South Africa offers its Western investors fast profits. At 20 per cent every year the return on investment has surpassed even that in Hong Kong, where cheap labour has also been a magnet for foreign capital. But the tide of foreign investment in South Africa ebbs and flows. Billions of dollars come flooding into the country, drawn by a whirlpool of prosperity and economic promise, only to recede once more whenever political stability seems threatened.
The Sharpeville massacre in 1960 sent investors scurrying home in their hundreds, causing a loss of $15 million per month. Foreign exchange and gold reserves plummetted from $370 million to $180 million in six months. But the government reacted with stricter taxes on capital outflow and a tighter control on internal security. By February 1962 confidence was restored and reserves pushed back up to $380 million.
News of South African involvement in Angola caused another wave of disinvestment, but the loss of confidence after Soweto was less dramatic - only a $600 million outflow from a much bigger economy.
Diplomats in the West lost no time in denouncing South Africa’s brutal handling of her domestic problems. Lord Carrington said in the British House of Lords that ‘South Africa’s friends in the West had been saddened, bewildered, horrified by Pretoria’s lastest spate of repression’, and he warned that ‘unless progress is made in the field of human freedom and personal liberty the end, sooner or later, will be catastrophic. ‘The new Carter administration under the influence of Andrew Young, pulled no punches either. After talks with US Vice-President Mondale in 1977, Vorster reported angrily that ‘it was said to us in no uncertain terms that if we don’t reach a one-man one-vote situation then sanctions will be forthcoming. Russia wants to kill us off by force, while the US wants to strangle us with finesse.’
Even France, historically South Africa’s strongest ally, who had previously been the source of sophisticated weapons and nuclear technology, supported the UN’s 1977 call for a complete arms embargo against South Africa.
By involving herself in Angola in 1974/5, South Africa had also sacrificed her limited detente within the African continent. Nigeria, with its oil supply and rich markets, compelled firms to choose between their Nigerian and South African investments. It seemed as though South Africa had finally gone too far. In 1977 she appeared to be isolated and practically friendless.
But through the diplomatic clamour aroused after Soweto by the muscle flexing of South Africa’s security machine the voices of the economic pragmatists-South Africa’s real friends could still be clearly heard.
While in opposition, Lord Carrington could afford to be outspoken. In Britain’s ruling Labour Party, Chancellor Healey told Parliament that ‘the government intends to discourage investment by British industry in South Africa’. But Foreign Secretary Owen argued that Britain’s domestic needs ruled out economic sanctions against South Africa. He added that 10 per cent of British overseas investments go to South Africa, and that these account for more than 50 per cent (£3 billion) of total foreign investment in South Africa. Six of the ten largest companies in South Africa are based in Britian or Britishcontrolled.
The US government, providing 17 per cent of South Africa’s foreign investment, was just as pragmatic in spite of Young’s hard diplomatic stance. ‘The Department of State believes that investment… can assist the underlying forces working for change in the South African system by developing the skills and improving the economic wellbeing of the… black sectors of the South African population…’
With such large investments at stake it is not surprising that the UK and the US should be opposed to sanctions. At the UN Commission for Transnational Co-operation in 1978 they were among the six countries voting against a resolution calling for the withdrawal of multinational companies from South Africa. Other dissenting countries were France, Canada, West Germany. and Switzerland. All of them have a lot to lose by such disinvestment. (see table)
Such countries argue that economic sanctions and disinvestment will do more harm than good in South Africa. Far better, it is said, to try to bring about change from within the existing systems. As an alternative they have proposed several ‘Codes of Conduct’ which aim to challenge apartheid by example rather than by coercion. They are intended to guide the race relations policies of Western multinationals operating in South Africa.
The US Sullivan proposals and the Canadian government code aim at equal pay and conditions. The British-inspired EEC Code of Conduct emphasises the establishment of black worker representation. A fourth Code was issued by the South African Co-ordinating Council on Labour (SACCOLA) outlining the same basic principles.
The essence of these codes is that they are voluntary. But by 1978 only 84 of the 447 US companies in South Africa had endorsed the Sullivan ‘Manifesto’, and not a single one had recognised a black trade union for the purposes of negotiation. Of the 595 British companies asked, only 189 reported back to the EEC, and only 49 of these provided the required information. Only one was prepared to recognise black trade unions.
Nothing is known of the companies who failed to report, but it seems likely that little has changed since British trade union leaders Vic Feather and Jack Jones returned disgusted from their tour in 1973. They reported that conditions were as bad for blacks whether they worked for British, American, or South African firms.
Evidently codes of conduct are meaningless without a substantial number of endorsements and a reasonable policing and penalty system. At present their main purpose is to quieten shareholders’ concern at home and appease black opinion in the rest of Africa. In 1977 the French Government admitted that ‘the main purpose of the Code is to create a climate conducive to some form of dialogue with African states which have personal feelings for the racial situation in South Africa’.
Support for the Codes comes mainly from those with financial interests at stake - the South African government itself and heavily involved Western powers. Those with less to lose and more to fight for favour sanctions and boycotts.
The first plea to the West to break trade links with South Africa came from the late Albert Luthuli, President of the African National Congress and Nobel Peace Prize Winner. Bishop Desmond Tutu renewed this call in September 1979, saying that the South African Council for Churches ‘is critical of the role of foreign investment (which) is supportive of an oppressive system. It has been proved now that economic prosperity does not lead to political change. We want fundamental change… we do not want our chains made comfortable, we want them removed’. To the argument that sanctions would only cause further hardship and unemployment for blacks, he said they ‘would be unemployed and suffer temporarily. It would be suffering with a purpose now, where blacks are suffering, it seems to be a suffering that is going to go on and on and on’.
Chairman of the giant Anglo-American mining corporation, Harry Oppenheimer, who is a leading advocate of reform, argues the opposite. It is unemployment that causes unrest - the West must keep investing in order to maintain employment and ensure that peaceful rather than violent change occurs in South Africa. The economy simply can’t afford higher wages for blacks, argues Oppenheimer, equality will come when the country is more prosperous.
But it is not concern for unemployed blacks that holds back a concerted Western boycott. Economic disincentives have been much more persuasive than more moral considerations. The truth is that the West needs South Africa as much as South Africa needs the West. Tempers may grow frayed on both sides, but there are yet to be signs of a real rift.
- It has been argued that an economic boycott would harm the boycotters more than the South African economy. Governments are worried about job losses at home in industries dependent on South African markets or exports. Recent calculations show that this risk is grossly exaggerated. At worst it would mean a cutback of 400 jobs in the largest and most vulnerable firms.
- Another fear is that countries who fail to impose a ban will leap into the business vacuum created by those who pull out. This is what happened when the US-based IBM pulled out under government pressure. The market was left free for International Computers Limited - 25 per cent of which is owned by the British government - to supply the goods and expertise that underpin the whole ‘influx control’ system which regulates the movements of the black population so effectively. Similarly, Henry Ford II is well prepared to step into the gap that will be left by the withdrawal of British Leyland’s car-producing plants. ‘South Africa’s problems must be solved by South Africa’s people’, he says, ‘we are not going to move out…’. Not only will he continue to reap big profits, but also, should a settlement come about, he will be the first to move into expanding markets from his newly established toehold in South Africa.
It doesn’t have to be this way. It would be possible for concerened business-men and politicians to get together and agree terms of concerted withdrawal that would avoid internal throat-cutting.
- Some countries will be hit much harder than others. Disinvestment is an expensive business. If all companies sold out simultaneously their losses in the resulting buyers, market would be enormous. And South African exchange control restrictions force a further 30 per cent tax sacrifice on the deal. Significantly, what withdrawal there has been was of loan capital and short-term investments - over 1500 million outflow in 1977 - rather than bi long-term investment capital of which 250 million still flowed in. It is easy not to renew a loan, but very difficult to wind up a huge plastics factory. But again, a really committed home government would offer compensation to those firms hardest hit by withdrawal.
- The West’s biggest fear is that South Africa will retaliate against any action they take by wielding her own sanctions axe over their vulnerable industries. The table shows how important South Africa’s minerals are to the West. Except for gold, which plays its own particular role in the world economy (see table) they are all vital to Western industries. Chrome and magnesium, for example, are used almost universally in steel-hardening processes. With such a high percentage of their mineral supplies coming from South Africa Western industries would appear to badly threatened by a retaliatory boycott.
But the West looks to South Africa and the Third World for minerals only because their ores are all of a higher grade than those at home. It is a question of cutting costs and maximising profits. Also, with successful mining dating from 1860 a great deal of exploration has been concentrated in South Africa. There may be equally rich deposits elsewhere in the world. If only the West bothered to look.
- Oil boycotts have been suggested as a way of taking advantage of South Africa’s main Achilles heel without directly harming Western economies. The difficulty with this proposal has previously been that land-locked Botswana, Lesotho and Swaziland would be stranded if South Africa cut off their oil supplies. But with the independence of Zimbabwe a back door has now been opened.
Whether or not an oil boycott would cripple the South African economy is another matter. Only 20 per cent of her energy needs are met by oil, compared to 66 per cent of those in the West. And the government has been preparing for a boycott. Enough crude oil to last an estimated two and a half years has been hoarded in disused mineshafts.
Huge amounts of capital (see box) have been poured into the three oilfrom-coal (SASOL) plants as well as nuclear power, coal power, and sugar power projects. When all these sources are on tap in the early 1980s, judicious rationing could enable South Africa to survive even an oil boycott.
Their foresight and determination is impressive. Were the West equally determined then South Africa would have been brought to her knees years ago. It is a question of ‘if there’s a will there’s a way’. But while the West is unable to summon the will, the South African government is fast discovering its own way to economic independence.
How the west funds apartheid
'You scratched our back...
IMF Loans Internal security problems and a fall in gold price produced a massive trade deficit in South Africa in 1976/77. She needed some boost for her sagging economy and a 'clean bill of health' to keep foreign investment coming in. The International Monetary Fund - led by UK and US members - ensured that she got both. By the end of 1977 South Africa had been lent a total of $464 million, and a 'confidential' IMF report describing South Africa's optimistic future had been circulated among Western banking communities.
Foreign Investment South Africa has run up big debts. They rose from 30% of GDP in 1970 to 53% in 1976. Of these new loans, 56% came from the EEC and 24% from the US. Most of this Western capital has been channelled into long-term projects to keep the economy growing and its wheels running smoothly.
SASOL I uses one tenth of the country's coal to produce 7% of her oil needs. SASOL I I with a capacity to turn 14m tons of coal into 2.7m tons of oil per year, comes on tap in 1981. SASOL I I I is due to be completed in 1982.
Coal-fired electrical power stations with a combined generating capacity of 21,500m Watts will be completed by 1981.
Steel production capacity has been increased to 6.5m tonns per annum.
A deep sea harbour at Richards Bay and 860km of railway line for transporting ores to the coast have been constructed.
Nuclear Power and Expertise Foreign loans also helped to pay for the construction of a nuclear power station. France provided a $100 million interest free loan to help develop South Africa's uranium mines. The power station needed extra funds to develop its uranium enrichment capability - and the experts came from Paris to advise. Now France is a regular customer for 900 tonnes of uranium oxide each year, and the US is a big buyer of enriched uranium. When France withdrew its advisors, the Israelis were quick to step into the breach. So with Western funds and Israeli expertise it now looks as though South Africa has begun testing its own atomic bomb.
...so we'l I scratch yours'