Investors Warm to New Era in South Africa
As South Africa sheds its apartheid trappings, United States companies that once shunned the minority-ruled state are trickling back, but with great caution
IT took years for protesters to push United States corporations out of South Africa. It now looks as though their return will also be protracted.
Despite the Sept. 24 appeal by Nelson Mandela, president of the African National Congress (ANC), to end sanctions against the country, companies are moving cautiously: Many state and local sanctions are still in place; concerns over continuing violence abound; companies need time to explore the market; and many are waiting to see the outcome of the first nonracial elections, scheduled for April 24 next year.
Although companies are proceeding slowly, state and local governments are less hesitant. Following in the footsteps of Los Angeles and New York City, a Massachusetts legislative committee, for example, recently endorsed a bill to end the state's ban on investment in South Africa.
Today, 139 US companies have employees or direct investment in South Africa, according to the Investor Responsibility Research Center (IRRC) in Washington. In May 1986, 267 companies had investments in South Africa. Since July 1991, when President Bush lifted the 1986 US ban on new investment in that country, 31 companies have opened offices, established subsidiaries, or placed employees in South Africa.
``Most of the city and county laws are still in effect and because of that, we haven't seen a rush of new investment,'' says Alison Cooper, the IRRC's manager of corporate research for South Africa. ``Companies like Digital that did go ahead before Mandela's announcement got a lot of flak. Their example was that maybe it was better to wait.''
Since 1976, 179 state and local governments have adopted sanctions, strongly influencing business decisions to leave South Africa. As of October, 159 localities maintained sanctions, the IRRC reports.
``If the election is free and fair, violence decreases, and state and local laws are removed, at that point we might see some large investment move into South Africa from the United States,'' Ms. Cooper says. Cautious US firms
``American firms have had to be extremely cautious,'' says Witney Schneidman, senior vice president of Samuels International Associates, a Washington consulting firm that provides analysis on South African trade and investment issues. ``They haven't felt that the risk is worth the hassle.''
The initial response by local and state governments to Mr. Mandela's call has been encouraging, Mr. Schneidman says. But many businesses are concerned about the continuing high level of violence.
Most US firms that have entered the South African market have elected to take the less risky route of forming non-equity links, such as licensing and distribution agreements, Cooper says. According to the IRRC, since July 1991 the number of US companies with non-equity links in South Africa has jumped from 184 to 445. IBM pullout
When IBM divested its South African marketing operation in 1987, it created a trust fund for its 1,500 former employees there to start their own business. IBM contracted the new company to be its sole marketing agent in South Africa, but otherwise gave up all equity links to the country.
Recently, the South African company, now called Information Systems Group, filed notice with the stock exchange that it was negotiating with a US company (IBM) for acquisition of stock.
Spokesman Mark Holcomb says IBM will soon announce whether it will again have an equity stake in South Africa. But for now, the company is ``monitoring the circumstances,'' he says.
``It is wise to take it slow,'' Schneidman says. ``[Non-equity business] is not the type ... South Africa wants right now, but it's the right trend. The hope is that it will lead firms to decide it's worthwhile to build plants down there.''
Mandela, in asking that sanctions be lifted, said the international community had to act quickly or the country would fall into anarchy. Unemployment and underemployment in South Africa are nearing 50 percent. ANC encouragement
``The ANC is really trying hard to get [US] companies back into South Africa to decrease unemployment,'' says Henry Nkosi, spokesman for the ANC office in Washington. ``We would like it to happen more quickly.''
One company that moved quickly is Digital Equipment Corp. in Maynard, Mass. In May, the company announced it was opening a South African subsidiary. Digital estimates that $1.7 billion is invested in information technology in South Africa.
``We were very strongly encouraged by political leaders across South Africa,'' says spokesman Kenneth McDonnel. ``We believe that our decision to open operations there was made with prudence and a great deal of sensitivity.''
Mr. McDonnel says Digital carefully investigated the market and ``went in with our eyes wide open.'' The Massachusetts legislation will validate the company's decision, he adds.
Whether a company should test the waters or plunge in differs from one company to another, says Michael Christie, director of the Washington-based South Africa Foundation. ``Some opportunities call for a bold approach. Others call for caution.''
For some firms, the sanctions and political change in South Africa have had little impact on business. In 1989, Boston-based Gillette Corp. sold a manufacturing facility in the country as part of a worldwide restructuring effort, but the rest of its operation remained.
``And our business will remain as it is for the time being,'' says spokesman Matthew Miller. Last year, Gillette sales in South Africa were less than $40 million. ``Clearly, our presence in South Africa is fairly small,'' Mr. Miller says.
The tide is turning though. ``South Africa, for the first time in more than seven or eight years, offers investors the opportunity to establish a foothold in a country with ... all the essentials of a developed modern financial infrastructure,'' Mr. Christie says. ``This is the best chance they've had, and I think companies are going to take it.''