U.S. Investment In South Africa: An Overview

On September 14, South African police raided a settlement known as the Crossroads, a squatters camp near Capetown, South Africa. Here, 20,000 blacks had constructed a small city complete with two schools and a system of local government. Although most of the residents of Crossroads had lived in this area for over a 'decade, and 94% of the family heads held jobs in Capetown, to white South Africans these people were illegal residents. Two adults and one infant were killed in the confusion as the police fired tear gas and bullets into the crowd. After the attack, the government announced its intention to level the crude shacks of corrugated iron that once composed homes for the now displaced thousands.

The Crossroads raid is not an isolated act of cruelty committed by an excess-prone security force. The destruction of settlements like the Crossroads is an integral part of the government's policy of separate development, better known as "apartheid." Under apartheid, blacks are officially assigned to one of the nine homelands, the "bantustans", scattered throughout the country. Although blacks compose 80% of the population, the bantustans make up less than 13% of the land area in South Africa. Because the bantustans are economically inviable, blacks must work in white-only areas under exemptions granted by the government. Rather than face separation, dependents often live with the workers in squatter communities near the area of employment. Attacks on these communities are designed to drive dependents back into the bantustans and force laborers into special dormitories or reserved living areas.

The outrages of apartheid have led growing numbers of Americans to question the role of U.S. investments in South Africa. Never before have U.S. multinationals faced such a degree of public pressure over their operations in a foreign country. Yet the public discussion thus far has focused largely on aspects of apartheid easily recognized by U.S. citizens: racial discrimination in pay, working conditions, and employment opportunity. Considerably less attention is paid to the singular elements of apartheid, such as the forced movement of blacks into the homelands and the eventual denationalization of 20 million African people who become citizens of "independent" bantustans.

The relative size of U.S. investment is a misleading indicator of the important contribution American multinationals make to the South African economy. As of year-end 1977, the value of U.S. direct investment totaled about $1.8 billion, a figure roughly equal to 20% of foreign investment and 4% - 6% of total investment in South Africa. The total value of U.S. bank claims on South Africa is slightly higher; by year-end 1977, outstanding U.S. bank loans to South Africa equaled $2.27 billion, nearly one-third of all bank claims on South Africa. Finally, U.S. citizens and businesses hold about $400 million in the securities of South African companies.

The true importance of American investment in South Africa lies in transferal of essential services and technology and the timeliness of the capital flows. American firms dominate certain sectors of the economy. The automobile industry, for example, is headed by two American firms, General Motors and Ford. Three of the four largest computer companies South Africa are subsidiaries of IBM, NCR, and Control Data. Mobil Oil and Caltex, a joint venture of Texaco and Standard Oil of California, provide South Africa with about 45% of its petroleum. Through several ventures, ITT and General Electric manufacture sophisticated electronic equipment. Union Carbide, Phelps Dodge, and Kennecott have significant investments in the mining industry, the backbone of the economy. In fact, Phelps Dodge and Kennecott have made new investments worth $100 million and $125 million respectively.

Although the South African economy is heavily dependent on foreign corporations for crucial goods and technology, the powerhouse of the economy is the apartheid regime itself. The government of South Africa provides over 60% of the gross domestic fixed investment. Much of this investment is in state-owned corporations such as ESCOM, the Electricity Supply Company and ISCOR, the Iron and Steel Corporation. Moreover, the government is the economy's largest consumer with the greatest expenditures to meet defense needs. Government spending on defense increased 97% in real terms from 1972 to 1975, 25% from 1975 to 1976.

The maintenance of apartheid requires pervasive government involvement in the economy. The Industrial Conciliation Act reserves certain levels of work for specified races as a "safeguard against interracial competition." The Group Areas Act secures certain areas for ownership by a specified race only, resulting in the movement of thousands of blacks out of urban areas. The government has attempted to encourage investment on the borders of bantustans to keep black laborers far from urban and industrial centers while continuing to exploit cheap black labor. The Environmental Planning Act of 1967 limits the number of blacks who may be employed by manufacturers in industrial areas, resulting in the loss of some 92,000 jobs for blacks in industrial areas.

The Nationalist Party of South Africa has acted with impunity to consolidate its policies of apartheid. Since the Party came to power in 1948, the gross domestic product increased by 5% - 6% per year, insulating South Africa from international criticism. U.S. business played a major role in this growth. From 1948 to 1960, the largest percentage (38%) of American investment was in the mining sector. From 1960 to the present, U.S. investment increased by over 400%, and today the highest concentration is in manufacturing.

U.S. corporations and banks have consistently provided South Africa with capital when the need was greatest. In 1959, for a variety of reasons there was a substantial decrease in foreign investment flows into South Africa. After the Sharpeville massacre in 1960 in which 69 peaceful black protesters were killed by police, foreign capital fled South Africa precipitating a major crisis. An emergency $30 million loan from Chase Manhattan and First National City Bank helped the government withstand the immediate crisis, and soon several large multinational banks opened a revolving line of credit to South Africa. Although capital outflows continued until 1964, U.S. investment increased from 1961 to 1964.

Today, South Africa is emerging from a 4 year old recession, one of the worst in its history. The essential element in the prolongation of this recession is the absence of new foreign investment. The halt in new investment is largely due to the outbreak of riots in Soweto in 1976. To meet its desperate requirements for foreign exchange, South Africa has had to turn to private multinational banks, accepting shorter term loans and paying interest rates considerably higher than the "prime rate", the London Interbank Offer Rate. From 1974 to 1976, private bank claims on South Africa rose by nearly 300%. U.S. banks hold about one-third of South Africa's debt to private banks.

South Africa's phenomenal economic growth rate did little to improve the conditions of blacks. Although black wages rose between 1966 and 1974, the difference between black and white wages also increased. On the other hand, the political status of blacks greatly deteriorated. The major black political organizations were banned, multiracial political parties were outlawed, and extensive legislation was passed granting the governament unchecked power to silence its critics.

Despite occasions of civil unrest, South Africa has long presented foreign investors with an inviting business climate. The country contains some of the largest known reserves of valuable minerals and the government maintains a surplus of low-wage labor. This combination resulted in remarkable profits; the Commerce Department estimates that the annual return on U.S. direct investment in South Africa during 1960 - 1968 ranged between 17.6% and 20.6%. During this same period the average return on U.S. foreign investments was 11%.

U.S. corporations are cooperative members of this profitable association. Not only have U.S. multinationals provided necessary support to the apartheid economy, in several areas American firms have directly assisted the government in the implementation of its racial policies. IBM has supplied computers to the South African airforce and the Bantu Administration Boards, agencies responsible for the local administration of apartheid. Caltex and Mobil are required to sell gasoline to the government, gasoline that inevitably finds its way into tanks, armed troop carriers, and jet fighters. In line with government objectives, Union Carbide has constructed a smelter on the border of the Lebowa Bantustan.

In defense of their South African operations, U.S. multinationals point to new company policies promoting equal pay for equal work, training programs for blacks, and elimination of separate eating and toilet facilities. But the extent of such reforms is severely limited; U.S. corporations employ about 70,000 black workers, or about 11/2 percent of the total black labor force. Many of the most important U.S. firms are particularly capital intensive, or require highly skilled workers. IBM, for example, employs 1,444 people in South Africa; of these, 177 are black. Caltex's new investments have resulted in a reduction in the number of its black employees.

Shortly before the Sharpeville massacre, the Prime Minister of England, Harold MacMillan, told the Parliament of South Africa that the "winds of change" were sweeping through the continent. However, the investment and loans of U.S. and other foreign multinational corporations and banks enabled the apartheid regime to weather the political storm that since has changed the face of Africa. Today, the pressure for fundamental change in South Africa is greater, but so too is the resistance of the South African government, buttressed once again by foreign business.