Disinvestors miss the point

South Africa’s critics and domestic and overseas supporters of what is popularly but generally inaccurately failed “disinvestment” both seem to be missing a central point of the whole issue. Both pro and anti-groups seem, however, to be unaware just what tremendous damage has already been caused to the South African economy already by political factors.

In the eight years from 1977-84, South Africa suffered an outflow of long-term capital from the private sector of about R1 000-million. The figures are disclosed in the quarterly bulletins of the Reserve Bank. There was, of course, quite a lot of capital inflow of long-term (that is, for more than one year’s maturity) as yell.

But Barclay’s economist Dr Johan Cloete reckons “that all the net inflow can be accounted for by borrowings on the government and public sector corporations. An economy with South Africa’s vast resources– there is just about everything except oil– should be attracting huge new sums of direct investment capital from abroad.

The reason this has not happened is simple — businessmen have become more and more concerned in the major western countries about the long-term stability of South Africa. This lack of foreign capital (borrowing is a different matter altogether; as Dr Cloete points out it involves no commitment to the country as such and can impose great problems, as now, when heavy repayments are due) has contributed considerably to South Africa’s poor record of economic growth and of mounting unemployment for the past three years.

Indeed, but for the freak gold boom of 1979-1981, things would have been very much grimmer a long time before. Of course, the slump in the gold price in the past two years and the cripping droughts of the same period have taken a toll. So has simple economic mismanagement. But the fact remains that the South African economy has been badly hurt by the many decisions of overseas businessmen to end or reduce or avoid entry into that economy.

This is why the scope for damage from “disinvestment” is less than many of those calling for it, or opposing it, seem to realise. We are already suffering the results of the political fears about this country abroad. This does not mean that further direct sanctions against SA will do nothing. They certainly could. In the form, however, that they are now being considered not much is likely to happen.

Banning new investment would, as pointed out above, do little more than impose de jure what is largely occurring de facto. Unilateral action by the US in areas such as computers will also have limited impact so long as other countries — in Western Europe and Japan — are willing to fill the gap.

Stopping Kruggerrand sales to the US will hardly help, but the ban would not be serious. So long as the world gold demand remains the same, as it should, SA will still sell its bullion at whatever market prices rule. What happens, though, if Western Europe and Japan join the US? This could obviously be important.

However, the British government is adamantly opposed to sanctions and Mrs Thatcher has no need to call a general election until 1988. She might lose it and if she does any government involving some grouping of labour, social democrats and liberals will take a much tougher line on South Africa.

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Howard Preece
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