What does it take to get a company out of South Africa? Does it take South Africa raiding three neighboring countries? Diplomacy ratcheting ever lower between the Reagan and Botha administrations? Shantytowns and protests on American college campuses?
More likely, it is a recession in South Africa.
``The straw that breaks the camel's back is a different straw for each company,'' says Alison Cooper, co-author of a study on United States businesses in South Africa released last month. But generally, she and others say, it is poor profits due to that country's weak economy, rather than political turmoil and American social pressure, that create the final straw.
South Africa is becoming like a sieve, with the smaller US companies slipping away and the larger ones remaining. Only four companies that left last year -- Blue Bell, Carnation, General Electric, and PepsiCo -- have 500 or more employees. And of the 267 that are left, many grace the Fortune 500 list, like General Motors, Coca-Cola, Goodyear Tire and Rubber Company, and Eastman Kodak.
``For the smaller companies that have found it hard to make a profit in South Africa, the political pressure has made the grim economic situation seem hopeless,'' says Ms. Cooper, who works for the nonprofit Investor Responsibility Research Center (IRRC). ``They can't afford to wait'' for political changes to come, if they ever do come.
With the recession deepening and more shareholders withdrawing their support from companies in South Africa, some analysts think 1986 will see more big players closing up shop. They note that Xerox and IBM, which both have a large presence, are making noises about leaving.
But such decisions are not taken lightly, other companies say: They have poured capital into the country, which has the most developed market in Africa and which also provides trade lines for sales into neighboring African countries.
Last month General Motors announced it would no longer sell vehicles to the South African military or police. Many interpreted the decision as a first step toward GM's eventual exit. GM flatly denies that it will leave, saying, as do other companies still in South Africa, that they do more good for blacks there by staying and pressuring the government to ease apartheid than by leaving.
Operating there, however, is becoming less appealing each year. GM sold only 305,000 vehicles last year, vs. 453,000 in 1981. (It won't give sales or earnings figures.) It reportedly hasn't turned a profit in three years. In fact, the auto market is so slow, and the competitiion so fierce among the 14 companies (including Japanese) manufacturing there, that there is a major shakeout going on; Ford, for example, has merged with a South African competitor.
GM and Ford are not alone. All US companies face a daunting set of statistics. Before the 1980s, South Africa's economy grew by 6 or 7 percent a year. But since 1982, the increase in gross domestic product has averaged only 0.7 percent a year (after inflation), according to the International Monetary Fund. Unemployment stands at around 30 percent, making it difficult for companies to sell their products, even if political unrest doesn't preclude the products from being made.
The rand, South Africa's currency, is worth less than half what it was in 1982. While that makes South Africa's exports more attractive, it also makes imports more expensive and throws a damper on growth.
That spells ever declining profits for US companies there. They have watched their after-tax return on investment go from a robust 31 percent in 1980 to 7 percent in 1983, according to the IRRC. In 1984, companies lost nearly $1 for every $10 in direct investment, in part because of exchange-rate fluctuations, but also because of poor sales. Most analysts expect the situation to get worse before it gets better.
These grim figures have persuaded US companies to quietly withdraw their investment dollars, even as they have publicly denied doing so. According to the Bureau of Economic Analysis, US investment in South Africa dropped from a peak of $2.6 billion in 1981 to an estimated $1.3 billion last year.
Until last year, few US companies had left, although there has been a campaign in the US to get them out since the Soweto uprising 10 years ago. But last year that changed, as 38 companies closed up shop. Ten have followed suit this year, according to the IRRC study. That compares with seven companies in 1984. And of the 105 largest United States banks, 55 now explicitly prohibit loans to the public sector and 26 ban loans to either private or public borrowers -- twice as many as in 1984.
Many companies that have technically withdrawn from the country are keeping their feet in the door. Sixteen, including American Express, General Foods, Motorola, PepsiCo, and Trans World Airlines, have retained licensing, distribution, or franchise arrangements.
Daniel Purnell at the International Council for Equality of Opportunity Principles Inc., which monitors corporate compliance with the Sullivan Principles, thinks franchises may be the politically smart way out of South Africa for more and more companies. Japanese automakers, which have twice the South African market share of US producers, sell cars through franchises, he says. Such an arrangement insulates a company from economic tumult, he says, since it merely gets a percentage of sales and does not have to worry about protecting its machinery.
Because of political risk, no additional US companies have invested in South Africa since the beginning last year. The seal was tightened last summer by Frost & Sullivan, which analyzes the risk of operating in various countries. Just after the Botha government declared a state of emergency, Frost & Sullivan lowered South Africa's five-year rating from B (``limited but possibly dangerous turmoil'') to D-plus (``serious security concerns,'' where ``foreign business becomes a handy scapegoat in politics''). That impelled many banks, including Chase Manhattan, to call in their loans.
And the situation has heated up since then, most recently with South Africa's raid on neighboring countries last month and the Reagan administration's request for the South African defense attach'e to leave the US.
The 1985-86 school year was a banner year for student protests. Campuses that had not seen anti-apartheid activism found themselves engulfed in protests or dotted with symbolic shantytowns.
In response, colleges and universities divested $410 million worth of stocks in companies dealing with South Africa, according to Chris Coons, who surveyed 172 colleges for the IRRC. But that represents only about 1 percent of total South Africa-related endowments.
Campus protests, however, are tarnishing images of corporations that formerly escaped criticism by signing the principles outlined by the Rev. Leon Sullivan, which work to improve the living and working conditions of black employees in South Africa. Protests have spurred 18 states and many more cities and counties to screen out companies that operate in South Africa.