihood that Congress will ban Krugerrand imports next month.
Some observers say that large US firms will likely stay in South Africa, while smaller companies will move out. Most cite the current economic problems that South Africa faces as the main reason in pulling out, say these observers.
``We are seeing a number of American firms selling majority interest in businesses in South Africa,'' says Richard Hull, a senior adviser on sub-Saharan Africa for Frost & Sullivan's political risk services division. The company analyzes economic markets around the world.
Many companies are distancing themselves through name changes, licensing agreements, and selling out to subsidiaries, says Dr. Hull.
``I don't see that many firms actually pulling out,'' says Hull, who visited South Africa this year.
David Hauck, senior analyst at the Investor Responsibility Research Center in Washington, says decisions like those made by Chase Manhattan are very significant.
Chase was not releasing information on loans and may have been scaling them down for some time, he says. But since it is one of the first very large banks to curtail private loan -- joining Wells Fargo and the Bank of Boston -- it may have some effect on other large banks. He notes that eight years ago most banks still lent to the South African government.
``The private sector may be the next slice of salami,'' says Mr. Hauck. He sees the mix of a slumping South African economy, political unrest, capital flight, and a skills flight as meaningful to US businesses. While the economy is depressed, some firms may stay -- but only until it gets better.
There are an estimated 2,000 to 3,000 foreign firms in South Africa, and around $15 billion in direct investment. Britain has the largest share, followed by the US, West Germany, France, and Switzerland.
Although Japan does not allow direct investment in South Africa, it has a growing presence through licensing agreements.
The US had $1.8 billion in direct investments in 1984, down from $2.3 billion in 1983 and the historical high of $2.6 billion in 1981, according to a spokesman at the US Department of Commerce. In terms of trade, the US is South Africa's biggest partner, both in imports and exports.
At 8 a.m. yesterday morning, New York City police were busy putting up barriers in prepartion for an afternoon demonstration billed as possibly the largest anti-apartheid demonstration in the city's history.
But many companies in South Africa claim they can do more for black Africans by remaining in the country. IBM, for example, has signed the so-called Sullivan principles, under which companies vow to offer more training, promotion, housing, and education for black workers. IBM employs 286 blacks as of the end of last year, or about 15 percent of its employees in South Africa.
Many observers believe the divestment movement will continue to gain momentum, particularly in light of the more than 1,500 detainments since the emergency decree was put into effect July 21 by the South African government. More than 600 deaths have been attributed to civil unrest in the last year.
Several observers complain that the current sanctions pending before Congress ``don't appear very restrictive'' to US businesses.
These include bans on exporting goods used in nuclear production and computers, and a ban on loans to the government. US companies with more than 25 employees would also be required to offer equal treatment of all races in employment and housing.
``It is a first step,'' says Hauck. Later restrictions on new and existing investments or double taxation of profits would be of more concern to businesses, he says.