Business in the New South Africa
Trade and investment will help ensure long-term stability and will give US companies a foothold in expanding regional markets
WHILE East Asia, Latin America, Eastern Europe, and India have all made enormous strides establishing themselves on the international economic landscape, Africa has been all but bypassed by the new global economy. Many factors - corruption, inefficient or unstable political regimes, and economic mismanagement - explain this. As South Africa reenters the world economy, however, this picture of neglect is about to change.
For more than a decade, economic sanctions imposed on its former apartheid regime isolated South Africa from the main currents of the world economy. With the election of the multiracial government of national unity and the formal lifting of sanctions last year, South Africa is reemerging as a major regional and global market. American companies are beginning to move in.
South Africa, despite its legacy of sanctions, is already the economic giant of the continent, accounting for 45 percent of Africa's total economic output. It absorbs more than 60 percent of all US exports to the region. With a population of 40 million, a gross national product three times that of Nigeria and four times that of Egypt, and a modern transportation and communications infrastructure, South Africa is unique among African nations for its size, sophistication, and economic potential. In Johannesburg, suburban shopping malls, entertainment complexes, and office parks rival those in the US. In other parts of town, millions of blacks who until recently were economically and politically disenfranchised are an even larger potential market.
Training and hiring goals
Although there were concerns about stability as last year's elections approached, South Africans demonstrated racial goodwill. Nearly all - black and white - share the goal of building a new, more equitable, multiracial society. It is becoming a pattern for corporations such as the giant utility ESKOM to make concerted efforts to recruit and train blacks for professional, supervisory, and managerial positions. ESKOM's goal is 30 percent nonwhite managers by the end of 1996 and 50 percent by 2000.
With competition for qualified blacks growing, First National Bank, which has long-standing hiring programs, is finding its trainees cherry-picked. Another banking leader, NedBank, is allocating 1.7 percent of its profit for social programs, par- ticularly education. The government has not mandated hiring targets, but businesses are moving now to preempt the issue.
This year South Africa expects GDP growth of 3.4 percent, the best rate in seven years. Strong leadership by President Nelson Mandela, and fiscally conservative, market-oriented policies designed to attract investment and spur competition have pushed business confidence to a 10-year high. Serious challenges remain, however. The government must meet the rising expectations of blacks while fostering continued growth and stability in the business community, which is overwhelmingly white. With unemployment over 40 percent, South Africa must consistently generate real growth of 6.8 percent per year to employ excess workers and raise living standards for the majority of its people.
A large infusion of foreign investment will be required. Attracting enough investment and raising productivity, in turn, will require a massive program of training and education in the black community, redressing decades of neglect. Housing and health care are also priorities.
The government must address these issues quickly enough to forestall severe social pressures. Crime is already problematic. In the end, South Africa's blacks, who have won political freedom, will also demand material benefits and a larger stake in the economy.
What happens in South Africa is important to southern Africa. South Africa's economy is an engine that can pull its neighbors forward. Because of its role as southern Africa's economic and transport hub, South Africa is the gateway into other regional markets. Its leaders also recognize that their own long-term stability will be threatened if South Africa remains an island of prosperity among impoverished neighbors. The country is already bearing a major burden of illegal economic migrants. With that in mind, ESKOM is planning to link South Africa's power grid with those of its neighbors as far north as Zaire, and new attention is being given to proposals for regional economic cooperation.
California's business ties
Establishing a footing in South Africa should therefore be considered a solid option for US companies seeking global opportunities. Before the imposition of sanctions there were 300 US companies in South Africa; the number fell to 100 and now is back up to 200. American companies such as California computermaker Amdahl, which divested in the 1980s, are reinvesting. Levi Strauss recently established a $9 million manufacturing facility in Capetown, which will serve as its point of entry to the larger African market. Bank of America will open in South Africa before the end of the year.
As a further sign of the changing business environment, California recently became the first American state to open a permanent trade and investment office in South Africa, with a mandate to assess opportunities throughout Africa. With the blessing of Gov. Pete Wilson, California's Trade & Commerce Secretary Julie Meier Wright and a senior business and legislative delegation opened the facility, based on a positive assessment of the trade and investment opportunities.
In the last year, South Africa has been deluged with foreign delegations, most of which are never heard from again. Understandably, South Africans are looking for the bottom line. International goodwill is one thing, but what South Africa needs most urgently is trade and investment. Europeans, who never pursued disinvestment as aggressively as the US did, have already established a strong presence, and delegations from Asian nations such as India and Malaysia are also striking deals.
To establish the most effective long-term presence, US companies planning to invest or to establish a local base must take into account local community concerns such as training, reduction of the pool of unemployed, and outreach to black-owned businesses. The health of the market depends on these factors.
With new doors opening daily in a revitalized business environment, Africa is no longer a dark continent for US business.