Cutting Ties to a Troubled Land

  • As the pressure builds on U.S. companies to leave South Africa, the caravan of departing corporations grows steadily longer. More than 100 U.S. firms have quit the land of apartheid during the past 2 1/2 years, and last week three big names -- Citicorp, Ford and ITT -- joined the crowd at the exits. The magnitude of the American pullout has raised some crucial and highly controversial questions: What happens to the businesses that U.S. companies abandon? Are South Africa's blacks better or worse off? Has divestiture had any impact on the country's economic and political climate?

    On the surface, not much has changed. Familiar American offerings, from Coca-Cola to cars made with General Motors parts, are still available, sold now by the firms that bought former subsidiaries of U.S. companies. Early opponents of divestiture were concerned that the departures of American firms would mean a dramatic loss of jobs for black workers, but that fear has so far $ proved unjustified. However, advocates of divestiture who hoped that the corporate walkouts would spur the government to reform, even slightly, its policy of apartheid have been sorely disappointed.

    Whatever change is taking place, it seemed to be accelerating last week. Ford, which has manufactured cars in South Africa for 63 years, hopes to donate most of its holdings to its predominantly black work force. ITT sold off its small automobile-brake plant. Citicorp, the lone American bank left in South Africa, will sell its 29-year-old subsidiary to First National, the country's largest commercial bank.

    These and other departing companies have been under enormous pressure to get out of South Africa. Shareholder groups threatened to dump their stock, while states, cities and counties vowed to deny them contracts and customers pledged to boycott their products. South Africa's political unrest and sluggish economy have also been deterrents to doing business. The resolve of some firms to remain in South Africa weakened two weeks ago when the Rev. Leon Sullivan, who in 1977 wrote a widely accepted set of principles governing responsible investment in South Africa, advocated total corporate withdrawal from the country. He called for U.S.-owned South African businesses to be sold only to those buyers who would promote black ownership.

    So far, however, most American firms have sold their holdings to local, white-controlled firms. Buyers include giant conglomerates like the Premier Group, which purchased Dow Chemical's subsidiary, and smaller firms like Northern Engineering, which acquired Eaton's operations. Other U.S. divisions have been sold to the white South Africans who managed the subsidiary or to foreign firms. Only a few companies, including Eastman Kodak, have completely shut down their operations.

    Rarest of all are the deals in which the companies have sold to blacks. Coca-Cola was the first American firm to do so; in March 8,500 of its wholesalers and retailers, 60% of whom are nonwhite, bought one-third of Coke's South African subsidiary. Ford's proposed sell-off could be another such case. The carmaker is negotiating with its employees to put its interests into a trust that represents the company's 4,500 workers, 70% of whom are black.

    When American companies sell their subsidiaries, they often arrange to supply their parts or products to the new owners. According to Massachusetts- based Mitchell Investment Management, more than 35% of the 106 U.S. ! subsidiaries sold in the past 17 months continue to sell their goods through licensing, distribution, franchising or trademark agreements. Firms can find the new way of doing business more profitable: running a subsidiary involves paying expenses for plant and equipment, while licensing arrangements do not. Some critics of apartheid, though, criticize companies for continuing to sell their products after divestiture. Says Marcy Murninghan, president of the social investment services division of Mitchell Investment: "Many of the American companies who said they were pulling out really weren't. These companies still benefit from a business involvement in South Africa."

    U.S. divestitures have so far caused only scattered layoffs of South African workers. Nonetheless, black joblessness, estimated at 3 million, has increased by up to 300,000 annually over the past three years because of the weak economy. Black trade unionists claim that the wages of black workers have been cut once their American employers have departed. Many black leaders fear far more serious consequences. Says Mangosuthu Buthelezi, Chief Minister of the KwaZulu homeland and a longtime critic of divestiture: "If the South African economy is destroyed along with apartheid, we will have to build on the quicksands of deepening poverty." For now, though, divestiture does not seem to have had much effect -- positive or negative -- on the national economy. Since buyers of American subsidiaries are producing roughly the same output of goods and services as their U.S. predecessors, South Africa's growth rate has been little changed.

    Another widespread concern of antiapartheid activists is that new corporate owners, whether they are local South Africans or foreign employers, will not follow the nondiscriminatory employment practices that were observed by most U.S. businesses. Warns Dr. Oscar Dhlomo, Minister of Education in the KwaZulu homeland: "The door that had opened to a life of equal opportunity on the factory floor has suddenly been slammed in the black worker's face."

    Some U.S. firms have tried to ease the impact of divestiture by making farewell investments in social programs. Coke pledged to spend $10 million during the next five years to fund a foundation to assist education and development among South Africa's "disadvantaged." IBM left $10 million for a literacy program to aid 37,000 black schoolchildren. Many companies that divested their South African holdings had been setting aside some of their earnings for social services, but some of their successors have refused to take on those commitments.

    Still, many blacks support divestiture as a means to pressure the Botha government. A crippled economy, it is hoped, will eventually force the government to make meaningful reforms. Among the defenders of corporate pullouts are the Congress of South African Trade Unions and Archbishop Desmond Tutu, winner of the Nobel Peace Prize and leader of the Anglican Church in Southern Africa.

    Yet the government has not wavered from its hard-line policies. A year-old national state of emergency was renewed this month, and restrictions on the press remain in force. A swing to the right in the whites-only May election suggests that few white South Africans are impressed by the corporate departures.

    The 193 American companies that remain in South Africa will undoubtedly find it increasingly tough to resist the mounting demands to divest. This year 115 companies have confronted shareholder resolutions calling for withdrawal from South Africa, according to the Washington-based Investor Responsibility Research Center. At least 38 states, cities and counties have adopted selective contracting and purchasing laws, under which companies seeking municipal contracts can be penalized for their connections to South Africa.

    Those firms that have already divested their holdings are sure to face continued demands that they sever all ties to South Africa by refusing to permit their products to be sold in the country. If companies give in and Coke bottles, IBM computers and Ford cars are swept away from the South African scene, corporate divestiture will take on a new meaning. Apartheid will not necessarily crumble, but South Africa could become even more isolated -- and unstable -- than it is today.