The Multinational Monitor

September 1988 - VOLUME 9 - NUMBER 9

S O U T H A F R I C A  T H E   S T R U G G L E  C O N T I N U E S


By David Bates
TRADE SANCTIONS AGAINST South Africa, adopted in various forms by most governments of the industrialized world, have failed to spark major changes in that nation's policy of apartheid. The primary cause of this disappointment is the failure of sanctions to reduce significantly foreign trade with the racist regime in Pretoria. Despite the sanctions, many multinational companies continue to conduct large scale and very profitable business with the South Africa regime. Japan--which bans all direct investment in South Africa--and the United States, which adopted bans on a variety of South African imports in 1986, remain Pretoria's two largest trading partners.

Economic relations with these and other industrialized nations are vital to the prosperity of South Africa's economy. An estimated $21.5 billion, 10 percent of South Africa's total investments, are derived from direct foreign investments. As recently as 1985, more than 90 percent of the total foreign investment in South Africa was held by transnational companies based in Britain, the United States, France, West Germany and Switzerland, according to a United Nations survey. Foreign trade plays a crucial role for Pretoria as well, generating some 55 percent of South Africa's gross domestic product. Roughly 70 percent of that total foreign trade is conducted with Japan, the United States, West Germany and Britain. As of 1985, these four nations supplied more than 75 percent of South Africa's machinery, electrical equipment and chemical imports, 89 percent of its motor vehicle imports and 95 percent of its railway equipment.

Japan Moves Up

In 1987, Japan surpassed the United States as South Africa's largest trading partner, with bilateral trade of $4.27 billion. During the first six months of 1988, Japan's trade with South Africa was $2.15 billion. The Japanese government, sensitive to criticism over increased trade with South Africa, sought to downplay the figure by pointing out that South African imports had declined 9.2 percent, to slightly over $1 billion, in the first six months of the year. "It can be said that the Japanese government's request calling for business to restrain their trade with Pretoria in a voluntary manner is having an effect," said one ministry official. The decline in imports, however, was more than offset by Japan's $1.13 billion in exports to South Africa, which created a net increase in bilateral trade of 13.3 percent in the first half of 1988.

Non-Equity Links: Big Bucks for Auto Makers

Although the Japanese government forbids direct investment in South Africa by Japanese firms, Japanese companies may legally establish subsidiaries there. With such "non-equity" links, Japanese auto companies relinquish profits and direct control of the subsidiary's production and marketing activities in exchange for the subsidiary paying licensing royalties and buying parts and unassembled, "knockdown" vehicles.

In just the first half of 1988, the Toyota Motor Corp. subsidiary Toyota South African Manufacturing, Ltd.--a company wholly owned by South Africans--imported 47,927 cars and knockdown vehicles from the parent company in Japan for assembly in South Africa. The Toyota subsidiary has become South Africa's largest automaker, and Japanese cars are estimated to total 55 percent of all automobiles sold on the South African market. Japan sold a total of $954.5 million worth of completed and unassembled vehicles to South Africa in 1987, comprising almost half of all Japanese trade with that country.

In response to Japanese government pressure and international criticism, the Japanese auto industry announced in August 1988 that it would voluntarily reduce auto exports to South Africa, in terms of the yen value of the exports. But, because the yen has increased in value relative to other currencies, the industry's announcement was disingenuous. In yen terms, Japanese-South Africa trade for the first half of 1988 fell 3 percent, to 272 billion yen. In U.S. dollars, however, bilateral trade jumped 213 percent, to $2.2 billion. Favorable currency exchange rates would permit the Japanese auto industry to "reduce" exports on paper, even if the exports were increasing. Because the auto makers did not reveal the size of their proposed reduction, it is impossible to tell whether it is an accounting trick or legitimate.

Pretoria considers its economic relationship with Japan so important that it lifted apartheid restrictions on the 800 Japanese business people and their family members living in South Africa, granting them the status of "honorary whites." Mine Yoichi, an activist with the non-governmental Japan Anti- Apartheid Committee, called the honorary racial status "a shameful situation for us." West Germany's Bayerische Motoren Werke (BMW) and Audi also assemble cars at South African facilities and export South Africa-made auto parts back to West Germany. Volkswagen recently launched an expansion program in South Africa, while Daimler Benz has invested more than $100 million in the country since 1981.

Strategic Minerals: Pretoria's Insurance Policy

A common excuse for continued trade relationships with South Africa, particularly in the United States, is the enormous mineral wealth of the country and neighboring Namibia, a former German colony illegally controlled by Pretoria. The United States relies on South Africa for all of its andalusite imports, 58 percent of its chromium, 46 percent of its platinum-group metals and 27 percent of its manganese imports, according to the General Accounting Office (GAO). Because these minerals are needed in numerous military applications, they have been declared "strategic minerals" by President Reagan, exempting them from the import restrictions contained in the 1986 U.S. sanctions law. South African hard metal exports to the United States have almost doubled in the last year as U.S. buyers have stockpiled their inventories in anticipation of a total ban on South African mineral imports. The buyers hope augmented inventories will tide them over until alternative sources of supply become available. This dependency cuts both ways.

In 1985, South Africa pulled in some $11 billion in mineral export earnings. Moreover, in exchange for its strategic minerals, South Africa's white minority regime obtains from its industrialized foreign trading partners nuclear technology, transport equipment, computers and other vital electronic items.

In an October 1987 report, the U.N. Council for Namibia accused multinational companies--essential to these modern sectors of the South Africa economy--of reinforcing the country's apartheid system. "Since the benefits from those sectors accrue almost exclusively to whites, it can be said that transnational corporations are of particular importance to the preservation and growth of the privileges enjoyed by the white minority," the report stated.

Fuelling Apartheid

The United Nations, as well as many anti-apartheid groups and activists, place particular blame on foreign oil companies for helping the apartheid regime maintain its grip on power, noting that South Africa's dependence on imported oil could be a powerful lever for reform.

South Africa imports two-thirds of the oil it needs. "Almost all crude oil shipped to South Africa originates from countries that forbid their oil to be sold to the apartheid regime," the United Nations has found. Most of South Africa's oil is imported from Caltex Petroleum Corp. and Mobil Corp., both of the United States, British Petroleum, PLC, Royal Dutch/Shell and Total-Compagnie Miniere et Nucleaire of France.

The United States, Britain and France, not surprisingly, have consistently used their veto powers in the U.N. Security Council to block a measure--already adopted by the General Assembly and the Organization of Petroleum Exporting Countries (OPEC)-- calling for a mandatory oil embargo against South Africa. Caltex and Mobil play a crucial role in the South Africa economy, supplying and refining an estimated 55 percent of South Africa's oil. Last December, when the United States adopted an anti-apartheid measure requiring U.S. firms in South Africa to pay taxes to the United States in addition to the taxes already being paid to the South African government for profits earned in South Africa, Mobil defiantly refused to pull out. Mobil's office in Cape Town said the new law would increase the company's tax rate from 57.5 percent to 72 percent, "significantly increasing the cost of doing business in South Africa." "Mobil nevertheless reiterates its determination to make its presence in South Africa an effective force for social change."

Undoubtedly, Mobil's decision to stay in South Africa was influenced by its $400 million presence in the country. British Petroleum and Royal Dutch/Shell supply Pretoria with oil and hold investments in South African gas stations, coal mines and petroleum refineries. The British engineering firm of Brown and Root was reported in March of 1987 to be trying secretly to recruit some 100 oil workers from the North Sea oil fields to work in South Africa's offshore gas field in Mossel Bay, east of Cape Town. Production there is expected to begin in 1991. Another U.S. multinational, Fluor Corp., has been managing two of South Africa's three oil-from-coal conversion plants as part of a $1 billion contract. West Germany's Lurgi GmbH company also helps operate the coal conversion facilities.

In 1984, Fluor also landed a joint contract with the French- based Framatone corporation to maintain South Africa's first nuclear-powered electric plant at Koeberg. Framatone, owned by the French government's Creusot-Loire group and the French Atomic Energy Commission, delivered the Koeberg nuclear reactors, which were built under a license held by Westinghouse Electric Corp. of the United States. Alsthom and Spie Batignolles, both from France, also helped build the Koeberg facility, while Credit Lyonnais of France led the group of banks which financed the project. Fuel rods for the Koeberg facility are manufactured by Eurofuels, a subsidiary of France's Framatone and Pechiney- Ugine-Kuhlman firms and Westinghouse. There is a good probability that many of those fuel rods contain Namibian and South African uranium mined by Rossing Uranium, Ltd. Rossing--an international conglomerate 46.5 percent owned by Britain's Rio Tinto Zinc (RTZ) Corp. and lesser ownership spread among French, West German and South African companies--operates the largest open-pit uranium mine in the world. The U.N. Council for Namibia has reported that Rossing Uranium has been the "largest profit generator for its parent multinational (RTZ)" since 1982, earning the British company some $40 million in both 1986 and 1987. The U.N. council was quick to point out that Pretoria's racist and laissez faire policies made such profitability possible. "It is relatively inexpensive to produce uranium in Namibia because of racial discrimination in wages, low taxation rates and the relative freedom from societal, political, environment and other legal restraints on foreign corporations operating in the Territory," the council said.

The Rossing operations also place the company's unprotected workers and local residents--who are predominantly black--at risk because of tremendous health hazards, according to U.N. experts. "The lack of safeguards and standards to protect black workers and local inhabitants against radioactive contamination from Rossing has made mining, processing and transportation of uranium particularly harmful to these people," a U.N. report found. "Thus, the plunder of Namibia's uranium by Rossing is likely to present a serious health and environmental hazard for generations of Namibians."

South Africa's two other nuclear facilities--the Pelindaba plant, which produces radioisotopes for research, and the Valindaba uranium-enrichment pilot plant--also were built with equipment and expertise from foreign multinationals. Companies such as West Germany's Siemens AG, Messerschmidt- Boelkow-Bloem, and Leybold-Heraus, Switzerland's Sulzer Brothers and France's Hispano-Suiza helped develop the Valindaba plant, which produces enough enriched uranium to build two or three nuclear bombs each year. Foreign firms such as these have played a crucial role in providing Pretoria with the technology it needs to develop its highly secret nuclear program. Western governments, such as France, the United States and Britain, must also bear responsibility for South Africa's step into the nuclear age because they have permitted transnationals to transfer nuclear know-how to Pretoria. Pretoria's refusal to sign the Treaty of Non-Proliferation of Nuclear Weapons, its potential to build nuclear weapons and its November 1986 purchase of two converted Israeli Boeing 707 in- flight refuelling tankers have caused alarm among South Africa's neighbors. Using the 707s, South African warplanes could conceivably deliver a nuclear or conventional air strike as far as 1,200 miles from South African territory, making every city south of the Sahara a potential target of South Africa's air force.

Divestment: Money Talks

Since the U.S. Comprehensive Anti-Apartheid Act took effect in October 1986, over the veto of President Reagan, the campaign for divestment has led at least 19 U.S. state governments, 70 U.S. cities and some 120 universities to approve measures mandating withdrawal of more than $18.5 billion in investments in companies doing business in or with South Africa.

In 1985, France announced a ban on new investments in South Africa by French companies and said state-run public utilities would not renew contracts for South African coal purchases. Also in 1985, the governments of Denmark, Finland Iceland, Norway and Sweden adopted a sanctions program in unison, and other sanctions individually, which virtually ended their commercial relations with South Africa.

In 1986, seven Commonwealth state leaders agreed to ban new investment and reinvestment of profits earned in South Africa, all government procurement and contracts with Pretoria and all financial loans to the regime. Since the U.S. Congress approved sanctions in late 1986, 162 U.S. firms have reduced or severed their ties to South Africa, including General Electric, General Motors, IBM and Coca-Cola.

Many of these companies, however, maintain a presence in South Africa through licensing or distribution agreements. IBM, for example, sold its South Africa operations, but continues to sell products in South Africa. General Motors sold its South Africa facilities to local managers, who will continue to build and sell GM vehicles in South Africa, and GM itself will continue to send spare parts to South Africa for assembly. While sanctions have not stopped the flow of dollars or the transfer of technology to South Africa's racist government, the actions of some of South Africa's largest trading partners have raised the financial and public relations costs of doing business there. Companies with interests in South Africa, however, seem willing to bear a high price in the pursuit of profit.

David Bates is a Washington, D.C. journalist.