Corporate Collusion: Undermining Divestment

The explosion of the divestment campaign in the last several months has sent shock waves through the South African regime of P.W. Botha and the multinationals doing business there. The campaign's impact is highlighted by the efforts being made by South Africa and the multinationals involved to counter the movement.

South Africa has two politically well-connected Washington law firms - Sears, Hare, Kelley and Ward as well as the firm of Smathers, Symington and Herlong - receiving annual retainers of $500,000 and $300,000, respectively, representing their interests in the United States and monitoring the status of divestment legislation. In addition, South Africa has spent thousands of dollars financing trips to South Africa by state legislators in states where anti-apartheid legislation is pending.

In the South African Parliament this February the Deputy Minister of Foreign Affairs was questioned at length about providing further money to counter the divestment campaign. In his reply he stressed the role the private sector must play to fight the campaign.

The private sector was quick to heed the deputy minister's call to action.

Within a month the director of the American Chamber of Commerce in South Africa resigned so that he could launch the American Association for Trade and Investment, a group dedicated to providing "an aggressive response" to the divestment campaign. In March, only a few days after the director's resignation, the Ministry of Foreign Affairs of the South African government, intensifying its actions, an nounced the creation of a special government post "to coordinate action against overseas campaigns for divestment from South Africa."

Both of these actions within South Africa followed by less than a year the formation in the United States of two corporate committees devoted to lobbying against pending state and city divestment legislation. One, an unnamed committee of about 25 major U.S. companies, including Ford, General Motors. Mobil and others, has been organized to oppose divestment proposals at the state level. The other, the Corporate Committee for Change in South Africa, was recently formed by about a dozen U.S. corporations to lobby against divestment proposals before cities and other local governments. Chaired by Mobil executive Sal Marzullo, that committee, whose corporate members seek anonymity, immediately, retained the lobbying firm of Peter Piscitelli, a former aide of Mayor Ed Koch, to head off a selective purchasing bill in New York City. The bill succeeded - but the committee continues to use its money and influence to lobby against divestment at all levels. This spring when the bantustan leader Chief Gatsha Buthelezi, a fervent opponent of divestment, visited Washington, D.C., officials from companies like Mobil Corp. made sure that he lobbied on Capitol Hill, dined with the Washington elite and even met with President Reagan.

Many corporate planners and politicians believe that U.S. involvement in South Africa is now at a turning point. While American companies continue to fight the growing pressures on them, in private more and more are questioning the value of staying. The combination of a prolonged se rious recession in the South African economy, the rising political violence of P.W. Botha's regime and intensifying protest in the United States have certainly slowed down new investment in South Africa.

Early this year one of South Africa's leading dailies, The Rand Daily Mail, reported that gross domestic fixed investment has been in decline since the end of 1981. This has partly been due to the business cycle, but also because the fear of disinvestment has diminished business confidence. In addition, John Chettle of the South Africa Foundation, a "foreign agent" registered with the U.S. Justice Department, who only two years ago was predicting the impossibility of successful divestment legislation, told the South African press that this withdrawal of existing direct investment was only the tip of the iceberg. The real damage to the economy, he said, had come from the loss of incalculable new investments. "In one respect at least, the divestment forces have already won," he told the Financial Mail this spring. "They have prevented -discouraged, whatever you call it - billions of dollars of new U.S. investments in South Africa. They have discouraged new companies, new investors who were looking for foreign opportunities from coming to South Africa."

Chettle's concession is borne out by the financial analysts. Trade has stagnated in South Africa since 1980, with over twenty U.S. companies abandoning the South African market and only eleven new firms moving in. In the last six months, 10 U.S. corporations have closed their operations in South Africa according to the Investor Responsibility Research Center, including International Harvester, Continental Insurance, Cooper Laboratories, City Investing, Helena Rubenstein, Oak Industries, and Pan American World Airways.

This March, the Wall Street Journal, in an article about the influence of the divestment movement on investment, repeated the finding that there are "few exceptions to no new investments" and added the ironic note that one of those few exceptions has been an insurance firm which specializes in protecting corporations against "fires, revolutions and other calamities. "

Caught between the problems there and the growing political outcry here, most U.S. businesses plan no new major investments or bank loans in South Africa any time soon. "If we had zero involvement in South Africa today, we'd be hard pressed to go in there," says Ed Grigsby, vice president of business development for the Phillips Chemical Co. unit of Phillips Petroleum Corp.

As the divestment movement spreads, corporations will have to weigh the advantage of keeping operations open in South. Africa. "Potentially, companies could start losing more business here than they're gaining in South Africa," cautioned Tim Smith, executive director of the Interfaith Center on Corporate Responsibility.

Nevertheless, the U.S. corporations which have reduced their presence in South Africa are not yet willing to admit that this action has anything to do with the divestment campaign. Ford Motor Co.'s recent merger of its South African operations with South Africa's Anglo American Group was a retrenchment dictated by the auto market, not politics, said a company spokesperson.

Despite corporate claims to the contrary, the divestment campaign has worried enough U.S. companies to spur attempts to organize a joint United States-South African corporate strategy on divestment. In March, South African and U.S. businessmen traveled to Leeds Castle in England to join their European colleagues in listening to a keynote speech by the Rev. Leon Sullivan, (see accompanying story) and planning the role they could play in promoting apartheid reform, thereby staving off the divestment threat.

The South African business community had already proven that it was taking divestment seriously when it presented visiting Senator Kennedy with a memorandum on the subject in January. This memo is but one piece of compelling evidence that the local business community in South Africa is as concerned as its government with the threat of the divestment movement. The Financial Mail described the signatories of the memo as "Mr. Botha's Mutineers."

The memo called for sweeping changes in government policy, including meaningful political participation for Africans, full black participation in private enterprise, and an end to forced removals. The Mail emphasized that this was not a manifesto from the left, but a "challenge to the government" from moderate business leaders "to change its ways before it draws down on South Africa universal odium, sanctions and disinvestment."

The Federated Chamber of Industries' signatory spoke against forced removals as "only aiding those who want steps like U.S. disinvestment." The Associated Chamber of Commerce spokesperson admitted that to some extent the memo was a" preemptive strike against disinvestment."

Inflation and a depreciated rand have South Africa in a tight spot, prompting the Financial Mail to conclude: "In the absence of windfall gains from booming commodity markets. South Africa has only one source from which the capital necessary for the development of the economy can be derived. That is direct foreign investment .... With the growth of disinvestment sentiment overseas, we should be doing everything in our power to attract capital to this country."

Several U.S. corporations doing business in South Africa have alreqady joined with the South African business community to do what they can to encourage investment. Late last year they financed a ten-page advertisement in the October Fortune magazine. The thesis set forth in the ad was that the withdrawl of U.S. investments from South Africa would eliminate a progressive force for social change. This June a number of South African and U.S. corporations joined to sponsor a glossy 88-page book attacking disinvestment - a book which is being widely distributed by South Africa's department of Foreign Affairs.

Perhaps the most interesting recent assessment of the current corporaqte criticism of apartheid came from Sheena Dunan, President of a liberal white organization, the Black Sash, long active in exposing the horrors of influx control, pass laws and removals. Indicating her belief that only intense internal or external pressures were pushing them to speak out, she went on. "They have been urged over and over again for the past 37 years to use their undoubted power to persuade the government to stop removals, to remove influx controls and to refrain from apartheid," Ms. Duncan said. "They should be held to the commitments they made to Senator Kennedy and to all of us."

She said large-scale unemployment was not the result of disinvestment, and asked those who criticized the disinvestment lobby: "How many jobs have you destroyed in the last five years because you have mechanized?

"Did you worry about unemployment when you merged and relocated and rationalized your operations?"

There is no doubt, she said, that the sudden enthusiasm for reform was a result of the economic crisis and increasing pressure from Western democracies and the black majority in South Africa. In the months ahead it is likely that the efforts to cut U.S. economic links with South Africa will win new victories. One American Cyanamid representative commenting on the growing hassle factor involved in having investments in South Africa noted, "South Africa is one percent of worldwide sales, two percent of worldwide profits, and 10 percent of boardroom time. At some point... it isn't worth it."

Jennifer Davis is the Executive Director of the American Committee on Africa.