PACE OF U.S. COMPANIES RETURNING TO SOUTH AFRICA IS STEPPING UP
USIA
USIS Washington File
15 January 1998
PACE OF U.S. COMPANIES RETURNING TO SOUTH AFRICA IS STEPPING UP
(USSABC's O'Flaherty talks to USIA before BNC mtg.) (990)
By Jim Fisher-Thompson
USIA Staff Writer
WASHINGTON -- Since South Africa's multiracial elections in 1994, more
and more American companies have returned to do business in its
dynamic emerging market.
"You know, for years American businesses that had invested quite
heavily in South Africa were told that it was almost their patriotic
duty to disinvest because of apartheid," said J. Daniel O'Flaherty,
executive director of the U.S.-South Africa Business Council (USSABC).
"And they largely complied."
Now, with a new multiracial constitution, open elections, and majority
rule, and with strides being made to liberalize an economy that for
years was cut off from global markets, the economic giant with the
world's 10th largest stock exchange is once again flexing its economic
muscles, O'Flaherty told a U.S. Information Agency (USIA) reporter in
a January 8 interview.
The result, said O'Flaherty, whose 70-member advocacy organization
includes such U.S. corporate giants as General Motors, General
Electric, and the Chrysler Corporation, is that American firms are
being encouraged "to rethink their investment positions in South
Africa."
Viewed against the backdrop of "such a fast switch in [government]
signals to U.S. business," he said, "I think the pace of return of
American companies has been excellent. After all, the South Africans
had their election in April 1994 and here it is early 1998 -- not even
four years -- so I think we have a lot to be very proud of."
O'Flaherty and USSABC Managing Director Emily Solomon recently
returned from a 10-day trip to South Africa, where they met with
member companies to complete groundwork for the February meeting in
South Africa of the U.S.-South Africa Business Development Committee
(BDC), a component of the U.S.-South Africa Binational Commission
(BNC). USSABC serves as a private-sector secretariat for the BNC,
which was established more than two years ago to build commercial
relations between the two nations.
According to O'Flaherty, "if you aggregate the amounts of direct
investment that have gone into South Africa -- leaving aside portfolio
investment [which has also increased] -- you have got a very
significant market position that has been established by American
companies in a relatively short time."
However, "there are still some impediments to faster economic growth
that need to be overcome," Solomon said. "A lot of structural problems
became entrenched when South Africa was a closed economy based on
import substitution, protectionism, and inefficient conglomerates that
still affect its global competitiveness and attractiveness to foreign
investors."
Nonetheless, Solomon pointed to some positive actions: "U.S.
franchisers are entering the market. We have manufacturers down there
while mergers and other acquisitions by U.S. firms are up." As an
example, she noted that "Dow Southern Africa just purchased
SentraChem, effectively creating what we understand to be one of the
largest U.S. companies down there now and the largest chemical company
on the continent."
Solomon, who was the Commerce Department's South Africa desk officer
before joining USSABC, said that of the 10 big emerging markets (BEMs)
targeted by the department for special attention several years ago,
"South Africa is doing very well, especially compared to the economic
difficulties the others [BEMs] have experienced."
She also credited the BNC for being a factor in attracting more U.S.
investment to South Africa. "It's an exercise in relationship-building
as much as anything else," she said. "Now you have senior- and
working-level officials on both sides, who have been meeting every six
months and are used to discussion and ironing out problems such as
copyright infringement and the pace of privatization."
This is important, added O'Flaherty, especially "when you consider
that you've got the next president of South Africa [South African
Deputy President Thabo Mbeki] and the possible next president of the
United States [Vice President Al Gore]" co-chairing the BNC and
directly involved in furthering U.S.-South African business ties.
Because of their involvement, "the political signals here are clear,"
O'Flaherty emphasized. "This is an important relationship" upon which
business can build a firm investment foundation because it can expect
to have its concerns addressed at the highest levels.
Turning to South Africans, O'Flaherty said the most important thing
they can do now is "to maintain their pace of market liberalization."
This needs to be emphasized, said O'Flaherty, "because there are some
constituencies in South Africa that take a different point of view.
You have a strong labor movement. You have protectionist elements of
industry who are saying: 'Let's not open up. Let's go back to our old
ways.' So there is a danger of backsliding."
On the other hand, "if the momentum of open-market reforms is kept up,
the reward will be greater direct foreign investment," he said. In
addition, "South Africans will get support from the U.S. government,
from international financial institutions as well as investment from
multinational corporations."
Solomon noted that for many USSABC corporate members, privatization of
state-owned or -controlled firms in South Africa is a "barometer for
the pace of South Africa's medium-term economic growth." Privatization
is "certainly one of the issues on top of the BDC agenda on the U.S.
side," she added. "U.S. companies are very interested in that and are
actively encouraging South Africans to quicken the pace of
privatization."
Solomon, who has been following economic issues in South Africa for
years, (her father was a steel company executive who used to travel
there on business), said she also is optimistic about the country's
future.
"I have seen tremendous changes within South Africa, especially in the
way its government and business community are working to address the
legacies of apartheid and build their economy, and I think American
companies are making a solid contribution to that effort," she
concluded.