Seven years ago a group of South Africans filed a court case in New York alleging that multinational companies, including the Deutsche Bank, Citibank, Mercedes-Benz, Ford, General Motors and IBM, had harmed them by aiding and abetting the apartheid regime.
Although they have won some important victories, including defeating a motion to dismiss the case and an order requiring some defendants to disclose records that could corroborate their claims, they also lost some battles.
The South African government opposes their case and the court dismissed the case against the banking defendants. They have also not had a trial on the merits of their claim.
Recently, there have been signs that the corporate defendants and the South African government may be interested in settling the case. If the plaintiffs agree, a well-designed settlement is possible.
The plaintiffs are interested in both redress for the harm they suffered under apartheid and in establishing that corporations must behave responsibly, particularly when they work in societies with gross and systematic human rights violations.
The corporations want both to avoid the court ruling that they are liable for aiding and abetting human rights violations and to demonstrate that they are responsible corporations. The South African government does not want foreign courts sitting in judgment on some of the most complex issues in our transformation process.
Fortunately, a creative solution — reconciliation financing — that satisfies all these interests and helps poor South Africans on to a sustainable path to lives of dignity and opportunity is possible.
Reconciliation financing is based on three principles. First, money is an essential element of any reconciliation effort. Although money can never fully compensate the plaintiffs for the harm they suffered, it enables them to create lives with dignity and opportunity for themselves and their children. This helps them pay the psychological costs associated with reconciling with those who, intentionally or not, contributed to their pain.
Second, reconciliation financing must support projects that create jobs, services and opportunities for those who lack them. This means that reconciliation financing should fund projects that are not adequately supported by commercial sources, governments or donor agencies.
The best candidates for reconciliation financing are small-scale revenue-generating projects such as small and micro enterprises and low-income housing.
Everywhere in the world these projects are considered ‘too rich” for grant funding because they generate a return that can be used to service a certain level of debt and ‘too poor” for commercial funding because their size and rates of return are unattractive to commercial lenders.
Third, the form in which reconciliation financing is provided is important. Donations risk exacerbating the existing unequal relations between recipients and donors, thereby undermining the reconciliation objective.
They also leave the recipients dependent on the donors’ goodwill, which undercuts recipient independence and self-sufficiency.
Despite equity’s risk-sharing characteristic, it has two drawbacks. First, the reconciliation investors may exercise undue control over the investment, thereby undermining the goal of promoting beneficiary self-sufficiency.
Second, it creates the possibility of the reconciliation investors profiting from the hard work of the reconciliation financing recipients.
Debt, offered on realistic and favourable terms, is the most effective form for reconciliation financing. It helps debtors who perform their contractual obligations to gain a credit history, which increases their access to future financing. It also improves their material situation and their independence.
A particularly effective means for raising reconciliation financing is a retail bond. This ‘reconciliation bond”, supported by the corporate defendants, could also be sold to individuals and other companies interested in promoting reconciliation and development. Its proceeds should be invested in the small-scale revenue-generating projects described above. Even assuming high failure rates, the bond issuer should be able to repay all bondholders and contribute to a permanent reconciliation financing mechanism.
Reconciliation financing offers a win-win solution. The plaintiffs, as well as other similarly situated poor people who could not join the New York lawsuit, gain a real chance at overcoming their poverty and pain, the corporate defendants make a creative contribution to addressing the tragic legacy of apartheid and the South African government shows that locally negotiated solutions can resolve our most difficult problems.
Daniel D Bradlow is professor of international development law and African economic relations at the University of Pretoria