U.S. corporate interests in South Africa


Material Information

U.S. corporate interests in South Africa report to the Committee on Foreign Relations, United States Senate
Physical Description:
vi, 231 p. : ill. ; 24 cm.
Clark, Dick
United States -- Congress. -- Senate. -- Committee on Foreign Relations
United States -- Congress. -- Senate. -- Committee on Foreign Relations. -- Subcommittee on African Affairs
U.S. Govt. Print. Off.
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Subjects / Keywords:
Corporations, American -- South Africa   ( lcsh )
federal government publication   ( marcgt )
bibliography   ( marcgt )
non-fiction   ( marcgt )


Bibliography: p. 76-79.
Statement of Responsibility:
by Dick Clark, chairman, Subcommittee on African Affairs of the Committee on Foreign Relations, United States Senate.
General Note:
CIS Microfiche Accession Numbers: CIS 78 S382-3
General Note:
At head of title: 95th Congress, 2d session. Committee print.
General Note:
Issued Jan. 1978.
General Note:
Reuse of record except for individual research requires license from LexisNexis Academic & Library Solutions.

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University of Florida
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All applicable rights reserved by the source institution and holding location.
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aleph - 024780983
oclc - 04434609
lcc - KF49
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Full Text

9 2d Sessionf







~ it"JANUARY 1978

Printed for the use of the Committee on Foreign Relations

23-748 WASHINGTON: 1978




Acknowledgements---------------------------PART 1-SUMMARY AND RECOMMENDATIONS
Purpose----------------------------International Crdt---------------------Corporate Activities:
Aggregate American Investment -------------------------------- 8
Top U.,S. Coprtos---------------------8
Findings------------------------------------------------------ 9
Recommendations------------------------------------------------- 13

Letter of Trnmta------------------------17

Chapter 1. International Credit Flows to South Arc----------25
A. Suppliers: Spread, depth, and interacting relationships: 25
1. Sped-----------------------25
2. Dph-----------------------27
3. Interacting reainhp----------------27
4. Tals-----------------------28
B. Capital flw------------------------44
1. Diesos---------------------44
2. Trns-----------------------44
3. Srcue----------------------46
Chapter II. International Credit and Strategic Investment (1974-76)--- 47
A. Fundamental factors of growth: Gold, foreign investment, local

1. God------------------------47
2. Foreign ivsmn---------------- 49
3. The local capital. mre----------------51
B. Strategic investment: public corporations, defense, strategic

1. Public croain------------------52
2. Desebdes-------------------55
3. Oil and defense mpts...--------------56
4. Government consumption and expenditure----------------58
C. Balance of payments: The 1974-76 deiis-----------59
D. International credit: South African investment and export expanson--------------------------------------63
Chapter 111. The Limits to Growth: The 1977 International Credit ShortA. 1977 Economic codtos------------------69
B. The 1977-78 bde---------------------71
C. 1977 international credit reurmns-------------73


.A. Tables: Pg
1. Eurocredits to South Mfrican public borrowers (1972-73)___ 30
2. Publicly issued South African Government and public corporations bonds in foreign and international markets (1974-76) 32
3. Privately placed South African Government and public corporation bonds in foreign and international markets
4. Identified Eurocurrency credits to SouthAfiapulcbr
rowers (947)------------------33
5. Other credits to South African public borrowers ( 1974-76) 35 6. Credits to South African private corporations (1974-76)--------36 7. Identified credits to South Africa (17-6---------37
8. Twenty-one largest U.S. banks: 1975 end-year exposure in
South Arc--------------------38
9. U.S. financial institutions with major commitments to South'
10. Foreign financial instututions with major commitments, to
South Arc--------------------39
11. New authorizations by the Export-Import Bank of the United
States for insurance and guarantees for exports to South
12. U.S. Commodity Credit Corporation: Commodities financed
for export to South Arc---------------39
13. Foreign investment capital flows to South Africa (1973-76)-- 50
14. Foreign investment: capital flows to South Africa, by region
15. Publicized private source international credits to South African
public borrowers (947)--------------53
16. Publicized private source international credits to South African public borrowers (17-6-------------53
17. Estimated crude petroleum imports (1966-76)----------------57
18. Oil and defense costs (1973-77) --------------------------- 58
19. South Africa: balance of payments: (1970-76) ----------------62
20. International bank lending and South African domestic investment----------------------------------65
21. Export-Import Bank of the United States: discount loans as
of April 30, 1977-------------------------------------- 66
B. Exhibits:
I. Eurobonds: leading managers----------------------40
II. Eurobond prospectus: Republic of South Africa---------------40
III. Boards of directors of major U.S. bank lenders to South Africa
whose members also serve on boards of directors of corporations with direct investments in South Africa---------------42
IV. Major U.S. corporations with direct investments in South
Africa whose board members also serve on the boards of
major U.S. bns------------------43
V. South Africa: a comparison of real building indicators ----------73
L. Introduction:
Origin of survey ------------------------------------------ 85
The qusinar--------------------85
The sample ---------------------------------------------- 85
Summary of company responses ----------------------------- 86
Br-eakdown of company responses --------------------------- 87
11. Aggregate Data and Analysis
Employment practices policy ------------------------------- 96
Sales policy ------------------------------------------- 98
E"mploye pouain------------------99


II. Aggregate Data and Analysis-Continued pa go
Employee population: Non-South African------------102
Equal pa------------------------103
Wages --------------------------------------------------- 105
Black pooin---------------------109
Training------------------------------------------------- III
Worker rpeetto-------------------113
African unions-------------------------------------------- 114
Representations to South African Government ------------------116
Representations to United States Government------------------118
Investment plans and the future ------------------------------121
III. Appendices:
A. Questionnaire on U.S. business activities in South Africa 125
B. American Consulate General, Listing of U.S. firms in South
Africa, May 17-------------------133
C. The American Committee on Africa, "Too Little, Too Late:
The U.S. Corporation Employment Manifesto for South
Africa," April 17------------------165
D. U.S. direct investment position abroad at yearend-1976-PART 4.-SOUTH AFRICA: U.S. POLICY AND ROLE OF U.S. CORPORATIONS
I. Summary of Maj or Policy Issues and Recommendations--------175
A. Contemporary South Africa: Contending views on apartheid
or separate dvlpet----------------175
B. Background on U.S. policy toward South Africa---------176
1. General isus------------------176
(a) Recommendations--------------------------178
2. Rhdsa--------------------179
(a) Recommendations--------------------------179
3. Namibia (South West Afia------------180
(a) Recommendations--------------------------181
C. U.S. policy toward South Arc--------------181
1. The impact of American investment and loans: Contending views -----------------------------------181
(a) Recommendations--------------------------184
D. Alternative policies toward South Afia----------1850
(a) Recommendations for Congress--------------------- 185
(b) Recommendations for the executive branch-----------186
(c) Recommendations for private corporations------------186
1Bi ief Summary of Testimony of Participants-------------A. Contemporary South Africa: apartheid and separate development------------------------------------------------ 188
1. Political codtos----------------1 1S8
(a) Horst Kleinschmidt, former assistant director of the Christian Institute in Johannesburg, South Afia--------------188
(b) John M. Chettle, director, South Africa Foundation, Washington, D.C --------------10
(c) John de St. Jorre, Carnegie Endowment for International Peace, New York, N.Y--------192 2. The eooy------------------193
(a) Joel Stern, President, Chase financial policy, the Chase Manhattan Bank, New York, N.Y---------------------------193
3. South Africa's foreign poiy------------195
(a) Pauline H. Baker, fellow, Rockefeller Foundation, New York, .Y----------195
4. Social cniin-----------------197
(a) Leonard Thompson, professor of history, Yale University, New Haven, Conn--------------197


If. Brief Summary of Testimony of Participants-Continued page
B. U.S. policy toward South Arc--------------197
1. Background on 'U.S. policy, 1969-76 ------------------197
(a) Roger Morris, the New Republic, Washington, D.C----------------------------------- 197
(b) Donald McHenry, Carnegie Endowment for International Peace, New York, N. Y--------200
(c) Edwin S. Munger, professor of political geography at the California Institute of Technology, Pasadena, Clf-------202
(d) John Marcum, provost, Merrill College, 'University of California, Santa Cruz, Calif....~ 203 2. U.S. policy: Two congressional viw---------206
(a) Hon. Steven J. Solarz, a Representative in Congress, 13th Congressional District, State of New York ----------------------------206
(b) Hon. Andrew Young, a Representative in Congress from the State of Georgia ----------208 3. U.S. policy, 1976: Two executive branch views ---------209
(a) Stephan M. Minikes,' Senior Vice President, Export-Import Bank, of the United States, Washington, DC------------209
(b) William D. Rogers, Under Secretary of State for Economic Affairs, Department of State-. 211 (.U.S. economic relations with South Africa -------------------215
1. American investment in South Africa: Contending
(a) Jerry Funk, deputy executive director, African American Labor Center, AFL-CIO, New York, N.Y ------------------------------2 15
(b) Thomas S. Green, vice president of administration, Norton Co., Worcester, Ms-----216
(c) A.A. Cunningham, vice president, General Motors, general-manager, General Motors Overseas Operations Division ---------------217
(d) D.N. Wait, chairman of the board and president, Union Carbide Africa and Middle East, In----------------218
(e) John P. McGoff, president, Panax, Corp., East Lansing, Mih-----------219
(f) William Durka, manager and counsel of International Legislative and Trade Policy Operation, General Electric, New York, N.Y.--- 220
(g) Paul M. Neuhauser, University of Iowa College of Law, Iowa City, Iowa ---------------221
(h) Gilbert Jones, vice chairman, IBM, Armonk, N.Y.-------------------------222
(i) Pierce N. McCreary, president and chief executive officer, Quebec Iron and Titanium Corp. New York, NY----------223
(j) Jennifer Davis, Africa Fund, American Committee on Africa, New York, N.Y -----------224
2. U.S. loans to South Arc-------------225
(a) George J. Vojta,, executive vice president, Citibank, New York, N.Y -----------------225
(b) Timothy HI. Smith, director, Interfaith Center on Corporate Responsibility, New York, N.Y----------------------------------- 227
3. Sanctions against Rhodesia -------------------------228
(a) Rtev. Larrold K. Schulz, executive director of the ( Offl cc for Church i n S'ociety of the United Church of Chit------------228
(b) George A. Birrell, general counsel and vice president, Mobit Oil Corp. New York, NY-- 229


A numb111er of people contributed to this extensive project, the product of more than a year's work. The study was directed by Pauline HI. Baker, professional staff member of the Senate Foreign Relations Committee. The Library of Congress report, "International Credit andI South Africa," was researched and written by William N. Raiford, analyst. in the Foreign Affairs and National Defense Division of the Congressional Research Service. The author of the questionnaire u on which the "Survey of U.S. Corporations in South Africa" is base, is Desaix Mleyers 111, a consultant with the Invester Responsibility Research Center (JR RC). Data processing and analysis of the survey results was (lone by Nancy Richards Akers, a member of the Senate Foreign Relations Committee staff. The "Summary of the Testimony and Issues in Hearings Held by the Senate Foreign Relations Subcommittee on African Affairs" was prepared by Susan M. Mowle, formerly an analyst in International Relations in the Foreign Affairs and National Defense Division of the Congpressional Research Service, now with then State Department.
Grateful ack_- nowledgement is also made to all those who contributed in various ways to this research, particularly individuals interviewed in connection with the credit report, firms which participated in the survey of U.S. corporations, and many others who offered their advice and counsel along the way.
The views expressed in this study are my own, and are not necessarily the -views of other members of the Senate Foreign Relations Committee.

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Today, a lively debate is emerging over the appropriate relationship the United States should maintain with the Republic of South Africa, a country governedd by a leadership committed to a policy of apartheid, or racial segregation. That debate has arisen essentially for three reasons. First, it is a response to events which have occurred within the last 18 months in South Africa itself, in particular, the violent disturbances in Soweto and other black townships, the death in detention of the foremost leader of the black consciousness movement, the massive arrests and banning of scores of black and white opponents of apartheid, and the closing of the largest circulation black newspaper in the country. These events bring home the reality of the potential for conflict in a country that has prided itself for years on a reputation for stability
A second actor contribution to this debate is the dramatic political transformations which have occurred in southern Africa as a whole. Within the last 3 years, the entire strategic balance has shifted in the region. For centuries, southern Africa had been dominated by a coalition of white minority governments that maintained unchallenged control of the richest and most strategically important part of SubSaharan Africa. That traditional structure has collapsed, presenting South Africa with its greatest foreign policy challenge since the Boer War.
The third reason accounting for the debate over United StatesSouth African relations is the coming to office of a new administration committed to a policy of promoting, human rights as a vital component of American foreign policy. Perhaps no other area of the world presents as bard a test of the human rights issue as South Africa, a country whose complex social, economic and political systems are based on a complex of laws, policies, customs and attitudes enshrining racial domination. What sets South Africa apart from other countries which have equally oppressive and, in some cases, quantitatively worse records of human rights violations is that (1) South Africa's policies are based on race as the sole criterion of discrimination, (2) its human rights violations have been made "Iegal" through legislative and rezulatory actions that have institutional, ized racism into the fabric of society, and (3) its policies are justified in the name of defending the Free World of which South Africa claims to be a member.
At the heart of this debate lies the question of the role of American corporations. Although the scope of U.S. ties with South Africa is extensive, our economic relationship constitutes the strongest and the most controversial aspect of our association with South Africa. U.S. economic ties with Pretoria reach back to the 19th century. They have


grown to the point where the United States is now South Africa's largest trading partner, its second largest overseas investor, and the supplier of nearly one-third of its international credit. This relationship confirms a close interdependence which makes a position of strict noninvolvement or neutrality on the issue of apartheid virtually impossible to maintain, given these economic realities.
What role do U.S corporations play in South Africa? One school of thought holds that U.S. corporations promote gradual social, economic, and political change through progressive labor practices which may set an example for South Africans to follow. American credit and capital, it is maintained, also contribute to a lessening of apartheid by promoting economic development which benefits all South Africans. Thus, it is argued, the overall impact of U.S. economic interests in South Africa is consistent with the objectives of U.S. foreign policy which has traditionally stated that it "abhors" apartheid and, under the current administration, stands for a progressive transformation of society toward full political participation.
Another school of thought holds precisely the opposite view. American economic investment in the country, it is argued, supports apartheid by fueling the economy on which the system rests. According to this view, American investment has had marginal material benefits for blacks and has strengthened the grip of the whites. Over the years, the income gap between whites and blacks in South Africa has widened, the political rights of blacks have diminished, and the drift toward greater authoritarian control by the central government has accelerated. Thus, it is concluded, U.S. economic interests in South Africa are inconsistent with the objectives of U.S. foreign policy, at best having no significant impact on apartheid and, at worst, directly supporting the policies of racial segregation.
The primary purpose of this study was to determine on the basis of empirical evidence which of these two views is essentially correct. Have U.S. corporations been agents of social and economic change? Have American credit and capital tended to erode apartheid or support the Government of South Africa and its policies of racial segregation? Have U.S. corporations been acting contrary to or *in support of American foreign policy interests? These questions lie at the crux of the debate over the appropriate relationship of the United States to South Africa.
This study explores these questions in three parts consisting of (a) an analysis of the role of international credit by the Congressional Research Service, (b) a survey by the Subcommittee on African Affairs of the Senate Foreign Relations Committee of the labor practices of American firms doing business in South Africa, and (c) a Congressional Research Service review of the issues raised by the role of U.S. corporations in South Africa, as they were presented before the Subcommittee on African Affairs durm* the hearings conducted in 1976. The body of data contained in the Wrst two reports is the basis of the summary and conclusions of this study.
The bulk of international loans to South Africa have always originated from European sources. However, over the past few years, both the total amount of international loans, and the proportion borne by the United States, have increased substantially. From 1974 to 1976, bank lending to South Africa nearly tripled in volume and


nearly doubled as a proportion of total foreign investment. This represented an increase in the proportion of credit as op osed to ownership in the economy, and a move in the direction or greater liquidity and a rapid return on investment that raised the debt burden of South Africa. By end-1976, South Africa's overseas bank debt equaled $7.6 billion, of which $2.2 billion, or nearly one-third of all bank claims on South Africa, was owed to U.S. banks and their foreign branches.
The primary borrowers of international credit are not private commercial enterprises, but the South African Government and its agencies which, until recently, relied on gold and direct foreign investment for economic growth. But in the 1970's-and especially in the

Period from 1974 through 1976-international credit provided much of the financing for the Government's infrastructure lirojects, and for its increased strategic imports (defense and oil). Of e identifiedd inter national credit extended to South Africa in the critical 1974-76 period, only $444 million went to private sector borrowers as compared to over $3 billion to the public sector.
The $2.2 billion of American credit outstanding in 1976 is roughly equivalent to the amount of foreign exchange required to cover South Africa's defense and oil imports costs for the same year, based on figures from South African sources and the United Nations. The cost of defense and oil quintupled between 1973 and 1976-from an estimated $400 million to an estimated $2 billion. In spite of increased foreign exchange shortages resulting from the fall in the price of gold, South Africa was largely successful in developing its infrastructure in many vital economic sectors, in stockpiling oil, and *in upgrading and modernizing its military. International credit filled the gap, directly supporting the South African Government in its desire for greater economic and strategic self-sufficiency, and permitting Pretoria to pursue what was a strategic investments policy, aimed at fortifying its security and defense-related projects. The American banks providing the bulk of U.S. credit to South Africa include Chase Manhattan Bank, Citibank, Irving-, Trust Company, Bank of America, Manufacturers Hanover Trust, Central NatLional Bank of Cleveland, Morgan Guaranty, First Wisconsin National Bank, Pittsburgh Nati6nal Bank, Chemical Bank, and the Bank of Boston.
U.S. trade expansion credit agencies have likewise played a role in carrying South Africa forward during the years of economic recession and heightened strategic investments. The Export-Import Bank of the United States, which insures, guarantees, and discounts credits which finance U.S. trade, authorized $205.4 million for South Africa over the period 1972 to 1976. Of this amount, $141.7 million W."Is for insurance and $63.7 million for loan guarantees. Another U.S. agency, the Commodity Credit Corporation, financed $46.2 million worth of commodities for export to South Africa from 1972 to 1976. These agencies are designed to promote trade and do not directly provide credit to the South African Governm nt. However, they have financed transactions of U.S. private corporations which deal directly with the South African Government or govemment-controlled agencies, thereby facilitating the fulfillment of Pretoria's economic and strategic priorities. Total U.S. trade with South Africa reached a peak of $2.3 billion in 1976, surpassing that of the United Kingdom, France, West Germany, or Canada.


The book value of American corporate investment in South Africa by 1976 was $1.665 billion, or 37.3 percent of total American investment in Africa. South Africa's attractiveness to foreign investors, however, appears to be declining. The U.S. Department of Commerce reports that reinvested earnings of U.S. subsidiaries in South Africa last year amounted to $73 million and new equity investment of these firms increased by only $9 million. This compares with, a total of $584 million in reinvested American earnings and $256 million in equity increases by U.S. firms for the continent as a whole. Repatriation of dividends and other earned income from South Africa was $125 million in 1976 as contrasted with $177 million from Libya and $174 million from Nigeria.
It is probably too early to determine if the declining attractiveness of South Africa for foreign investors is simply a temporary phenomenon resulting from the economic and political uncertainties of the last few years or the beginning of a general pattern of shifting U.S. economic interests that will continue in spite of an expected economic recovery. Historically, the corporate role of the United States in South Africa has been expanding since the end of the last century, with a notable increase in the last &cade. According to the United Nations,' United States direct investment between 1960 and 1975 increased by more than 300 percent and represents approximately 16 percent of the total foreign *investment in South Africa today. Although there are more than 250 American corporations operating in South Africa, only about a dozen or so are said to account for three-fourths of the total value of American investment in the country.
While ag rebate figures are available indicating the scope of American economic interests in South Africa, few details are known about the activities of individual firms and the precise role they play with respect to social and economic change. The extent of this lack of knowledge was indicated when the Subcommittee attempted to obtain a list of the top 10 or 15 American companies doing business in South Africa. It was found that no such authoritative list exists and the identification of the largest U.S. firms rests upon the source and the criteria one chooses to use.
According to the National Council of Churches, whose estimates are used by the United Nations, the 13 largest U.S. firms, in order of size of assets, are:
General Motors, Mobil Oil, Exxon, Standard Oil of California,
Ford Motor Co., ITT, General Electric, Chrysler, Firestone, Goodyear, 3-M, (Minnesota Mining and Manufacturing), IBM,
and Caterpillar.
I "Activities of Transnational Corporat Ions In Southern Africa and the Extent of their Collaboration with tho I lhgal Rf girnm in tho Xroa," Econ,)rnle atid Sicial Council, Apr. 6, 1977,
3 "Church lnv( strnerit, Corporations and South Africa," (New York: Friendship Press, 1973).


The U.S. Chamber of Commerce provided a different list of the top 15 firms, based on employee populations of 1,000 persons or more:
Carnation, Ford Motor Co., Firestone, General Motors, Goodyear, International Harvester, IBM, 3M, Masonite, Mobil, NCR, Newmount Mining, Otis Elevator, General Electric, and Union
Based on information provided by U.S. companies which participated in the subcommittee's survey appearing in this report, the U.S. Chamber of Commerce list excludes Caltex (which reported having 1,932 employees) and ITT (which reported having 3,900 workers).
The U.S. Department of Commerce offered yet another list of the top 12 U.S. corporations, based on unspecified criteria:
Coca Cola, General Electric, Esso, Gillette, IBM, International
Harvester, Joy Manufacturing, NCR, Otis Elevator, South African Cyanamid, Union Carbide, and John Deere.
Finally, a fourth source, Investors Responsibility Research Corporation (IRRC),' on the basis of sales and assets, identified two oil companies-'.Nlobil and Caltex-as the two largest U.S. corporations in South Africa. According
8 to IRRC their combined sales are equal to more than $1 billion altex's assets are worth $200 million and Mobil's are worth $333 million. IRRC additionally estimates that at least 72 U.S. firms employ more than 250 workers each and 21 firms have more than 1,000 workers each (10 more than the number of firms with employees of 1,000 or more provided by the U.S. Chamber of Commerce). In all, IRRC estimates U.S. firms employ some 100,000 workers in South Africa, about 70 percent of whom are black Africans. American firms are concentrated in oil, motor vehicle and computer technology, representing 43 percent of the petroleum market, 23 percent of the auto sales, and 70 percent of the computer business in South Africa. On the basis of their dominance in these sectors, then, the largest U.S. firms should include:
Mobil, Caltex, Exxon, Standard Oil of California, General
Motors, Ford Motor Co., Chrysler, IBM, Control Data Corp.,
and NCR.
While it is impossible to establish with certainty the exact number of top U.S. firms in South Africa, it is clear that many of the companies which may be said to rank among the largest operating in South Africa participated in the survey conducted by the subcommittee.
The aggregate data in the survey is based on the replies of 75 companies, or 30 percent of the 260 firms which were sent questionnaires by Senator Dick Clark in 1976. These companies were asked to supply information concerning 10 major issue areas, ranging from employment policies to investment plans.
EEO.-More than half of the responding firms stated they have an equal employment opportunity (EEO) policy specific to South Africa. Most of these policies were instituted in the early 1970's, a period when U.S. public criticism of multinational practices increased and our own EEO regulations were amended. It was also a period when
s "U.S. Business in South Africa: The Withdrawal Issue" (Washington, D.C., 1977).


renewed attention was focused on southern Africa. A substantial proportion of the firms indicated, however, that their EEO policies were communicated primarily through verbal means, leavm*g some question about the consistency and thoroughness of implementation. Other firms provided contradictory responses, suggesting that they actually did not have a policy specific to South Africa, but rather general guidelines of worldwide applicability. Still others indicated that South African law inhibited implementation of EEO policies. Generally, therefore, American firms indicated a lax and highly selective application of EEO policies in their operations.
Product restrictions.-Participating firms were asked about restrictions on the sale of their products, the purpose of which was to determine if they directly supplied the Government or Governmentsupported agencies which uphold apartheid. Only 11 firms said they restricted the sale of their products and this included restrictions on sales to the South African and Rhodesian Governments, restrictions for military purposes, restrictions to specified industries, or limitations as defined by U.S. law. With very few exceptions, there was little evidence that U.S. firms deliberately adopted a socially conscious policy of avoidmg support of the South African Government or its apartheid policies. In fact, only one company-Control Data Corp. specifically stated that it had a self-imposed restriction on business transactions which might support the continuation of apartheid. (Citmg recent repressive measures in South Africa, Control Data Corp. also announced in October 1977, that it has decided not to enlarge its investments in South Africa. Ford and General Motors previously indicated a similar halt in new investments.)
Personnel.-A total of 36,742 employees work for 69 firms which supplied the subcommittee with employee population data. Eight com.tanies accounted for 60 percent of the total, the largest ej aployers eing Ford and General Motors with roughly 4,800 workers each. In some cases, there was a direct correlation between race and mode of employment. Rockwell International, M & T Chemicals and Donaldson Co., for example, have all their white workers as salaried employees and all their non-white workers paid on an hourly basis. Only 18 firms pay all their workers on a salaried basis.
Less than 1 percent of the total number of persons employed by responding firms are not South African. The key position of mana director, however, is filled by non-South African (i.e., American European) personnel by more than a third of the responding firms.
Equal pay.-Seven companies admitted they do not pay equal pay for equal work, nearly all citing inexperience of black workers as the major obstacle. Sixty-three firms indicated they do pay equal pay for equal work, more than half of whom reported that they had no difficulty in doing so. Among the reasons given for failing to pay equal Day for equal work were high demand for whites, high wages for whites, resistance by white unions, and inexperience of black workers-the explanation most often given for not paying equal wages. It should be noted that there is no legal restriction in South Africa on paying equal Nvages for equal work just as there are no legal prohibitions against training black workers or placing blacks in executive or supervisory positions. These are matters of internal company policy.

Wage levels. Wage levels was probably the most misinterpreted area of inquiry in the survey. A large proportion of the responding firms used different standards of minimum pay, making comparisons difficult. What is noteworthy, however, is the uneven performance of companies in this respect as compared to other labor policies. Sixteen firms which do not have particularly progressive labor records in other areas compensated their employees at relatively high levels, among them NCR, which, ironically, stated it does not pa equal pay for equal work. On the other hand, some firms such as Vor'd Motor Co., which had fairly progressive policies in EEO, black training, or other fields, were among the 25 firms paying the lowest level of wages.
Black promotion.-Questions concerning black promotion elicited the most forthcoming replies. The major obstacle American firms identified as inhibiting black promotion was South African law. As Bristol Myers noted, a company could theoretically hire an educated black, but he might not find suitable housing or receive Government permission to work in a white area. White workers and customer resistance were other major hindrances to black promotion.
Responses to inquiries about black promotion revealed that U.S. firms tend to operate without reference to head office guidelines or to public pressure at home. The major incentive for promoting black advancement was enlightened self-interest-the need to raise productivity and to obtain trained manpower which is in short supply.
Training.-Training of black employees is one aspect of multinational labor practices which the South African Government actively supports. Indeed, the South African Government encourages black training through the provision of tax incentives which U.S. firms may be expected to draw upon for improved labor programs. Yet only onethird of the responding firms in this survey had formalized training programs which are needed to qualify for the government's tax credits. Approximately one-fourth of the firms reported ad hoe, onthe-job training, but this is insufficient for the government benefits.
Unions.-Worker representation constitutes the most contentious subject of U.S. corporate activity. Although Dot legally prohibited, black unions are not officially recognized by the South African Government which fears the political Consequences of a black labor movement in a society in which 70 percent of the labor force is black. But while officialdom frowns OD labor organization, it tolerates the existence of scores of black unions that are of little effectiveness to date. Foreign firms are reluctant to encourage their development because they may ultimately diminish corporate profitability. Hence, not a single U.S. firm recognizes or negotiates with an African trade union. (Ford Motor Co. has recently announced its intention to recognize a black union, following a similar announcement by a German firm, Volkswagon.)
Sixteen firms indicated they had no worker representation at all and 45 firms said they had partial representation consistent with the government-supported worker/liaison committees. Only seven firms report d having been approached by African union organizers for recognition. Three firms said they would be willing to recognize black unions and negotiate with them without specific conditions. Thirty said they would be willing to do so provided the unions had up to


100-percent worker representation or a clear majority representation of workers in a particular field or industry. Others were more vague about the conditions they attached to their theoretical willingness to endorse unionism. On balance, American business support of African trade unions appears to be little more than lip service.
Representations to the South African Government.-This area of inquiry probed the extent to which U.S. firms attempted to gain legal exemptions from the South African Government's restrictive lator policies or to press for a relaxation of these regulations. Twentyeight firms requested exemptions from a labor-related law but only four were granted their requests. Eleven firms were contacted by the South African Government for violations. Rockwell International described its fine as "minor" and W. R. Grace was penalized with a $35 fine for a technical violation. The leniency with which the Government has treated U.S. firms suggests that they operate well within the law and customs of the society.
U.S. representations and new investment.-At the time of this survey, most firms reported that U.S. policy does not affect their ability to do business in South Africa. Only seven of the responding firms said their executives had met with U.S. officials to discuss aspects of U.S. policy that might change. U.S. firms generally opposed policies aimed at withdrawal or at international pressure on South Africa.
Three firms reported new investments being planned-South African Cyanamid, Esso Mineral Africa Inc. (a susidiary of Exxon), and Preformed Line Products. Regarding potential U.S. actions which might affect business operations, 31 firms said they would be affected if Export-Import Bank facilities were ended, 50 firms stated their operations would be seriously affected if tax credits were ended to firms investing in South Africa, and 27 firms indicated that both of these changes would affect their South African business activities.

Today, South Africa is more dependent on international credit and capital than ever before. It has a heavy debt burden, direct foreign investment has dropped substantially, and medium-term lending has reportedly reached its limit. Defense and security related expenditures continue to soar and black demands are accelerating at an ever increasing pace. A measure of South Africa's economic squeeze is the government's recent decision to increase house rents in Soweto, the most politically explosive township in South Africa, in some cases by as imuch as 80 percent of the current rate. The demand for revenue apparently outweighed the obvious political risk entailed by the decision, made at a time of heightened racial tensions following th e death of Steve Biko, one of South Africa's most prominent black leaders, atil the massive bannings and detentions of opponents of ap artheid.1
U.S. economiic interests in South Africa may not be decisive in bailin~g Sou1th Afr'ica out of its economic woes. But there is no question that it has, been pivotal in directly assisting the South African Government during1(y its worst economic difficulties in the past, and, if perTlitt ted1, could (10 so in the future. International credit provided the margini of funds needed by South Africa in the 1974-76 period to


finance its military buildup, its stockpiling of oil, and its major infrastructure projects in strategic economic sectors such as transportation, communications, energy, and steel production, all of which are related to security needs. Collectively, U.S. corporations operating in South Africa have made no significant impact on either relaxing apartheid or in establishing company policies which would offer a limited but nevertheless important model of multinational responsibility. Rather, the net effect of American investment has been to strengthen the economic and military self-sufficiency of South Africa's apartheid regime, undermining the fundamental goals and objectives of U.S. foreign policy.
What could U.S. corporations realistically do in light of South African legal restrictions and the desire for profitability? There is much that could be done. The code of conduct for multinational corporations drawn up by Rev. Leon Sullivan, a member of the board of directors of General Motors, suggests some of the more modest steps such as integrated facilities, training, etc., that can be taken. An even stronger set of corporate principles endorsed by the European Economic Communitv Council of Foreign Ministers suggests more concerted areas of action. It calls for equal endorsement of African trade unions and the reporting by South African subsidiaries to their parent companies' head offices in Europe which would monitor the fair employment practices laid down in the EEC code. All of these actions are well within the limits of South African law.
Individual companies have also tried to establish new directions, some announcing their intention to recognize black unions, curb new investment, or curtail their business transactions to activities which would not directly deal with apartheid-related projects. Chase Manhattan Bank, for example, has established a policy of not providing loans to the South African Government, its statutory corporations, the homelands, border industries, or to Namibia.
It may be argued that none of these measures will bring about the downfall of apartheid. But by comparison with the abysmal performance of U.S. corporations in the past, these efforts to express condemnation of apartheid, and exert a measure of influence toward its erosion, represent some degree of progress in the direction of a socially responsible multinational role in a society that has shown little capacity for significant change on its own.. More importantly, these measures expose the complacency of U.S. corporations which have tended to rationalize their inactivity by- blaming South African law,.;,- alone. With dedication and imagination, much could be done to promote social and economic chance without violating South African law or S'O'nificantly reducing profits.
The current policy of the U.S. Government is neither to encourage nor discourage foreign investment in South Africa. Given the evidence of U.S. corporate interests having acted contrary to U.S. foreign policy objectives, that policy is no longer tenable. U.S. policy should be changed to actively discourage American foreian investment in South Africa. This should be implemented in three primary ways:


1. Withdraw facilities of the U.S. Government which promote the flow of capital or credit to South Africa. This includes ending ExportImport Bank insurance and loan guarantees; -permanently withdrawing the commercial attache to the U.S. Embassy in South Africa; ending visits by officials of the Department of Commerce to South Africa; reviewing and, where appropriate, limiting activities of U.S. agencies which may indirectly promote foreign investment; and endig the supply of economic data and counseling to potential American investors.
2. Deny tax credits to those U.S. corporations paying taxes to the South African Government which fail to act in ways consistent with American foreign policy. Specifically, this would involve cancellation of the tax benefits allowed to U.S. corporations which extend loans to or have investments in projects of the South African Government, its agencies, or any other institutions which further the implementation of separate development policies, including the border industries and the homelands. This policy would disallow tax credits for any U.S. corporations investing in strategic projects involving South Africa' s military, security or defense needs. Finally, it would cancel tax benefits for U.S. corporations which fail to enforce fair labor practices.
Effective implementation would require the U.S. Government developing a set of investment guidelines and fair employment principles, preferably in consultation with the head offices of U.S. subsidiaries. It would also require the periodic and systemmatic monitoring of U.S. corporations in South Africa, possibly by labor attaches attached to the embassy to ensure compliance. This policy would have the advantage of providing incentives for change rather than simply applying punative measures for past corporate activities.
3. Withhold official endorsement of private groups which organize in defense of U.S. corporate investment in South Africa unless they satisfactorily support the corporate guidelines and fair employment principles laid down by the U.S. Government. Such organizations would include the U.S. Chamber of Commerce which op ened its office in South Africa last year, the first branch of the Chamber to be inaugurated in the continent of Africa. While such an organization could conceivably be instrumental in implementing the kinds of changes discussed above, in practice it has served in other areas to protect and promote U.S. foreign investment. South Africa could be a testing ground for the Chamber, one of the most influential organs of American private enterprise.
These recommendations contrast with more extreme measures advocated by some, such as the disengagement of U.S. corporate investment, a blanket denial of tax credits, or the adoption of wider trade and investment sanctions. instead, they aim at fostering specific an(I meaningful changes in the role which'U.S. corporate interests have traditionally played in South Africa. Somec will say the recommendlations go too far; others will say they (10 notogo far enough. UndJer present circums tances, it is felt that these polcies, properly imjilenentedl, can deal firmly- anl pragmatically with the economic realities thiat cons titute the hecart of the U.S. relationship with South Afr-ica. Nvrhlsat somie t1ime in the future, the situation may merit ,trong~ei me rs should these recommendations prove ineffective or ifypractical. Much (depenlds upon events within South Africa andl the willingness of all p afticil ants there to accept constructive transformation.

.-&.LA-XRT 2


CONGRESSIONAL RESEARCH SERVICE, Washington, D.C., October 3, 1977.
Chairman, Subcommit tee on African Affairs Washington, D.C.
DEAR MR. CHAIRMAN: I am pleased to submit this report entitled "International Credit and South Africa," in response to your request of Oct. 1, 1976. The report identifies international credit flows to South Africa and assesses the importance of such credit to that country.
The report finds that international credit filled the gap ini foreign exchang-e financing-which South Africa needed during 1974-76 to cover its increased expenditures for oil and defense imports and new infrastructure projects-and thus directly supported the South African Government in its desire for grreater economic anl strategic self-sufficiency.
The report further suggests that continued access to international credit has become a grave issue for South Africa. During the first nie months of 1977 international banks have all but ceased granting medium-term loans to South Africa as a result of (1) political demonstrations against apartheid which have increased credit risk, (2) banks having approached their lending limits to South Africa as a result of the large commitments made during 1974-76, and (3) economic factors relating to the effects of economic recession in South Africa. It would appear that continued access to international credit will continue to be important for the South African Government, though not necessarily decisive, if it is to create the conditions and the confidence needed to support viable solutions to its political and economic difficulties.
This study was prepared by William N. Raiford, Analyst in Foreign Affairs, Foreign Affairs and National Defense Division, of the Congressional Research Service.

The purpose of this paper is to identify the flow of international credit to the Republic of South Africa (hereinafter called South Africa) and assess its importance to that country.
The first section identifies the institutions which are suppliers of international credit to South Africa and specific agreements between these institutions and borrowing entities.
The second section relates the flow of international credits to South Africa's economic Drogyrain and performance, focusing on the 1974-76 period. Although time and data constraints permit only partial identification of specific credits and their utilization by known entities, there are sufficient data available to make estimates within orders of mamitude which indicate the relationship between these credit flows and the economy of South Africa.
The third section assesses South Africa's strategy for adjusting to a sharp cutback in its access to international credit in 1977 in conjunction with its more normal international credit requirements and as the economy moves into its fourth year of economic decline.
Of the numerous people who contributed in various ways to this study particular thanks are extended to Mr. Vilay Soulatha, former Chief of National Accounts in Laos, who gathered much of the trade and national accounts data, prepared some of the Tables and offered helpful suggestions; to Miss Win Armstrong, International Economist from New York City, who offered encouragement, insights, and materials otherwise difficult to come by; to CRS colleagues Mr. Jim Robinson and Mr. Vladimir Pregelj for scrupulous review; and to the dozen senior officials in charge of South African matters for public and private financial institutions, whose interviews were most helpful in providing perspective on the data. The presentation and conclusions are, of course, those of the author.

International credit suppliers to South Africa are: (1) the private commercial banks in the United States and Europe who are the primary suppliers of credit, (2) investment banking houses which handle the bulk of South Africa's bond issues as both arrests and investors, (3) the government trade expansion credit agencies which play an important role in guaranteeing and insuring trade credits, and (4) the International Monetary Fund (IMF) which has been an important source of credit for South Africa during the past two years.
The primary lenders are private international banks and investment banking houses in the United States, England, Germany, Switzerland, France, and the Benelux countries. Four major private financial institutions in the U.S. and 14 in Europe have taken the lead role as managers and participants in this credit relationship and hundreds of smaller institutions have subscribed to loans or bond issues managed by the major institutions.
South Africa held a minimum of $9 billion in outstanding international credits at end-year 1976.1 Of this amount $7.6 billion had been obtained from private commercial banks, an estimated minimum of $1.0 billion was in the form of outstanding bond issues, and $459 million represented credits obtained from the IMF. Some of the credits are guaranteed or otherwise supported by government trade expansion agencies. While this does not increase the total volume of
credits per se, it does significantly raise the quality of such credit. Most of these credits appear to be medium and long-term funds loaned to the South African Government and its public corporations$3.9 of the $4.3 billion in longer-term credits identified in this paper going to those entities.
The extension of international credit to South Africa escalated sharply in 1975 and 1976 and, correspondingly, became a much more significant portion of total foreign investment in South Africa.' In 1974 international credit represented 15 percent of total foreign investment; in 1976 it had more than doubled to become an estimated 32 percent of total foreign investment. Between 1974 and 1976 private international bank claims on South Africa more than doubled; at
I An additional $1.7 billion had been committed to South Africa by private commercial banks but had not been disbursed as end-year 1976. (Campbell, Mary and Francis Ghiles, New data on LDC debt. Thr Financial 71mes. June 17, 1977, p. 32.)
2 U.S. Export-linport Bank exposure in South Africa was $205 million in April 1977.
3 Medium-term credits have a maturity of one to five years and long-term credits a maturity of more than 5 years. These two loan categories, frequently referred to jointly as "term-lending," are generally utilized by the borrower for development purposes. Short-term lending refers to credits with a maturity of one year of less. Such credits are typically used by the government for balance of payments purposes and by private borrowers to finance trade. Of the $7.6 billion in international bank lending to South Africa an estimated $5 billion is term4ending and an estimated $2.6 billion is short-term credit. (See Tables 1, 4, 5, and 6)
4 Foreign investment is made up of "direct investment," which is typically multinational corporation ownership of overseas subsidiaries, and "non-direct investment," which is typically international credit indebtednesss) and ownership in a form which does not permit control, for example, holding a minority share of stocks, (See Chapter H.2)


end-year 1974 they were $2.7 billion, at end-year 1975 $4.8 billion, and at end-year 1976 [$7.0-$7.6] billion. In addition, IMF credits to South Africa increased from nil in 1974 to $94 million in 1975 to $459 million by end-year 1976. Figures on outstanding bond debt are not publicly available. In essence, international credit became a major component of total foreign investment in South Africa by 197576.
Economically, international credit, particularly commercial bank credit, was of great importance to South Africa during the 1975-76 years, covering the cost of the sizable current accounts deficits incurred due to the governments economic and "strategic investment" programs." New international bank credit disbursements during 197576 were at least $4.3 billion or a sum greater than the $4.1 billion current accounts deficits for those two years. Net international bank loans: V.S. billions
1975- -$2. 1 1976- -2. 2
Total- -4. 3
Current account deficit:
1975_ 2.4
1976-------------------------1. 7
Total- --4. 1
Politically, international credit provided the margin of funds needed by South Africa in the 1974-76 years to increase its economic and strategic self-sufficiency through infrastructure development implemented by government public corporations and through helping to offset the increased costs of oil and defense imports. Oil and defense import costs quintupled between 1973 and 1976, from an estimated near $400 million in 1973 to an estimated $2 billion in 1976. These cost increases alone constitute approximately one half of the current accounts deficit for 1974-76 and can be said to have been covered by government short-term borrowing in international money markets. These purchases enabled South Africa to continue its oil stockpile buildup, now estimated to cover two or more years of consumption, and to significantly increase its military capability. In an April 1977 statement Prime Minister John Vorster stated to the South African National Assembly that "South Africa has made the best preparations possible not only in getting the necessary weapons, but also in stockpiling strategic materials."
Public corporation infrastructure development was substantially aided by the $2.5 billion in international term-lending credit commitments duing 1974-76 which are identified in this paper. Of particular significance is the use of these credits to pay for the heavy
I Tfhe 1975 and 1976 figures are from the Bank for International Settlements (BIS) Annual Reports. The 1976 figure from Ihe BIS Annual Report is $7.0 billion. However, The Financial Times reported on June 16 1hat the BIS had circulated an unpublished report to central banks which gave a 1976 end-year figure for South Africa of $7.6 billion. (Campbell, Mary. op. cit., p. 32.) The larger figure is based on a special survey done by the BIS and included reports from some non- U.S. bank offshore operations as well as more coi,lete data which are not picked Ip in their regular reporting system. In this paper the $7.0 billion figure will e used when trends and comparisons are being discussed as this figure is based on the same reporting system as that from which the 1974 and 1975 figures were obtained. When discussing end-year 1976 or 1977 data or issues th $7.6 billion figure is used. While this is less than satisfactory the use of $7.0 billion permits a more accurate selse of trends while $7.6 billion more accurately represents end-year 1976 indebtedness [It can also be assumed I hat the 1974 and 1975 figures are understated.]
"Strategic investment" is the author's term and not an official South African designation. (See p. 50.)


capital. goods imports, and accompanying transfer of technology, which are critical to the growth and modernization of the economy. The g _' government public corporations which were the beneficiaries of these credits are responsible for, and have a virtual monopoly on, the nation's transportation, communications, energy and steel production capability, all important to the, national defense as well as the national economy.
The. -notable success which South Africa achieved in the 1974-76 period in modernizing its infrastructure and in its oil and military equipment import programs may be viewed as the implementation of a policy of strategic investment." South Africa's oil stockpiling may also be viewed as encomically prudent as well as strategically important, and the infrastructure development that has taken place represents normal growth under conditions of more or less normal (i.e., non-strategic) economic development.
The basic finding of the first two sections is that, regardless of whether policy is interpreted as being tilted towards strategic investment or economic development, international credit filled the gap in foreign exchange financing which South Arfica needed to cover its increased oil arid defense imports and new infrastructure development costs and thus directly supported the South African Government in its desire for greater economic and strategic self-sufficiency.
The United States Government is in the process of formulating a policy program to give effect to its stated opposition to the apartheid law and policy of the South African Government. Within this context international credit is being examined as a potential instrument of policy. An assessment of the degree to which South Africa is reliant upon international credit is a first step in determining the potential strength of this instrument.
It would appear that South Africa is more dependent upon international credit than ever before. The security requirements which stimulated the strategic investment program are appreciably greater. The economy is moving into its fourth7year of decline and investor confidence is likely to be further reduced if international credit is withheld. Foreign direct investment-the principal force behind economic grrowth-has all but ceased. Finally, in 1977 there is the immediate need to repay $3.4 billion in maturing international bank claims.
Despite this need, U.S. commercial banks and reportedly some European banks as well have not extended term loans to South Africa in 1977 although short-term credits continue to be granted. Private bank sources state that their decision to hold term-lending in abeyance is due almost wholly to the political risk associated with apartheid rather than to concern about the South Africa economy which is considered fundamentally stron .
Partly as a result of the decision of these banks to withhold term loans, the government of South Africa adopted a 1977/78 budget and a 1976-81 "Economic Development Program-me" based upon a sharply reduced flow of international credit. In essence, South Africa, which sought to reduce its vulnerability to external pressures through a strategic investment program based on massive injections of international credit, has now adopted economic policies which


could reduce its vulnerability to external pressures based on international credit.
. South Africa's commitment to apartheid, its decision not to exchange its political goals for continued access to longer-term international credit-s-, and the adjustments it is making in its economic policies. do not, however, negate its demonstrated need for internationA.1 credit. International credit is a potential instrument of UPS. Government policy at this time because the 1974-77 economic recession and the 1976-17 political demonstrations in South Africa have reduced its political *insularity and its economic vitality. It has therefore, made access to international credit an important ingredient in creating the conditions and the confidence which the government needs to support viable solutions to its political and economic difficulties.

(By William N. Raiford, Analyst in Foreign Affairs, Foreign Affairs and National
Defense, Congressional Research Service, The Library of Congress, August 12,
The relationship between international credit suppliers and South Africa is characterized by its spread, depth, and interacting relationships. Spread refers to the number of financial institutions with exposure in South Africa; depth refers to the level of exposure of individual institutions. Interacting relationships refers to both (1) the dual membership of individuals who serve as board members of banks that lend to South Africa and as board members of multinational corporations with direct investments in that country, and (2) the joint interests of private and public United States, European and international. creditors with financial commitments to South Africa.
There are three points to be noted about the structure of commitment-spread, depth, interacting relationships-of the multinational banks and official lending institutions and their credit relationships with South Africa.
One,,a few major banks in each country-the United States, Canada, Great Britain, Germany, Switzerland, France, Italy and the Benelux countries-play a lead role as managers and investors in making decisions on credit arrangements with South Africa. This gives focus, with respect to decision-making, to what otherwise would be a diffuse pattern of lending decisions.
Two, this structure of commitment creates a significant degree of interdependence, or at least common interest, between the banks and the government-led political economy of South Africa.'
Three, these relationships represent a familiar practice in the world of international finance and are in no way unusual or irregular.

Many of the largest banks of North America and Europe are South African creditors. The common practice of having numerous underwriters for bond issues and of seeking subscriptions from smaller banks for multimillion dollar bank loans suggests that many more
I Government-led has two meanings here. One, the South African economy is becoming increasingly a government economy in the sense that government investment, as a percentage of gross domestic fixed investment, has increased from 35 percent in 1950 and 43 percent in 1970, to 53 percent in 1976; (The first figure is from Houghton, D. Hobart. The South Africani Economy. Capetown, Oxford U. Press. 1976. p. 207. The latter two figures are based on data from the South African Reserve Bank (SARB) Quarterly BulletoD, March 1977. Pretoria: SA RB. p. 8-75) Two, most publicized credits went to the government sector, suggesting that the relationships described are primarily with the South African government and only secondarily with the private sector.


institutions (some hundreds) in the United States alone have some exposure in South Africa.
Bond issues
Tables 1, 2, and 3 identify the institutions which managed South African Government bonds issued from 1972 through 1976. Forty-six institutions served as managers of these issues. Of these, seventeen, based in seven countries, were among the 20 leading Eurobond managers of internationally syndicated issues in 1976. (See Exhibit I, p. 40) The prospectus of the most recent publicly placed South African Eurobond issue (See Exhibit II, p. 40) demonstrates that, in addition to the major institutions identified in the Tables, numerous other institutions as well have been active in handling South African issues. Ninety-four underwriters, based in fifteen countries, participated. Kidder Peabody International Limited, a wholly owned affiliate of Kidder Peabody and Co. was one of the five lead. managers; seven of the ninety-four institutions were U.S. firms; and at least eleven others were U.S. bank branches, subsidiaries of consortia with U.S. bank membership.
Term lending
Table 4 identifies the publicized Eurocurrency credits extended to South Africa from 1974 to 1976. Thirty-five banking groups are listed as lead managers, eight of them U.S. banks. Tables 5 and 7 include six additional firms which have extended term loans to South Africa.
Identification of the lead managers, as in the underwriting of bond issues, gives only a small fraction of the number of institutions which participate in these credit agreements. The practice of seeking subscriptions-agreements by other banks to take a position on a loanpermits smaller banks to participate in Eurocurrency credit agreements. In the U.S. it is estimated that hundreds of smaller banks so participate.2 Recently eight such banks were cited as deciding to no longer participate in loans to South Africa.$
Table 8 lists the 21 largest U.S. banks and their exposure (as a group) in South Africa at end-year 1975. Although many of these banks are not specifically identified as making term loans to South Africa the total exposure in each of these categories is sufficiently large to indicate that most or all of them would have participated.
Table 21, U.S. Export-Import Bank Discount Loans (South Africa) lists 41 U.S. banks which have extended credits to South Africa. Twenty-four of these banks are in addition to those listed in the above categories.
Short-term credits
Table 8 also gives the short-term exposure in South Africa of the 21 largest U.S. banks at end-year 1975. The fact that the $373 million recorded as being loaned from among the 21 largest banks is substantially smaller than the $545 million 4 in total short-term exposure
I These banks are not publicly identified and so are not listed in the tables in this study.
3 Cooper, Wendy. "Debato on Bank Loans to S. Africa Rekindled." The Journal of Commerce. Feb. 11 1N77, p. 1. The banks listed are Central National Bank of Chicago; Wells Fargo, N.A.; Merchants National Bank and Trust, (Indianapolis); Marlyand National Bank; Wachovia Bank and Trust (Winston-Salem); City National Bank (Detroit); First National Bank (Louisville); and First Pennsylvania (Philadelphia). Federal Rrsere Bulletin. March 1177. p. A60.


by U.S. banks in South Africa at end-year 1975 further indicates that a much larger number of U.S. banks than those listed in the Tables participate in short-term lending to South Africa.
Twenty private financial institutions have participated in six or more of the identified credit agreements with South African entities indicating a sizable exposure in that country on the )art of each of these institutions. They are (1) U.S.-Citibank, -Manufacturers Hanover Trust, Morgan Guaranty, Kidder Peabody; (b) Germany-Westdeutsche Landesbank Girozentrale, Commerzbank, Dres(tner Bank, Deutsche Bank, Beiliner Handels and Frankfurter Bank [B-H-F]; (c) England-White Weld Securities, Hill Samuel, Strauss Turnbull and Co., Barclays Bank International Ltd.; (d) FranceCredit Commercial de France, Credit Lyonnais; (3) BelgiumKredietbank, N.V., Bondtrade; (f) Netherlands-Algemene Bank Nederland, N .V.; (g) Luxembourg-Kredietbank Luxemboureoisie, S.A.; (h) Switzerland-Union Bank of Switzerland (see Tables 9 aDd 10).
In addition to the term-loans identified, the commercial banks in these Tables would typically have also extended short-term credits to South Africa. Table 8, which shows short-term and medium-term exposure of major U.S. banks in South Africa, shows that the category including the U.S. banks listed above had twice as much short-term as long-term exposure in South Africa.
A cursory view of institutions and their directors indicates a mutuality of interests between the banks and investment banking houses of different nations and also between these credit institutions and their nations' multinational corporations with direct investments in South Africa. Official financial institutions which extend credit add a further dimension to these relationships both in their credit commitments and in this demonstration of support for lending by the private banks.
An examination of 15 major U.S. multinational corporations with direct investments in South Africa showed that 23 members of their Boards of Directors also served on the Boards of 11 of the financial institutions identified in the Tables as lenders to South Africa. (See Exhibit IV, p. 43.) Approximately one-half (47 of 90) of the Board members of the four major U.S. banks which lend to South Africa also serve on the Boards of corporations with direct investments in South Africa. (See Exhibit III, p. 42.) This typical pattern of U.S. interconnected corporate leadership would be more pronounced in European countries, particularly Germany and Switzerland, where a closer relationship exists between the major banks and corporations. Official financial institutions
The International Monetary Fund (IMP) and the trade expansion credit agencies of various nations play an important role in the
2- 7 4 --- 7 -3


credit relationship with South Africa through direct lending, the insurance and guarantee of credits, subsidizing interest rates and discounting loans.
The International Monetary Fund provided South Africa with credits of $94 million in 1975, $365 million in 1976 and $89 million through mid-i 977. These credits represented drawings by South Africa on its credit tranches 5 with the exception of $186 million from the IMF's Compensatory Financing Facility which provides credits at concessional rates for the purpose of strengthening export capability. IMF credits are supplements to, and not a primary source of, international credit. But IMF credit availability can be particularly important to a country, as it has been to South Africa in the last two years. South Africa is eligible for another $267 million line of credit under IMF stand-by arrangements if it chooses to negotiate such an agreement, beginning in the latter half of 1977.
Trhe Export-Import Bank of the United States insures, guarantees and discounts credits which finance U.S. trade with South Africa. The insurance and guarantee programs represents exposure (total exposure as of April 18, 1977 was $205 million) while the discount loan program provides greater liquidity for U.S. commercial banks which have assumed the risk inherent in exposure. Table 21 sets out the discount loan program and identifies those loans which have also been guaranteed or insured. Table 11 sets out the new authorizations for insurance and 'guarantee programs of the Ex-Im Bank for 1972 through 1976. (The other U.S. Government agency extending credit to South Africa is the U.S. Commodity Credit Corporation. (See Table 12, p. 39).)
European government trade expansion credit agencies such as Great Britain's Export Credits Guarantee Department, Germany's Hermes Kreditversicheru-ngs Aktiengesellschaft and France's COFACE (Compagnie Frangaise d'Assurance pour le Commerce Ext6rieur) provide services similar to those of the Export-Import Bank of the United States.
Tables 1-6 indicate the extent of South African borrowing over the past five years in the international capital market. Because many banking transactions are confidential and reporting requirements vary from country to country these data should not be assumed to be either complete or comprehensive.6
(i) South African Government Borrowers are abbreviated in the Tables as follows:
Abbreviation in table and full name:
RSA-Rep ublic of South Africa.
ISCOR-South African Iron and Steel Corporation.
ESCOM-Electricity Supply Commission.
SABC-South African Broadcasting Corporation.
SARH-South African Railways and Harbours Board.
IDC-Industrial Development Corporation.
P & T-The Department of Posts and Telegraphs.
5 Tranceo-a portion of a total credit to be disbursed in a series of payments. I The following quotation from "Internaitional insider," an investor's newsletter dated November 24, 1975 is Instructive: "in conditions of strict secrecy South Africa is raising substantial amounts of short. term (up to three years) money, according to informed banking sources. Most of these deals are being provided on a single bank basis."


SOF-Strategic Oil Fund.
SASOL II-South African Coal and Gas Corporation.
J'burg-City of Johannesbeurg.
(ii) The term "Other Nationality" in the Tables refers to institutions which are not U.S. based and are not branches, affiliates, or subsidiaries of U.S. firms. The capital letter which precedes the "Other Nationality" entry refers to the country in which the institution is found, i.e., (S) denotes Switzerland:
(Ba) -Bahamas.
(iii) Currencies are abbreviated as follows:
$-Dollar or Eurodollar.
SwF-Swiss franc.
DM-Deutsche mark
EMU-European Monetary Unit.
G-Dutch florin
-British pound.
(iv) The sources for Tables 1 through 6 are found on page 37. Where there are gaps in the Tables the information was not available in the listed sources.
(v) Eurodollars are dollars on deposit in banks outside the United States. Eurocurrency refers to any currency on deposit in banks outside the country of origin. Eurobonds are bonds sold in foreign (one country) and international (more than one country) markets. Eurocredits, as used in this paper, refers to Eurobond and Eurocurrency, including Eurodollar, credits.
(vi) LIBOR is an acronym for the London Interbank Offer Rate which is the rate paid by prime banks in the London interbank market. LIBOR+ is the prime rate plus the percentage listed in the Table.



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Tables 1 (B and C), 2 and 3 adapted from the following sources:
"Publicly Issued Foreign and International Bonds, by County of Issuer", (Volumes for 1972, 1973, 1974, 1975.) International Bank for Reconstruction and Development, International Finance Division.
"Borrowing in International Capital Markets," (Volumes for 1st, 2nd 3rd and 4th Quarters, 1976) World Bank Documents EC-181-761, EC-181-762, EC-181-763, EC-181-764) International Bank For Reconstruction and Development, International Financial Division.
"Privately Placed Foreign and International Bonds by Country of Issuer", (Volumes for 1972, 1973, 1974, 1975.) International Bank for Reconstruction and Development, International Finance Division.
"Emprunts Internationaux Au Cours du Premier Trimestre", 1972 (And for Deuxieme Troiseme, Quatrieme Trimestres, 1972; and for 1973, 1974, 1975 and 1976). Federation Bancaire de la Communaute Economique Euro peenne: Secretariat MC.
"International DM Bonds." Deutsche Bank Aktiengesellschaft.
Frankfurt. Oct. 1976
"The International Bond Guide, 1976 Year End Prices". White Weld Securities. London: December 1976.
Tables 1(A), 4, 5 and 6 (International Credit )adapted from the following sources:
"Borrowing in International Capital Markets: Publicized Eurocurrency Credits 1973-75." World Bank Document EC-181 Supplement. 1976 International Bank for Reconstruction and Development. International Finance Division.
"Borrowing in International Capital Markets: Foreign and International Bond Issues and Publicized Eurocurrency Credits." (1st Quarter 1975 through 4th Quarter 1976). World Bank Document EC181-751. International Finance Division, International Bank for Reconstruction and Development.
"Role of Recent Loans in Strengthening the Apartheid Regime in South Africa." United Nations General Assembly Document A/AC. 115/L.448. Special Committee on Apartheid, Nov. 10, 1976.
Financial Mail, Jonannesburg. July 2, 1976 and Nov. 12,1976.
South African Digest, Pretoria. Oct. 15, 1976.
Financial Times, London. Dec. 3, 1976.
TABLE 7.-IDENTIFIED CREDITS TO SOUTH AFRICA 1974-76 [In millions of U.S. dollars]
1974 1975 1976 1974-76
Publicly issued to public borrowers ---------------- 50 185 25 260
Private placements to public borrowers 20 212 59 291
Total, bonds identified ------------------------- 70 397 84 551
Eurocredits to public borrowers ----------------------- 598 406 576 1, 580
Other credits to public borrowers------------------------------------------- 946 946
Eurocredits to private borrowers ---------------------- 151 141 152 444
Total, bank lending identified- .................749 547 1,674 2, 970
Total --------------------------------------- 819 944 1,758 3,521
Source: Compiled from credit commitments identified by author in tables 1-6. Conversion into dollars was done at March 1977 rate which would be amount of foreign exchange required as of that date. Currency units were converted at 0.5821 British pounds, 1.227 European monetary units, 2.3885 deutsche marks, 2.5400 Swiss francs and 2.4900 Dutch florins to the dollar.


[in millions of U.S. dollars]

Total Short term Medium

Group 1-6 largest banks: Bank of America, Citibank, Chase Manhattan,
Manufacturers Hanover, Morgan Guaranty, Chemical Bank ------349 265 129
Group 11-2d largest 6 banks: Continental Illinois, Bankers Trust, First
National Bank of Chicago, Security Pacific, Wells Fargo, Crocker--- 175 82 93
Group Ill-3d largest 9 banks: Irving Trust, Mellon BankI United California Bank, First National Bank of Boston, National Bank of Detroit, Marine Midland, New York, Republic National Bank of Dallas, First
National Bank of Dallas, European American Bank & Trust ------151 26 125

Total -- - - - - - - - - - - - - -720 373 347

Adapted from: U.S. Congress, Senate, Committee on Foreign Relations, Multinational Corporations and United States
Foreign Po'licy, pt 15, 94th Cong., 1st sess. Washington, U.S. Government Printing Office 1976, pp. 128, 129, 130, 133.


Bank and borrower Year (million Maturity Years
U.S. dollars) remaining

ISCOR -------------------------------------- 1974 100 10 7
ISCOR -------------------------------------- 1975 50 15 13
Johannesburg Consolidated Investment------------- 1975 37 5 3
lOC----------------------------------------- 1975 10 ----------------------ESCOM ------------------------------------- 1975 30 86
ESCOM ------------------------------------- 1976 200 5 4
ISCOR -------------------------------------- 1976 80 5 4
SABC ----------------------------------- 1976 20 5 4
RSA----------------------------------------- 1976 110 5 4
Richards Bay ----------------------------- 1976 130 5 4
Manufacturers Hanover:
General Mining & Fiac------------1974 85 5 2
SA Marine op---------------1974 20 7 4
ESCOM ------------------------------------- 1975 35 8 5
ESCOM ------------------------------------- 1975 40 15 15
ISCOR ---------------------------------- 1975 30 8 6
ESCOM ------------------------------------- 1976 200 5 4
FOSOR-----------------------1976 30
Morgan Guaranty:
ESOM----------------------1975 30 8 6
SAKH---------------------------------------- 1975 75 5 3
SARH---------------------------------------- 1976 75 5 4
ESCOM ------------------------------------- 1976 200 5 4
RSA----------------------------------------- 1976 110 6 5
Rand Mines---------------------------------- 1976 15 6 5
Chase Manhattan:
ESCOM ------------------------------------- 1976 200 5 4
ESCOM ------------------------------------- 1976 80 5 4
ISCOR-------------------------------------- 1976 80 5 4
RSA----------------------------------------- 1976 25 15 4
Kidder Peabody: 1
RSA ---------------------------------------- 1972 25 5 1
RSA----------------------------------------- 1972 25 15 11
RSA----------------------------------------- 1972 25 15 11
An go-American------------------------------- 1974 50 5 0
ESCOM ------------------------------------- 1974 15 15 12
ESOM----------------------1974 35 15 12
[50DM ------------------------------------- 1975 30 8 6
ESCOM ------------------------------------- 1975 25 5 3
RSA----------------------------------------- 1976 25 5 4

1 This table represents participation, not current exposure. Typically, these institutions might take a position on ariproximately 10 percent of the total local commitment. At end-year 1976 the 4 commercial banks listed had $55,000,000,000 in international credits outstanding. ("Less-Developed Countries Pose Question for Regulators," New York Times. May 17, 1977, sec. 3, p. 1). Using the 10-percent criteria, the exposure of these banks in South Africa would represent less than 6 percent ot' their outstanding international commitments.


Value of
Number of total credit
commitments in which
in which participant
institution is (mllion
Country and institution a par ticipant U.S. collars) I

Westdleutsche Landesbank Grenre-------- -----------11 584
Commerzbank A.G------------------------------------------------------ 14 517
Dresdner Bank A.G------------------------------------------------------ 9 466
Deutsche Bank -------------------------------------------------------- 11 507
Berliner Handels-und Frankfurter Bank (BHF----------------6 239
White Weld Securities---------------------------------------------------- 10 347
Hill Samuel------------------------------------------------------------ 9 317
Strauss Trunbull & Co --------------------------------------------------- 7 170
Deltec Trading Co. ,Ltd--------------------------------------------------- 5 120
Barclays Bank International, Ltd-------------------------------------------- 6 357
Credit Commercial de France---------------------------------------------- 15 643
Credit Lyonnais--------------------------------------------------------- 9 413
Paribas--------------------------------------------------------------- 5 142
Societe Generale-------------------------------------------------------- 4 121
Banca Commerciale tain..-------------- --------4 117
Banco dle Roma--------------------------------------------------------- 4 166
Kredietbank Ny--------------------- -----7 327
Bodtad-------------------------------------7 170
Netherlands: Algemene Bank Nederland N.V -------------------------------------- 8 227
Luxembourg: Kredietbank Luxernbourgeoisie S.-----------------14 457
Switzerland: Union Bank of Switzerland ----------------------------------------- 13 349

1 The actual participation of each bank would probably be approximately 10 percent of the total credit identified. Thus, Westdleutsche Landesbank participated in $584,000,000 in identified credits with their poi tion likely being approximately 10 percent or $58,000,000. See footnote, p. 38.
Source: Tables 11to 6.


Insurance Guarantees Total

Fiscal year:
1972---------------------------------------------------- 38.2 105.1 143.3
1973---------------------------------------------------- 40.5 40.2 80.7
1974---------------------------------------------------- 60.5 39.2 99.7
1975---------------------------------------------------- 82.4 79.6 162.0
1976 --------------------------------------------------- 141.7 63.7 205.4

Source: See source, table 12.


Total South
program Africa

Fiscal year:
197---------------------------------------371.6 9.7
1973--------------------------------------------------------------- 1,028.5 10.6
1974---------------------------------------------------------------- 297.6 2.5
1975---------------------------------------------------------------- 248.6 11.2
1976 (June 1)-------------------- -----554.0 12.2

Source: U.S. Congress, House, Committee on International Relations, Resource development in South Africa and United States policy. hearings, 94th Cong., 2d sess., Washington, U.S. Government Printing Office, 1976, pp. 383 (table 11) and 384 (table 12).



Total (in U.S. of issues
million Number a^ lead
Manager equivalent) ofissues managers

1. Credit Suisse Wh"te Weld......................................... -------------------------------------$5, 882.99 107 18
2. Union Bank of Switzerland .............--- ....................... 5,506.03 102 6
3. Swiss Bank Corp ..............................................---------------------------------------- 5,424.53 100 2
4. Deutsche Bank ...............................................--------------------------------------------- 4,781.66 85 26
5. Westdeutsche Landesbank Girozentrale...---------------------------........ --.. 3,237.34 72 16
6. Kredietbank Luxembourgeoise ....----------------------------------- 3,031.03 71 3
7. Amsterdam-Rotterdam Bank.....................................------------------------------------ 2, S83.92 46 8
8. Banque de Paris et des Pays-Bas..---------------------------------........... 2,885.49 49 6
9. Commerzbank ....---------------------------------------------........ .. .... 2,736.35 52 8
10. S. G. Warburg --------------------------------------------- 2,583.99 48 19
11. Dresdner Bank................................. ...........--------------------------------------------- 2,163.92 53 11
12. Societe Generale de Banque..........----- ............................ 1,943.18 50 1
13. Societe Generale................................................ 1,942.08 30 4
14. Banque rthtionale de Paris.............................. 1,828.14 35 4
15. organ Stanley International----........------.....................--------------------------. 1,598.51 34 22
16. Wood Gundy... -----------------------------------------.... ....... .. 1,557.10 36 13
17. Credit Lyonnais...----------------------------------------------... 1,504.23 33 1
18. Algemrnene Bank...----------------------------------------------................ 1,467.22 31 6
19. Kidder, Peabody International-----------------------------------..... 1,261.34 20 7
20. Banca Commerciale Italiana------------------------------------------... 1,188.69 17 .......

I Includes only those issues for which a 2-way secondary market is maintained. Source: Adapted from Credit Suisse White Weld, Ltd., Dec. 31, 1976.
The sale of the Bonds was underwritten by the following financial institutions (the "Underwriters"):
Banque de Paris et des Pays-Bas.
Deutsche Bank-Aktiengesellschaft.
Union Bank of Switzerland (Securities) Limited.
Kidder Peabody International Limited.
Kredietbank S.A. Luxembourgeoise.
Girozentrale und Bank der osterreichischen Sparkassen AG.
Bahamas: Swiss Bank Corporation (Overseas) Limited.
Banque Bruxelles Lambert S.A.
Banque de Paris et des Pay-Bas Belgique S.A.
Continental Bank S.A.
Dewaay & Associes International S.C.S.
Kredietbank N.V.
Peterbroeck, Van Gampenhout Securities S.A.
Bermuda: Blyth Eastman Dillon & Co. International Limited.
A. E. Ames & Co. Limited.
Dominion Securities Corporation Harris & Partners Limited.
Greenshields Incorporated.
McLeod, Young, Weir & Company Ltd.
Nesbitt, Thomson Ltd.
Richardson Securities of Canada.
Wood Gundy Ltd.
Banque Francaise du Commerce Exteriour.
Banque Francaise de Depots et de Titres (B.F.D.T.)
Banquet de l'Indochine et de Suez.
Banque Nationale de Paris.
Banque de Neuflize, Schlilumberger, Mallet
Banque Rothschild.
Hunque Worms.
( redit Comimercial de France.
Credit Industriel et Commercial.
Credit Lyonnais.
Credit du Nord et Union Parisienne.


Lazard Freres et Cie.
Morgan Stanley International.
Societe Generale.
Societe Sequanaise de Banque.
Bankhaus Friedrich Simon KG.
Berliner Iandels-und Frankfurter Bank.
Commerzbank Aktiengesellchaft.
Deutsche Girozentrale-Deutsche Kommunalbank.
Dresdner Bank Aktiengesellschaft.
Effectenbank-Warburg Aktiengesellschaft.
Norddeutsche Landesbank Girozentrale.
Vereins-und Westbank Aktiengesellschaft.
Westdeutsche Landesbank Girozentrale.
Banca Nazionale del Lavoro.
Compagnia Finanziaria Intermobiliare S.p.A.
Istituto Bancario San Paolo di Torino.
Societa Finanziaria Assicurativa (SOFIAS) RAS Group. Luxembourg:
Banque Internationale a Luxembourg S.A.
Banque de Paris et des Pay-Bas pour le Grand-Duche de Luxembourg S.A.
Banque Populaire Suisse S.A. Luxembourg.
Compagnie de Banque et d'Investissements (Underwriters) S.A.
Credit Industfiel d'Alsace et de Lorraine.
Algemene Bank Nederland N.V.
H. Albert de Bary & Co. N.V.
Pierson, Heldering & Pierson N.V.
New Hebrides: Bank Gutzwiller, Kurz, Bungener (Overseas) Ltd. South Africa: Union Acceptances Ltd. Switzerland: J. Vontobel & Co. United States of America: Lazard Freres & Co.
Lehman Brothers Inc.
Loeb, Rhoades & Co.
Paine, Webber, Jackson & Curtis International S.A.
Smith, Barney & Co. Inc.
UBS-DB Corp.
Dean Witter & Co. Inc. United Kingdom: Bankers Trust International Ltd.
Baring Brothers & Co., Ltd.
Cazenove & Co.
Citicorp International Bank Ltd.
Credit Suisse White Weld Ltd.
Dillon, Read Overseas Corp.
European Banking Company Ltd.
First Boston (Europe) Ltd.
Robert Fleming & Co. Ltd.
Goldman Sachs International Corp.
Hill Samuel & Co. Ltd.
Kleinwort, Benson Ltd.
Lazard Brothers & Co. Ltd.
Manufacturers Hanover Ltd.
Morgan Grenfell & Co. Ltd.
Orion Bank Ltd.
N.M. Rothschild & Sons Ltd.
Samuel Montagu & Co. Ltd.
J. Henry Schroder Wagg & Co. Ltd.
Strauss, Turnbull & Co.
Sumitomo White Weld Ltd.
Tradition Securities Ltd.
S.G. Warburg & Co. Ltd.
Others: Merrill Lynch International & Co. Source: Republic of South Africa Bond Prospectus, January



Boards of directors of major U.S. bank lenders to South Africa whose members also
serve on boards of directors of corpora!ions with direct investments in South Africa
Corporation of which also
Multinational bank and member a board member
C has e Manhattan Bank, North
But cher, Willard C-------Firestone Tire & Rubber Co.
Conor, John T---------Allied Chemical Corp.; General Motors Corp.
Dilworth, J. Richardson---------- Chrysler Corp.
Furland, Richard M --------------Squibb Corp.; Olin Corp.; American
Express Co.
Jamieson, J. K -------------------Exxon Corp.
Lazarus, Rap---------General Electric Co.
Lilley, Robert D--------A.T. & T.
Myers, Charles F -----------------U.S. Steel Corp.; Burlington Industries, Inc.
Pratt, Edmund T.,Jr Pfizer, Inc.
Smith, J. Henry ------------------Colgate-Palmolive.
Stone, Whitney------------------American Express Co.
Citibank, North America:
Palmer, Edward L--------------- Borg Warner Corp.; Del Monte Corp.;
Corning Glass Works; Phelps Dodge Corp.
Costanzo, G. A---------Owens-Illinois Co.; National Cash
Spencer, William -----------------Phillips Petroleum Corp.
deButts, John D--------United States Steel Corp.
Garvin, C. C., Jr--------Exxon Corp.
Grace, J. Pee---------Ingersoll-Rand Co.; Kennecott Copper
Corp.; Deering Milliken, Inc.; W. B. Grace & Co.
Gray, Harry Jack---------Aetna Life & Casualty.
Hatfield, Robert S ----------------Kennecott Copper Corp.
Haynes, H. J --------------------Standard Oil of California.
Houghton, Aor--------Corning Glass Works.
Milliken, Roe---------Westinghouse Electric Corp.
Pigott, Charles M,----------------Standard Oil of California.
Rees, William ------------------- Chubb Corp.
Smith, Darwin -------------------Kimberly-Clark Corp.
Manufacturers Hanover Trust Co.:
William 0. Beers -----------------American Airlines; U.S. Steel.
Gabriel hlue---------Chrysler; Amax, Inc.
Henry 11. Hely--------American Express; General Electric.
WV. Barron ito--------Hilton Hotels.
William Lidor--------Pepsico.
J. Paul Lyt----------Sperry Rand.
John F. Mc ( illicuddy-------------Westinghouse.
George B. Munroe--------------- Johns- Manville; Phelps Dodge.
Robert WV. Sarnoff ----------------RCA.
F. Perry Wilson ------------------Union Carbide.
George Zif----------Champion Spark Plug.


Corporation of which also
Multinational bank and member a board member
Morgan Guaranty Trust Co. of New
Ellmore C. Patterson------------ Standard Brands.
Walter 11. Page-Kennecott Copper; Merck & Co.
J. Paul Austin_-Coca-Cola Export; General Electric.
It. Manning Brown, Jr ----------- Union Carbide.
Carter L. Burgess--------------- Ford Motor Corp.; IBM Corp.
Charles D. Dickey ---------------General Electric.
Walter A. Fallon_-Eastman Kodak.
Howard J. Morgens-_- General .Motors.
John P. Schroeder ---------------Phelps Dodge; Johns-Manviile.
Donald Procknow-------------_ Ingersoll-Rand.
George P. Schultz ---------------Bechtel.
Sources: Standard & Poor's Register of Corporations, Directors, and Executives, 1977; Now York, 1977; American Firms, Subsidiaries and Affiliates-South Africa (prepared by American Coiisulate General. Johannesburg, South Africa, May 1976); Rogers, Barbara. "White Wealth and Black Poverty," 1976, pp. 126, 289-96; Seidman, Ann and Neva. U.S. Business Interests in South Africa, unpublished paper.

Major U.S. corporations with investments in South Africa whose board members also
sit on the boards of major U.S. banks which lend to South Africa
Corporation and members Bank of which also a board member
Lee L. Morgan------------------ First National Bank of Chicago.
William Blackie -----------------Lehman Bros. (partner).
Rawliegh Warner, Jr -------------American Express International Banking Corp.; Chemical Bank.
Chrysler Corp.:
W. R. Hewlett ------------------Chase Manhattan Bank.
Gabriel Hague_-Manufacturers Hanover Trust Co.
Engelhard: Milton Rosenthal ---------European-American Bank & Trust Co.
Firestone: Willard C. Butcher--------- Chase Manhattan Bank.
Ford Motor Co.:
Carter L. Burgess--------------- Morgan Guaranty Trust Co.
Robert Delman-Citibank. General Electric:
J. P. Austin-- -Morgan Guaranty Trust Co.
C. D. Dickey, Jr_-Do.
H. H. Henley, Jr ----------- Manufacturers Hanover Trust Co.
W. B. Wriston_-Citibank.
General Motors Corp.: Jonh T. Connor- Chase Manhattan Bank. Goodyear: Reuben F. Mettler ---------Bank of America.
Frank T. Cary ------------------Morgan Guaranty Trust Co.
A. L. Williams---------- --------Citibank.
Gulf Oil Corp.: James H. Higgins .....-Mellon Bank; First Boston (Europe) Ltd.
Minnesota Mining & Manufacturing:
J. H. Binger---Chase Manhattan Bank. Mobil Oil Corp.: A. L. Williams -------Citibank.
Standard Oil of California: Harold J.
Texaco: Robert Roosa--------------- Brown Bros.; Harriman & Co. (partner); American Express International Banking Corp.
Union Carbide: R. M. Brown ---------Morgan Guaranty Trust.
Sources: Standard & Poor's Register of Corporations, Directors and Executives, 1977; New York, 1977; American Firms, Subsidiaries and Affiliates-South Africa (prepared by American Consulate General, Johannesburg, South Africa, May 1976); Rogers, Barbara. "White Wealth and Black Poverty," 1976, pp. 126, 49-96; Seidman, Ann and Neva. U.S. Business Interests in South Africa, unpublished paper.

23-748 S 4


International credits held by South Africa at the end of 1976 were at least $9 billion dollars. $7.6 billion was in private international bank loans,7 $459 million represented drawings from the IMF, and there was an estimated minimum of $1 billion indebtedness on bond issues.8
International credit suppliers' claims on South Africa at the end of 1976 represented approximately one percent of their worldwide claims. International bank claims on South Africa at the end of 1976 of $7 billion represented 1.3 percent of the $550 billion in total bank claims reported to the BIS and for international settlements (See footnote, p. 20). The South African Government has tapped a larger percentage of the Eurodollar markets resources having received $1.6 billion, or 3 percent, of the $51 billion in publicized Eurocurrency credits extended during 1974-76. South Africa sold $260 million of the $29.6 billion in Eurobond public issues, or one-tenth of one percent, during the same period.10 The $459 million draw on IMF credits represented 3 percent of the $14.3 billion in worldwide drawings on IMF facilities at the end of 1976.
The United States private banks held $2.2 billion of the $7.6 billion in outstanding bank claims on South Africa at end-year 1976. This $2.2 billion represented one percent of the $207.3 billion in liabilities owed by foreigners to U.S. Banks at that time." In recent years the United States has supplied nearly one-third of South Africa's bank credits with Europe funding most of the remaining two-thirds. There has been a trend towards the U.S. assuming a greater percentage of this credit relationship in recent years.1
South African borrowing was sharply up in the 1974-76 years, international credit as a portion of total foreign investment more than doubled during the same period, and there was a trend towards shorter-term maturities and higher interest rates. In contrast, there has been a sharp cutback in private source international credits for South Africa in 1977.
7 Campbell, Mary and Francis Ghiles. New Data on LDC Debt. The Financial Times. June 16, 1977. u. 32. The authors state that this figure--$7.6 billion-is given in a report prepared by the Bank for International Settlements. The Bank for International Settlements Annual Report for 1977 (See p. 5) gives an end-year 1976 figure of $7.0 billion.
9 The $1 billion estimate was derived as follows. Publicly issued bonds of $1.1 billion were sold in foreign and international markets between 1967 and 1976, almost all of which had maturities which ran into the early l9s0s. A substantial portion of this debt would remain outstanding. Although the record on private plwacements is incomplete more privately placed issues ($290 million) were recorded during 1974-76 than publicly issued bonds wittl ($251 million) were recorded during 1976that publicly issued bonds ($261 million). With certain knowledge f $1.4 billion in hbnd issues with maturities running into the early 1980s, and with the probability thit other unrecorded private placements were made prior to 1974, it would seem reasonable to assume a $1 billion miinimumn estimate of monies to be repaid on outstanding bond issues.
International Batik for Reconstruction and )evelopmnt.. International Finance Division. Calculated from data from sources noted on p. 37 and from data in "World Financial Markets." Moigan Guaranty Trust, March 1977. p. 1.
0 IS. Fortyv-S-oventh Annual Report. p. 120.
SWallich, Henry. Stateme wt b fore the l!ouse B:manking, Currency and Housing Subcommittee on Financial Institutils. March 23, 1977. p. 12. The $2.2 billion does not include loans granted by U.S. subsidiaries. Altlholgh subsidiaries are nt ive in the international capital market they typically arrange and manage syndicated loans with Ihe .S. parent or branch doing the finding. Federal Reserve Board officials suggest that if 1uhacidiary accounts were included the $2.2 billion figure would he only slightly higher. With respect to the i7. 3 billion waire, it is likely that it overstates end-use lending. For example, $23.9 billion was credited to offshore bam king ccnters and $11.4 billion to the ('unitled Kingdom. These centers are essentially banking 1) l p ts.
12 Private bo k sources and information from the Tables.


Private bank loans to South Africa accelerated hrlywithin the
1974-76 period, incr-easing from $2.7 billioii outstIandiitug- at, end-year 1974, to $4.8 billion outstanding at end-yecar 1975, to ,$7.0 billion outstanding at end-year 1976.13 Thus, from end-year 1974 to endyear 1976 bank lending to South Africa almost tripled in volume.
This volume increase in bank lending is reflected in its- more than doubling as a portion of total foreign investment in South Africa during the same two year period. Bank lending, as a percentage of total foreign investment was 15 percent in 1974 and an estimated, 32 percent in 1976."~
Tfhe significance of the doubling of international credit as a percentage of total foreign investment between 1974 and 1976 is that this represents an increase in the proportion of credit as opposed to ownership in the economy. The move towards liquidity appears to reflect investors perceptions that, in the long-term, South Africa is a less secure investment in 1976 than it was in 1974. Moreover, as the proportion of foreign investment shifts from ownership towards credit the indebtedness burden of South Africa increases. This means that the government must go to the international capital market for credit to a greater extent than earlier and it also presages heavier government participation in the national economy. The latter would be a continuation of a long-term trend in the economy (see p. 26).
Tables 1 through 6 show a trend towards shorter term maturities. $650 million of the $754 million in term-lending recorded in 1972-73 was for 10 or 15 years. Term-lending, during the 1974-76 period ranged from three to ten years with only one bond issue, in 1974, for 15 years. There was a trend towards shorter-term credits in the international market during these years, a trend which was more pronounced with respect to South Africa.
Sources also report a trend towards increased interest rates being required of South African borrowers as compared to others. This trend will intensify if the ratio of South Africa's short-term to its long-term debt becomes greater. It is normal practice to roll-over short-term debt which, in fact, may mean that short-term rates are paid for longer-term loans, i.e., the cost to the borrower is increased.
There has been a definite trend away from selling South African bonds through the Eurobond market during the past 18 months. The last publicly issued South African bond sold in the Eurobond market occurred in January 1976. Traditionally, the Eurobond market has been a source of funds for South Africa, but this market, attracting the most conservative lenders, has been all but closed as the perception of risk has increased. The market for private placements remains open, at least in Switzerland and England.'5
Is The trend with respect to South Africa is similar to the trend in worldwide lending. In testimony before the Senate Committee on Banking, Housing and Urban Affairs on March 10, 1977 Federal Reserve Board Chairman Arthur Burns noted the increase in U.S. bank lending to foreigners and attributed it tc "first, the enormous rise of financing needs around the world that was occasioned by the quintupling of oil prices;, second, the willingness of American banks to respcnd to those financing needs; third, the growth of multinational corporations and the internationalization of banking through the Eurocurrency markets." (U.S. Congress. Senate. Committee on Banking, IHousing, and Urban Affairs. Hearings. 95th Congress, 2d session. Washington. U.S. Govt. Print. Off., 1977. p. 40.)
14 The percentage calculations are bas.-d on the foreign investment figures found in Table 13, p. 50. The 1976 estimate is based on the 1975 figure for total foreign investment ($21 .3 billion) to which the net capital inflow of $525 million in 1976 was added.
1s Table 3; Rolfe, Richard "Heavy Demand on South African Bond Mfarket.'' The Financial1 Times, May 27, 1977. p. 31; anid table 3, p. 33.


As we have seen, bank lending continued strong through the end of 1976. However, U.S. bankers state that they and the European banks have cut back sharply on term-lending to South Africa although short-term loans, particularly trade financing, continues at earlier levels. 16 The World Bank reports that no publicized Eurocurrency credits or South African bond sales were recorded during the first two quarters of 1977. However, the first Eurocurrency term loan, a $60 million credit managed by Citibank, was reported in July 1977.17 And the first publicized Eurobond financing for South Africa since January 1976 occurred in July 1977 with the sale of a DM35 million for SARH managed by the B-H-F bank of Germany. It was a private placement with a maturity of "only three years and the coupon is 8% percent-more than any recent borrower has paid in this market for any longer maturities." 8

A majority of international credits extended to South Africa go to the government or government entities and a majority of these credits are longer-term instruments.
Statements by bankers and data from the Tables show that the government is the primary borrower of international credit. A total of $3.9 billion of the $4.3 billion in term-lending and bond sales identified in the Tables went to the public sector with the remaining ten percent going to the private sector. Over the same period twothirds of the total long-term capital inflow went to government entities. Moreover, a Citibank Vice-President, in Senate testimony, stated "I described our general loan portfolio. We tend to make specific loans to specific government agencies for specific purposes." 19
Although bankers' confidentiality inhibits precise ascertainment of the ratio of term-lending to short-term loans, the so-called longterm/short-term ratio,20 it would appear to be very near 2:1, i.e., $5.0 billion in term-lending, $2.6 billion in short-term credits.21 A debt structure which is weighted towards term-lending should not be surprising given South Africa's rich gold and mineral resource based export economy and the favorable investment climate which it provided until 1976.
1 Standard Ban : Reuitw (SRB). Standard Bank Investment Corporation Limited. Johannesburg. November 1976. Pages 7 8 state that "In recent months much of the finance raised abroad has been shortterm, that is for periods of less than twelve months."
_... Euromarket letter. The Financial Times. July 15, 1977. pp. 4-5.
Is Campbell. Mary. "Eurobonds: S. African rail DM35m. issue." The Financial Times. July 20, 1977. p. 20. U.S. Congress. Senate. Foreign Relations Committee. Hearings on South Africa. 94th Congress, 2d session. Sept. 30, 1976. Washington. U.S. Govt. Print. Off. p. 585.
20 Natiomial accounts data uses the term "long-term capital inflows." This would include medium-term lending as defined above.
21 This estinmle was derived as folk ws. $3.4 billion of South Africa's $7.6 billion in outstanding bank claims matures in i1977. This represents short-term credits plus amortization of term-lending. The difference between the 1to figures, $4.2 billion, is the minimum figure for term-lending. Assume that termn-lending is $5 billion. Table 4 shows that the average term-loan to South Africa has a maturity dateof 6 years. If we assume that this is azurt ized at an even rate it would require annual paymentscf$.8 billion. Thie $4.2 billion minimumI in term-lending, plus the $.8 billion in amortization, gives $5 billion as the estimated figure for term loas.

Gold and foreign investment have been fundamental factors of economic expansion in the South African economy for a century while international credit, traditionally of marginal importance, played a critically important role in the 1970s. Gold has been a stimulus for growth, a magnet for foreign capital and has traditionally paid for up to 50 percent of the nation's merchandise imports. Foreign investment, which averaged eight percent of gross domestic investment for the 1964-74 years, has provided the margin for economic growth and is identified with the transfer of technology into the most modern sectors of the economy: research, computers and heavy capital goods imports. International credit, particularly during the 1974-76 period, has provided much of the foreign funding for the government's development and security-related infrastructure projects and enabled the government to offset its increased defense and oil import costs. The local capital market has developed greatly in recent years but it does not have sufficient depth to provide the bulk of the investment capital needed for economic growth in South Africa.
During the 1974-76 period there was an important shift in the relative importance of gold and international bank lending and in international bank lending as a portion of total foreign investment. Gold sales, which had been equivalent in value to 35 percent to 50 percent of South Africa's post-war merchandise imports were equivalent to only 30 percent of merchandise imports in the 1974-76 period although total income from gold remained fairly constant. Over this same period international bank lending more than doubled, both in volume and as a percentage of total foreign investment. Thus, international bank lending both absolutely and relative to the contribution of gold, is assuming a larger portion of the funding of South Africa's investment needs.
Gold is the single most important factor in the South African economy. Gold sales during 1970-76 earned $16.4 billion in foreign exchange. equivalent to 40 percent of the cost of merchandise imports; during the same years it consistently constituted over 50 percent of the foreign reserve holdings of the South African Reserve Bank; and South African production (56 percent of world supply and 75 percent of the supply of market economies) gives it a near monopoly position in the market. The near monopoly position and


the unicrue quality of gold as a~n international standard of value' has; served to consistently attract foreign invest-1ors and lenders by
creating a favorable climate for investment and giving solidarity to the nations export base.
The dominant position of gold in the South African economy and the steady price it commanded in world markets until 1971 gave South Africa's economic authorities a powerful tool by which they could both stimulate and manage economic growth.2 When gold was detached from its dollar par value in 1971 it ceased to serve economic managers as a stabilizing force in economic planning. Since 1971 the free market price of gold increased from an average daily price of $58 an ounce in 1972 to an average $97 an ounce in 1973, and an average $159 an ounce in 1974.~ It has fluctuated from a high of $196 an ounce in 1975 to a low of $103 an ounce in 1976 and in April-May 1977 it held fairly constant at around $150 an ounce. Every change of $10 an ounce in the price of gold alters South Africa's earnings from that commodity by approximately $230 million.4
With respect to this study the critical importance of gold was its effect on South Africa's development decisions when earnings tripled as the price quadrupled between 1971 and 1974. South Africa's gold income averaged $1.3 billion dollars for 1971 and 1972, doubling to $2.6 billion in 1973, and reached a high of $3.8 billion in 1974.
Income from gold was the principal stimulant as well as financial base for the investment boom embarked on by the government in the rnid-1970s. This investment was further stimulated by strategic considerations following the oil embargo during the winter of 1973-74 and concern about the political stability and orientation in the neighboring territories of Angola and Mozambique after the Portuguese revolution in early 1974. From 1974 through 1976 South Africa has doubled its defense budget, built, up oil stockpiles and invested in infrastructure and research and development programs designed to make it less vulnerable to external political pressure.
I The unique quality of gcld was given an added dimension this year when South African Finance Mfinister IHorwood announced that his country would avail itself of an IMF ruling that nations could revaluie their gold reserves from the official rate to a more realistic market-related price. Theoretically, South Africa's gold reserves, valued at $43.5 milion at a $34 dollar an ounce price (SA RB, Dec. 1976 p. A63 and IMF Survey, Feb. 21, 1977), could achieve a near $2 billion dollar value if volume remains constant and the market price remains at its April-.May 1977 level of approximately $150 an ounce. Although this would be a bookkeeping increase it could give a psychological boost to a nation whose reserves were equivalent to only 1.5 months of average import costs in recent months.
There will also be a real income increase (through savings), in that, under a 1928 agreement it remitted to Mozambique 60 percent of the earnings of Mozambicans working in South African mines in gold at the official pie. When South Africa revalues; its gold the remittance will b, made at a market-related price. The differential could save South Africa an estimated $70 million per year in remitted wages.
2 The steady and sure growth of the South African economy is reflected in the average annual increase in real national income which has been estimated as follows: Percent
19M9-29 ---------------------------------------------------------------------------- 5.0
1949-59 ---------------------------------------------------------------------------- 5.0
1959-------9----------------------------------------------------------------------- 6.0
(Ilughton, op. cit., p. 39.)
3 U. S. Congress. U .S. Senate. Committee on Foreign Relations. Subcommittee on African Affairs. South Africa. Hearings, 94th Congress, 2d session. Washington. U.S. Govt. Print. Off., 1977 p. 109. 4'Morrison, Oodfrey, ed. "South Africa: Gold and Riots". Africa Confidential London, Vol. 17, No. 16, Aug. If), 1976. p. 5. The statement assumes a constant level of production, which South Africa will likely maintain in the immediate future.


Foreign investment was attracted to South Africa by the (fiscovery of gold and diamonds in the latter half of the nineteenth century and for ital and markets, have been essential ingredients in the
:_ ubesltantiaF growth and evolution of the economy since that time.' Since the early 1960s foreign investment has accounted for approximately eight percent of gouth Africa's gross domestic investment with "domestic savings providing the remainder". With respect to these figures the Director of Barcfays National Bank of South Africa stated:
I must point out immediately that . (these percentages) can be misleading in that they do not reflect the true extent to which we have had to rely on foreign investment (and in particular the know-how skills normally accompanying foreign investment) in respect of specific projects or specific economic sectors-and sometimes these can be key
projects and, industries.'
The fact that foreign investment represents 8 percent of gross domestic investment is significant in that it means that foreign investment has provided the margin for economic growth particularly ,since, as noted in the above statement, it is crucial for growth and development in key sectors of the economy.
Table 13 profiles the relationship of internatioDal credit (indebtedness) and foreign investment (ownership). International credit is found in the Non-Direct Investment category under Central Government and Banking (investment in foreign governments rarely represents ownership), and in the Private Sector categories of Debentures, LoanStock and Similar Securities, Mortgages and Long-Term Loans, and Short-Term (Loans). A part of Non-Direct Investment represents equity investment (ownership) and is represented in the Ordinary and Other Shares and Share Premium, Reserves and Undistributed Profits items.
Although this Table does not permit us to identify specific international credit items it does indicate that international credit is becoming a more important part of total foreign investment in South Africa. The International Bank lending portion of international credit represented 15 percent of total foreign investment in 1974 and an estimated 32 percent in 1976. If we add the bond and IMF, credit figures from Part 1, international credit represented an estimated 37 to 40 percent of total foreign investment at end-year 19762
6 The long-term importance of foreign capital is suggested by a major South African economist who states that "led by diamonds and gold, and misted by the vast inflow of capital from abroad, South Africa was (by 1936) able to break the vicious circle of poverty." (Houghton, op. cit., p. 38)
6 Director, Barclays National Bank of South Africa. From an unpublished 1976 speech entitled "The Outlook for South Africa's Capital Requirements", to the Annual Conference of the Associated Chambers of Commerce of South Africa.
7 With respect to U.S. foreign investment in South Africa by end-year 1976 its international bank lending of $2.2 billion was greater than U.S. direct investment of $1.6 billion.


The major national source of foreign *investment capital has been
and remains British 8 although there has been a trend towards greater
U.S. investment, particularly in the 1970's. In 1969 approximately
60 percent of South Africa's foreign liabilities were owed to Britain,
approximately 20 percent to other European countries and approxinately 14 percent 9 to the United States. By the end of 197.5 the
U.S. claimed 20 percent of South Africa's liabilities with the European
share, including Great Britain, dropping to approximately 70 percent.10
The U.S. percentage of total bank claims was even greater, 30 percent
($2.2 billion of $7.6 billion), at end-year 1976.11

[in U.S. millions

1973 1974 1975 estimated

Direct investment:
Central government and banking ---------------------------------- $246 $305 $275 (1)
Private sector -------------------------------------------------- 8,122 9,402 9,363 (2)
Total direct investment ---------------------------------------- 8,368 9,707 9,638 $9,638
Nondirect investment:
Central government and banking ---------------------------------- 1,567 2,068 3,529 3,877
Long term -------------------------------------------------- -- 964 1,327 1 953 2,112
Short term ------------------------------------------------------ 603 741 1: 576 1,765
Private sector --------------------------------------------------- 5,531 6,724 8,177 8,353
Long term -------------------------------------------------- 4,656 5,663 6,932 8,041
Ordinary and other shares -------------------------------- 477 459 397 (2)
Share-premium, reserves, undistributed profit ------------- 1,934 2,141 2,139 (1)
Debentures, loan stock, and similar securities -------------- 594 721 919 (2)
Mortgages and long-term loans --------------------------- 1,468 2,239 3,471 (2)
Other -------------------------------------------------- 185 185 178 (2)
Short term --------------------------------------------- 875 1,061 1,255 312
Total nondirect investment ------------------------------------- 7,098 8,792 11,706 12,230
Total foreign investment --------------------------------------- 15,466 18,499 21,344 21,869
International bank (2) 2,730 4,702 6,966
Bank claims as percent of foreign investment --------------------------- (2) 15 22 32

1 Estimates based on 1976 capital account figures from table 18. Note that public corporations are included under the private sector account.
2 Means not available.
Source: Adapted from SARB Quarterly Bulletin, December 1976, pp. S-64, S-65.

4 The Standard Bank of England, for example, was: "first at thp alluvial gold finds at Barberton and came with the pioneers to the great gold-mining industry on the Rand. For half a century and more it was both diamond and gold broker-buying and selling the stones of Kimberly, the gold of Barberton, of Lydenhurt. and of the Rand. Most early businesses of commerce and manufacturing of the colonies of the Cape and Natal and the Republic of the Transvaal were financed by it." (Clarke William. The City in the World EconomV. London: Penguin. 1067, pp. 48-49. (Quote from Financial Mail, P Johannesburg, Oct. 12, 1962.) 9 Houghton, op. cit., p. 39. Randal, Jonathan C. "Young's African Mission: Ending the Disbelief." The Washington Post. '-Nlay 30, 1977, p. B. This article states Britain's investment In South Africa to be $4.6 billion, that of France is $900 million and that of the U.S. is $1.6 billion. The $1.6 billion in U.S. direct Investwent had not ehanwed since 197.5. U.S. direct investment was thus approximately 17% of total foreign direct investment in 1147G. (Sve Table 14)
I,' SA It 11. T)ecember 1976. p. 37.
It See I)age 44.


jIn U.S. millions)

EEC Europe I Americas2 Other
1975 1975 1975 1975 1975

Direct investment:
Central Government and banking---------------------- $275 T205 $8 $14 $48
Private sector 3 ........ ......... .......... ......... 9, 363 5, 997 585 2, 343 337
Total direct inetet------------9, 638 6, 202 693 2, 358 385
Nondirect investment:
Central Government and bnig3, 529 1, 714 536 679 601
Longtem----------------1,953 1,208 104 611 30
Short tr-------------- --1,576 506 432 67 571
Private sector ------------------------------------ 8, 177 4, 866 964 1, 591 756
Long term --------------------------------- 6, 932 4, 367 834 1, 185 536
Ordinary and other shares --------------------- 397 236 68 46 4
Share-premium, reserves, undistributed profit --- 2, 139 1, 367 433 142 198
Debentures, loan stock, and similar securities. ---- 919 634 55 189 42
Mortgages and long-term loans----------------- 3, 471 2, 151 298 821 200
Other ------------------------------------ 178 96 8 5 68
Short term-----------------1,255 448 129 406 221
Total nondirect inetet---------11, 706 6, 580 1, 500 2, 269 1, 357
Total foreign ivsmn---- ------21, 344 12, 782 2,193 4,627 1,743

1 Assume that this is predominantly Switzerland.
2 Assume that this is predominatly United States and some Canadian funds. 3 Note that public corporations are included under the private sector account. Source: Adapted from SARB Quarterly Bulletin, December 1976, pp. S-64 and S-65.


The local capital market is well developed in terms of institutional sophistication and of meeting a significant portion of the nation's capital requirements. Gross domestic savings financed 92 percent of total domestic investment in the 1964-74 period 12 and in recent
years has consistently averaged 2.5 percent of gross domestic product (GDP)." Despite this notable savings record the local capital market is not of sufficient depth to meet South Africa's capital requirements if growth is to be achieved.'" The capital Shortfall was particularly notable in 1974-76 when South Africa's economic managers had to find large amounts of international credit to pay for their strategic investment program.

12 Director, op. cit.
13 'bid, and Suckling, John. TheNature and Role of Foreign Investment in South Africa; The Economic Factor. Uppsala: Africa Publicat ions Trust. 1975, p. 14. 14 The 1976 data suggest that South Africa does have the capacity to increase its savings but not, however, at a rate sufficient to reduce the need for foreign capital. The SARB Quarterly Bulletin of Decenmher 1976 noted that "Gross domestic saving increased in the third quarter to a level which was about 7 percent higher than the average quarterly level attained in 1975. Notwithstanding the increase in saving and the decline in investment at current prices in the third quarter, the level of domestic saving continued to be insufficient to finance total fixed and inventory investment." p. 9. (An important factor which inhibits saving capacity is the limited participation in the economy by a majority of South Africa's population. This narrow-based economy, which excludes 80 percent of the population from participating fully, is unlikely to generate the level of savings necessary to free itself from a dependency on foreign capital for development.)



South Africa's increasingly isolated policital position 15 is directly responsible for that nation adopting a political-economic policy of "strategic investment." 17 Through government public corporations and Funds,' South Africa has determinedly pursued the rapid development of its energy and defense capabilities, built up oil stockpiles,18 and continued to upgrade and expand its transportation and telecommunications network.'9 The Standard Bank Investment Corporation stated in 1976 that:
During the past five years the authorities invested large
sums principally in administration, post and telegraphs, railways and harbors and strategic research. Fixed investment by the public corporations was concentrated on mining and manufacturing, with emphasis on projects to exploit and beneficiate natural resources. Substantial sums were spent on oil exploration, phosphate development, colliery expansion and mining of industrial minerals and metals. In the manufacturing field semi-public sector projects were intended primarily to strengthen South Africa's strategic position by concentrating on oil technology, steel production, aluminum and uranium reserves, petrol refining and developing electricity, gas
and water utilities.20 [Italic added.]
The strategic investment policy is evident in the sharp increases in
(1) public corporation investment, (2) the defense budget, (3) defense and oil imports and (4) government consumption and expenditures. International credit was critical to this investment.

Government public corporations are the key element in the strategic investment policy and major borrowers in the international capital market.
t5 Significant events in the early 1960s were the Sharpeville incident, the break with the British Common wealth of Nations (1961) the U.N. arms embargo (1963) and the assumption of independence by many Afri can states. (See Kaplan, Irving, et al. Area Handbook for the Republic of South Africa. Washington: U.S Govt. Print. Off. 1971, pp. 641-42). The independence of neighbouring Marxist states-Mozambique (1974) and Angola (1975)--guerrilla warfare in Rhodesia and Namibia, the 1976 Soweto demonstrations, and publicity generated by anti-apartheid movements in the U.S. and Great Britain have intensified the sense of isolation.
16 The term "strategic investment" is the author's and is not a phrase which has been used by South African officials. South African Prime Minister John Vorster did state to the National Assembly in an April 20, 1977 speech that "South Africa has made the best preparations possible not only in getting the necessary weapons, but also in stockpiling strategic materials." This statement, plus the material presented in this chapter, may be accurately described as reflecting a policy of strategic investment. Also, the marginal cost of a project, for example SASOL's oil from coal project, may give an indication of the strategic nature of economic development efforts. SASOL is very expensive and would not be economically advantageous unless oil wer? more than double its present price. (Informant) It is of course true that the practices described in this chapter, with the exception of increased defense expenditurvs and imports, also represent a normal, and even desirable, process of infrastructure development. And the earlier decision to stockpile oil, appears in 1977 to be particularly prudent, both in normal economic as well as strategic terms.
'1 Two such funds are the Defense Procurement Fund and the Strategic Oil Fund. Monies are appropriated for these funds each year but the appropriation is hidden. In addition, monies from various other sources are reportedly channeled into these finds. Substantial balances have been built up in these funds (over many years which are used to pay for oil and defense imports. Fishlock, David. South Africa Energy. Unpublished report prepared for the Congressional Research Service of t he Library of Congreso. September 1976. p. 5 (see pp. 87-88)
1 The private sector, with :k strong input from foreign direct investment, contributed significantly to st rategic growth through the importation of capital goods, technology and training, particularly in the fields of computers, oil technology and transportation. See, Rogers, Barbara. White Wealth and Black Poverty. (;reenwood Press: Westport, Connocticut. 1976. Chpt. 4, pp. 123-169.
1 Standard Bank Review, Standard Bank Investment Corporation Ltd. Nov. 1976.


TABLE 15.-Publicized private source international credits to South African pubili borrowers (1974-76)
Republic of South Africa (S)------ ------------$6 15
Electricity Sup ply Commission (EC M---------------691
Iron & Steel Corp. (S R)----------- ---------7:31
South African Railways and Harbours (SAL{H)-------------625

Total (Government ette)-------- --------3,078
Private sector (South Afia--------------------444

Total reodd----------------------3f 521
1 Figures from Tables in Chapter I. This represents only foreign source financing. Government public corporations obtain much of their financing from South African sources. In 1976, for example, 60 percent (.f ESCOM's total credit requirements were filled by foreign borrowing. (South African Digest. June 24, 1977, p. 13.)

The volume of Government borrowing is also increasing rapidly.

TABLE 16.-Publicized pritiate source international credits to South African public borrowers (1972-76) 1
[In U.S. millions of dollars]
Government ette----------------- -----277
Total-------------------------------------------------------- (2)
Government ette----------------- -----477
Total819 Government ette----------------- -----668
Government entities------------------------------------------- 803
Total ------------------------------------------------------- 1, 758
Government ette..--------------- -----1, 613
1 Figures from tables in ch. 1. The total for government entities in table 15 ($3,078,000) does not equal the total for government entities for the equivalent period (1974-76) (total ($3,084,000) in table 16. The diff erence is due to rounding off numbers on the many individual loans.
3 Not available.

The $3 billion in identified foreign private bank term lending to the central government and public corporations in 1974-76 constitutes an important component of the $20 billion long-term expansion program 21 the government has undertaken in recent years, financing

21 Africa Research Bulletin (Aug. 15-Sept. 14, 1976, p. 998) printed the following list of major government projects scheduled for completion over the next five to ten years. The fixed cost for these projects totals $19.8 billion.
Project Billions
Sasol 11----------------------------------------------------------------------------- $2.3
P0 telecommunications-------------------------------------------------------------- 2.4
Containerisation-------------------------------------------------------------------- 2.3
Duvha power station---------------------------------------------------------------- 1.6
Natla power station ---------------------------------------------------------------- 1.5
Saldanhu semis plant -------------------------------------------------------------- 1.5
Koeberg nuclear power station -------------------------------------------------------- 1. 4
Iscor expansions-------------------------------------------------------------------- 1.3
Railways capital works-------------------------------------------------------------- 1. 3
Uranium enrichment plant ---------------------------------------------------------- 1.3
Sishen-Saldanha -------------------------------------------------------------------- .8
Richards Bay development --------------------------------------------------------Kriel power station------------------------------------------------------------------ .0
Drakensberg pump storage-----------------------------------------------------------.36
NW Cape power lines----------------------------------------------------------------.2
Residential areas Matla/Duvha/Kriel-------------------------------------------------- .-3
Sasol gasification plant -------------------------------------------------------------- .08
Transkei hydro-electric -------------------------------------------------------------- .05)
Cape Town pump storage------------------------------------------------------------ .04
Pretoria opera house----------------------------------------------------------------- 04
Foskor plant expansion-------------------------------------------------------------- .04


such of the heavy capital goods imports and new technology required for the modernization and expansion of the telecommunications network, the transportation and shipping system, and energy and steel production.
Energy, described by private banking sources as "the fundamentally weak link in the economy" has received special attention by South African authorities for some time.2 The South African Coal, Oil and Gas Corporation (SASOL), a pioneer in the conversion of coal into oil has entered a second stage--SASOL IL-with a $2.3 billion expanSion project. This project will be financed by export credits (20 percent of total), government appropriations (25 percent of total), and an estimated $300 million annually from the Strategic Oil Fund which will cover one-half of the cost of construction. The financing of export credits has reportedly been obtained. When completed, SASOL I and 11 and expected to provided oil equal to 40 percent of 1974 Consumption.*2
Other energy projects include a $1.3 billion dollar uranium enrichment plant and the $1.1 billion dollar Koeberg nuclear power station which is expected to take eight years to complete. The latter project is included in the $2.9 billion ESCOM plans to spend between 1975 and 1985 and a portion of its financing will be provided by a syndicate of French banks.2
The South African Railways and Harbours, Corporations (SA RH), which owns and manages the national railways, ports, and petroleum pipelines, is developing an integrated steel production, railway, and shipping expansion program at a projected cost of $5.7 billion. SAR1I is providing improved rail service from the coal mines of the Transvaal to Richards Bay and from an ISCOR from ore production facility to Sald anha Bay where a processing plant will produce semi-finished steel. ISCORs $2.1 billion dollar program (which will increase steel producing capacity by 7 million tons in 1978), the SARH ($1.3 billion) expansion which includes $800 million for the Saldanha plant and port project and $200 million for the Richards Bay port, and a $2.3 billionI port containerization project will greatly expand South Africa's export capability.26Trhe port and containerization projects are nearing completion and will give a major boost to South Africa's export potential.
22 Specifically, South Africa lacks oil reserves and is heavily dependent (92 percent) on other countries, particularly Iran, for its oil supplies.
23 South African Diaest. February 25, 1977. p. 4.
24 Standard Bank Review. February 1976. Johannesburg: Standard Bank Investment Corporation Ltd., p. 4.
2 5 Ibid.
26 Africa Rtsearcha Buletin, op. cit.. p. 998. The port projects were particularly important in that a lack of port facilities constituted ani export bottleneck.

The heavy commitment South Africa has m-ade on these projects places it squarely on the "treadmill of dIevelopmnent," i.e., major projects already undIerway and planned must be dleveloped1 in a coordinated, time conscious manner. The relationship of these projects to security requirements and to the expansion of exports (needed to repay the foreign debt incurred as a result of the expansion) will make it dlifficult to significantly cut-back or slow-down their further (ICvelopment. According to the U.S. Departments of State and Coininerce, government spending on these projects "was a major stimulus to imports of capital goods in 1975 and the first half of 1976 ..
The current projects are of such massive size that they will offer a continuing potential market for goods in the next few years." 2

A host of factors have provided the impetus for increased (defense expenditures. In general there is a growing awareness of the need for as much self-sufficiency as possible due to arms embargos and the increasing momentum of the overseas anti-apartheid movement. More specifically, local protest, the decision to intervene in Angola and the conclusions dIrawn therefrom, the independence of Angola and Mozambique, the Rhodesian civil war and the question of Namibia's independence have all served to increase security requirements.
The defense budget has increased from $688 million dollars in 1973 to $1003 million in 1974, $1230 million in 1975, and $1552 million in 1976, representing respectively, annual increases of 46 percent, 23 percent and 26 percent2 The (defense budge, o 97i 19blin
an increase of 23 percent over the proposed 1976 budget.
In 1976 the government called on its citizens to further assist in the defense effort through purchase of $138 million in defense bonds. The Minister of Finance justified this during this 1976/77 budget speech by stating: "Where Defense plays such a large part in this budget and where the defense effort commands much widespread support in our country, I think the time has come to appeal to all South Africans to make a voluntary financial contribution for this purpose." 129 Forty-two million dollars worth of bonds were sold
through October, and in December Barclays National Bank of South Africa purchased an $11.5 million issue.30 The Minister of Finance in his 1977 speech again called upon the public to purchase defense bonds, this time for $276 million.
27 Department of Commerce. Foreign Economic Trends and Their Implications for the United States January 1977. (Doc. no. 77-M04). Jan. 1977. p. 10.
28 Figures in rands 1973-1976 are 462, 692, 943, and 1350 million with increases of 46, 37, and 42 percent. The difference in percentage increase is due to differing exchange rates. In rands the defense budget tripled between 1973 and 1976. in dollars it slightly more than doubled. 29 Minister of Finance 1976/77 Budget Speech delivered Mlarch 1976. 38 The Barclays' purchase offers an interesting vignette in international bank operate ions and the political economy of South Africa. Barclays National Bank (,f South Africa accompanied the defense bond purchase with a statement to the effect that this reflected Barclays National Bank of South Africa's commitment to the country. This caused British anti-apartheid groups to protest to Barclays Inaternational in London. Barclays International noted that although it owned 6,3 percent of Barclays National Bank in South Africa, the latter was a South African hank, managed in South Africa, and with only five British citizens sitting on the 27 member Board of Directors. Although 63 percent ownership is held in Greal, Britain it is often the case that subsidiaries of multinational corporations/banks such as Barclays, are managed locally. (The Financial Times. Barclays NB in South Africa. Dec. 16, 1976.) 8' The Finance Minister stated in his March 1977 budget speech that "it was desirable to make it more attractive for the public to invest savings directly with the State, more especially, to help finance our defence effort. I trust that the new national defence savings bonds, with the attraction of substantial bonuses, will receive wide support. (South African Digest. op. cit., April 1, 1977. p.2.


Defense equipment and oil imports constitute a strategic investment of substantial magnitude which increased sharply during the 1974-76 period." Although specific figures are not available it would appear that a minimum of $2 billion dollars in foreign exchange would have been required to cover import costs in 1976. This estimate is based primarily on figures from South Africa's prestigious Bureau of Economic Research (BER) and the United Nations.
The BER stated in mid-1976 that "presently an outlay abroad of R1400 million ($1610 million) to R1600 million ($1840 million) per annum more than the 1973 figure is required to cover oil and military imports." 11 Elsewhere the same publication states that the import bill for oil has increased R700 million ($805 million).4 Although no years are given for the latter figure, we may assume that the period covered is since 1973 when the big oil price increase occurred. Assume the oil import volume in 1976 is held constant with 1975 import volume 11 (there was actually a recorded decline between 1973 and 1974), and multiply by the 1976 price per ton, a 1976 oil import cost of $1266 million or $974 million greater than the 1973 import bill, is obtained. The $974/$805 similarity suggests that 1973 is a reasonable estimate for the year referred to above.
If the $805 million is accepted as representing the oil portion of the $1610-$1840 million increase and the $1610 million figure is taken as the increase in oil and defense imports (in order to arrive at an absolute minimum figure), the defense portion would also be $805 million. The $805 million plus the defense import portion of the 1973 $688 million budget, which could reasonably be put at $195 million, would give a 1976 defense import bill estimate of $1 billion.36 Thus, it would appear that as a minimum, the oil and defense import bills each represented at least $1 billion in 1976, or a total oil and defense import bill of at least $2 billion.
If we deduct from this $2 billion total, the minimum increase of $1610 million, as reported by BER, which represents the increase in the costs of oil and defense imports between 1973 and 1976, we arrive at a 1973 oil and defense import bill of $390 million. Thus, oil and defense import costs between 1973 and 1976 appear to have increased 500 percent. It should be emphasized again at this point that these are estimates and that they are based on a number of stated assumptions. However, regardless of the exact portion of this minimal $2 billion bill which goes to oil and the exact portion which goes to defense, it is clear from the BER stated increase of $1610-$1835 million over 1973 and the oil import costs from Table 17 that the increase in both oil and defense import costs, has been dramatic.
11 Table 17 shows little change in the volume of oil imports since 1972. The increase in oil was due to price, not volume. The increase in defense was due to both price and volume. 83 Bureau for Economic Research (BE R. A Survey of Contemporary Economic Conditions and Prospects for 1977. (Prepared by A.JM. De Vries and Senbank Economic Services.) University of Stellenbosch Sept. 1976. p. 2.
Ibid., p. iii.
35 See footnote I.
3' "The government has had to iocreawe defense spending by 40 percent (1976 rand increase)-two thirds of whiich ja spent abrowl-arid its oil import bill has gone up 500 percent to create what one expert calls structurea negative changes in our balance of payments'." Hoagland, Jim. "U .S. Fins Imprint on South Africa Deep." Washington Post. January 16, 1977. (emphasis added) The 1976 defense budget was $1552million. Two-thirds ofthis, or $1035 million would he imilort costs according to this statement by loagland.

The impact of these strategic imports on South Africa's,-, balance of
payments is worth notingr.

The additional burden of R1400 million to R1600 million
imposet upon the South African economy by ain increased oil bill and defense imports, more or less equals the lpreseflt current account deficit of the balance of payments. One mayft indeed argue that in Jpre-1974 oil and defensee terms the current account must now be more or less in equilibrium. However, oil and defense imports are indispensable with a price elasticity of zero or almost zero. Hence the foreign exchange content of non-oil, non-defense spending demands special

With respect to oil, Table 1 7, "Estimated Crude 0il Imports," is suggestive of tlhe size of South Africa's oil stockpile. From 1966 to 1970 oil imports increased on an average of .8 million tons per annum. The increase from 1970 to 1971 was 3.6 million metric tons. Assumingy that .8 million metric tons represented the increase needed annually for consumption, the 2.8 million metric tons could have gone into the stockpile. If we take the 8.8 million metric tons imported in 1970, add .8 million metric tons per year, through 1976, and take the difference between these per year add-ons and the volume of oil actually imported we get an 11 million differential for the years 197 1-76. This is equivalent to approximately 85 percent of South Africa's estimated 1976 oil consumption requirements of 1.3.6 million metric tons. This figure gives validity to the estimates of private sources who state that South Africa has been stockpiling oil for some years and now is estimated to have a two-year supply of oil which if rationed, could be stretched into a longer period.39

Imports Import
Price per Cost per (millions of costs (U.S.
barrel 2 ton 2 metric tons) millions)

1966------------------------------------------- $1.33 9.75 5.5 54
197---------------------------1.33 9.75 7.1 69
1968 ------------------------------------------- 1.30 9.53 7.5 71
1969 ------------------------------------------- 1.28 9.38 7.7 72
1970 ------------------------------------------- 1.26 9.24 8.8 81
1971 ------------------------------------------- 1.66 12. 17 12.4 151
1972 ------------------------------------------- 1.84 13.49 11.7 158
1973 ------------------------------------------- 2.91 21.33 13.7 292
197---------------------------10.77 78.94 12.8 1010
1975------------------------------------------- 10.72 78.58 15.0 1179
197---------------------------11.51 84.37 15.0 1266

U.N. estimates. (Note. Due to an error the figures in the third and fourth columns of this table differ slightly from those found in the first printing of this study. The trends, and the conclusion drawn therefrom, remain the same however.)
2 Estimated market price (f.o.b. Arabian Gulf) of Arabian light crude oil. Petroleum Industrial Research Foundations, Inc. Vertical Divestiture and OPEC, New York, January 1777, p. 9.
3 Conversion factors used in oil industry (compiled by Petroleum Economist): crude oil specific gravity of 0.860 at approximately 15.6 degrees C, gives 7.33 barrels per ton. Col. 1 (price per barrel) times 7.33 (barrels per ton) equals col. 2 (cost per ton).
4 Estimated figures. If the 1975 import figure is held constant and multiplied by 1976 price the result would be 1,263, 000,000,000 or 974,000,000,000 more than 1973. (See p. 56) Source: World Energy Supplies, 1950-74, U.N., New York, 1976, series J. No. 19 for 1966-70 figures, p. 225, and World Energy Supplies 1971-75, U.N. New York, 1973, series J. No. 20 for 1971-75 figures, p. 62.

37 BE R. op. cit., p. 2.
38 This oil could have beei transshipped which, with the exception of possible assistance to Rhodesia, would be doubtful for a country committed to a stockpile program. 3O The South Afica Y'earbook-, 1974 r --ports that the country has "several years supply of crude." p. 33.


[Dollar amounts in U.S. millions]

1973 1974 1975 1976 1977

Oil import bill................................---------... $292 $1,010 $1,179 1 $1, 266 1$1,392
Defense import bill---------------........................----------------- () () (2) 11,035 11,242
Defense budget..........-------------.......----------------------- 688 1,003 1, 230 1,552 1,902
Budget expenditure.....................--------------- 4, 897 6,223 6, 862 8,960 10, 004
Defense budget as percent of total budget ------------------- 14 16 18 17 19
GDP at market prices ....----------------------------- $28,420 $33,019 33,517 $33,367 (2)
Defense budget as percent of GDP- -....... .. . 2.4 3.0 3.7 5.2 (2)

1 Estimate.
2 Not available.


The increased costs of the strategic investment program were reflected in the growing proportion of government consumption expenditure in the economy and was financed by an expansionary fiscal and monetary policy as well as by international credit. The supply of money injected into the economy increased 22.3 percent in 1974, 17.4 in 1975,40 and 16 percent through the first half of 1976.41 This money was channeled to the government rather than the private sector; government consumption expenditure being the main expansionary force in the economy from 1974 through mid-1976.2 During this period the government made nearly $3 billion in net claims on the banking sector43 and government consumption expenditure as a percentage of gross domestic expenditure increased from its 1970-74
average of 12.5 percent to 13.9 percent in 1975 and, 15.4 percent in 1976." Government consumption expenditure was up 15 percent in 1976 although it declined during the third and fourth quarters.5
The post-mid-1976 effort by the government to reduce public spending was accompanied by a more restrictive monetary policy; the supply of money increased only 2 percent in the last half of 1976.46 A 1977
indicator of whether the government will be able to adjust its strategic investment program to the capabilities of its economy will be seen in the degree of success it has in holding the line on its own expenditures and on the rate of increase in the supply of money.

4o Standard Rank Review. July 1976. p. 4.
41 South African Ministor of Finance, Owen Horwood, 1977 Budget Speech. p. 5.
4 Africa Research Bitulletin. Aug. 14-Sept. 15, 1976. p. 998.
4 D)agat, Morton. "South Africa's Fimures Look Bad but the Reality is Worse." Eurormoney Nov. 1976. p. 15. "An all but R2M) million increase in the 24 months between mid-1974 and mid-1976 in the net claims of the banking sector on the government sector-a liquidity injection equivalent in size to one quarter of the total money and near money stock of the country in July 1976." 44 Government consumptiom expenditure includes defense expenditures which would account for much of tfhe increase hero. It does not include expenditure by public corporations. The product of these corporations is sold directly to the public and it is normal practice for governments to separate such accounts from the general trovern me:it PnhiSli[)'iol a,d (xpendi ture account.
4 SA TR H. March, 1977 op. cit., pp). 4 and S-69.
4M 1977 Budget Speech, op. cit., p. 5.


The large deficits on current account in recent years are in distinct contrast to the national experience during the 1960s when South Africa first undertook a more determined growth policy. From 1960 through 1969 South Africa's current account was basically in balance with a cumulative positive differential of less than $30 million dollars for the ten-year period, although there was trend towards greater deficits in the late 1960s. However, a quantum jump in' deficit occurred, in the 1970s and in particular from the third quarter of 1974 through the second quarter of 1976. The current account was in deficit by approximately $1.3 billion dollars both in 1970 and 1971, showed a slight positive balance during 1972 and 1973, and in 1974, 1975 and 1976 showed deficits of $1.4, $2.4, and $1.7 billion respectively.41 The $5.5 billion cumulative deficit for the 1974-76 period included average quarterly deficits of approximately $600 million from the third quarter of 1974 through the second quarter of 1976larger than any yearly deficit recorded before 1970.
Domestically these deficits reflect the South African Government's dropping its conservative fiscal policies and going on an investment oom. Externally a series of events from 1973 through 1975 directly affected the strategic investment practices which resulted in the adoption of large deficits. The oil embargo of the winter of 1973-74 and the subsequent hike in prices had a particularly disruptive effect on the economy as it did on that of many other nations. The sharp increase in oil prices in 1974 came on top of a worldwide economic stagnation and inflation which began to have its effects on South Africa in mid-1974. (South Africa's economic and trade cycles tend to follow that of the OECD countries by approximately 18 months). 1975 was a particularly traumatic year: the gold price was down and the oil price was up, a newly-independent and unpredictable Marxist government was in place in Mozambique and a civil war in to-be independent Angola was of sufficient concern to induce intervention by South African forces. Costs associated with these events were reflected in the $2.4 billion current account deficit and $2.4 billion net capital inflow for the year.
Continued apprehension about external political forces and about a deterioration in terms of trade leading to devaluation are reflected in the 1976 private short-term capital movements. The 1976 private short-term capital outflow totaled $945 million of which $447 million left the country under the "errors and unrecorded transactions" category. A small part of the latter may be assumed to be money that managed to avoid the foreign exchange controls and whose departure was inspired by the Soweto demonstrations .41 A more significant
47See Table 19, p. 62. Both the 1970-71 and 1974-76 deficits were partially due to normal trade cycle effects; They were unusual in that they represented 6 percent to 7 percent of GDP in contrast to the post-war cur. rent accounts deficits which equaled an average of 3 percent of GDP. 48 South African Reserve Bank Quarterly Bulletin, December 1976; No. 122. During the third quarter there was a net outflow of capital which the South African Reserve Bank states was due to political uncertainties," a sharp decline in long-term foreign borrowing, a low level of investment, and the short-term capital outflow.


portion of this outflow reflects 'qeads and lags" brought about by private importers who feared devaluation and paid their creditors early in the usual 90-day credit period. Conversely, South African exporters were probably urging foreign importers not to pay them before the (normally) full 90-day credit period was up. Large movements in the short-term capital account are usually due to leads and lags being shuffled because traders are speculating on the likelihood of devaluation. Such activity, of course, raised the cost of credit to the South African importer or exporter and the presence of this phenomenon indicated uncertainty about the currency and the economy.
By 1976 monetary and fiscal authorities had decided that the deficit creating spending boom of the two previous years had to be constrained and they set an improvement in the balance of payments as their first priority.4. Policies adopted included restraints on government spending 5--which were not put into effect until after mid-year because of ongoing projects; restraints on aggregate demand; and the restriction of domestic credit-the latter included raising the bank rate and liquid asset ratios and placing a ceiling on bank credit to the private sector,51 tax increases, and the imposition of an import deposit scheme. In addition, institutional investors were asked to invest a greater proportion of their money in government stocks.2
These policies began to have visible effect after mid-1976. Merchandise exports were up 13.2 percent in volume and 33 percent in value over 1975 while merchandise imports were reduced 11 percent in volume although there was a 6.2 percent increase in total cost.63 Service payments to foreigners declined-partially due to a reduction in dividend payments on foreign investment." All of this contributed to a relative improvement in the current account deficit during the third and fourth quarters of 1976 when the deficits of $121 million and $462 million, respectively, fell below those of previous quarters.
Three major factors give further perspective to the large current account deficits of 1974-76: (1) world trade cycles, (2) normal development practices, and (3) political considerations. First, as noted above South Africa's trade cycle typically lags behind that of the industrialized nations by approximately 18 months. In this case the stagnation and inflation which South Africa's major trading partners suffered during 1973-1974 began to show up in a reduced demand for South Africa's exports in late 1974, 1975, and early 1976. South Africa is now pulling out of its high current accounts deficits as reflected in the overseas demand which made possible the 33 percent export increase in 1976. Moreover, although the current accounts deficit for 1976 was $1.7 billion the seasonally adjusted current accounts deficit rate, by quarter, declined steadily from $2.4 billion for the first quarter, to $1.9 billion for the second, $1.0 billion for the third, and $0.7 billion the fourth quarter. And by mid-1977 the current account balance for the year had moved into surplus.
0 Department of Commerce. Foreign Trends: January 1977. p. 8. ,6 Standard Bank Review. September 1976. pp. 1-3.
U HER op. cit., p. 11.
', See above, p. S4, for description of Barclays National Bank investment in Defence Bonds. Barclays marsageinent stated that it was required to purchase a certain amount in government gilt edge securities.
] INMF Strvey. February 21, 1'.7, and 1977 Budget speech, Minister of Finance. H SA R op. cit., pp. 8--9.


Secondly, given the normal development goals of nations and given South Africa's rich mineral base and its stage of development, it is considered natural and desirable that it be a net importer of capital. It is preferable that its deficits be expressed in money terms-which are capable of being offset by foreign borrowing-than in real terms in the sense that the importation of capital goods and technology at a rate below the absorptive capacity of the economy could lead to growth rates lower than would otherwise be possible.
Thirdly, the large private short-term capital outflow in 1975-76 occurred for economic as well as political reasons. Private firms needed less liquidity when their investment was dow-n. Multinational corporations, in fact, typically export their surplus liquidity given conditions of low investment and economic downturn. This factor, plus the "leads and lags" phenomena and political unrest in 1976 contributed to the unusually large outflow. Whether this flow can be stopped or turned into a positive flow will be a major indictor of how investors perceive both the economic and political health of the nation in 19771.


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A basic requirement for maintaining creditworthiness while running long term deficits is to increase the supply base for export sales in order to earn the foreign exchange necessary to service foreign debt. International credit is fundamental to this process, permitting the importation of capital goods and technology which makes possible the higher rates of domestic investment essential to South Africa's economic growth and export expansion. During 1974-76 the South African Government used most of its international credit in precisely this way, channeling these funds into capital goods imports for infrastructure projects geared to increase exports as well as to make the economy more self-sufficient. Of equal if not greater importance is the basic economic assumption that a capital goods transfer is often accompanied by a transfer of technology which is the main source of modernization and productivity increase.
In order to demonstrate the degree to which international credit was utilized by and added to the productive sectors of the economy as opposed to its being used for consumption or the purchase of existing fixed assets 51 --it would be necessary to identify specific credit inflows and their utilization by known entities. Tables 1-7 show that $3.9 billion of $4.3 billion in identified term lending went to government entities in 1972-76 and bank officers 11 state that most lending goes to government entities responsible for infrastructure development. However, the total amount of international credits extended for the 1970s and how much went to which private borrowers is not precisely known. Although time and data constraints do not permit the degree of specificity necessary to correlate closely international lending with borrower utilization the gross figures in Table 20 strongly indicate that the sharp increase in the extension of international credits to South Africa contributed primarily to public sector investment and, in particular, came to represent a significant and increasing portion of the cost of capital goods imports-the national accounts item most closely related to productivity and modernization."
Section A of Table 20 shows a $4.2 billion net international bank credit inflow to South Africa in 1975-76; estimates that $6.4 billion in new lending was extended in the 1974-76 period; and note's the $3.8 billion in term-lending identified in the Tables in Part L" (Different time periods are used because they correspond to available data.)
Section B duplicates information from Table 19 for easier reference. Of most interest here are the long-term capital flows to the Public Corporations and Local Authorities and to the Private Sector. The net hows were similar over the 1971-73 period ($825 million for inflow
55 See Table 21 (p. 66) for an example of the type of import which U.S. banks financed and which were supported by guarantees, and insurance within the discount, in some cases, loan program of theExportImport Bank.
66 International credit used for consumption also contributes to the economy in that it creates demand. Also, that portion which may go to buy existing fixed assets in the private sector would free that amount of money for use elsewhere in the economy.
U According to commercial bank sources a significant portion of international credit for South Africa is extended through the Euro-currency market and goes to finance major projects. As noted above, a VicePresident of Citibank stated that: "We tend to make specific loans to specific governments agencies for specific purposes." (U.S. Congress. Senate. Committee on Foreign Relations. op. cit., p. 585.) These informants represent major lenders and their practices are typical. a See footnote 5 o1i p Ke 22. This table uses the understated figures for bank lending. Thus, it can be assuim. ed that the estimates in this section and in Table 20 are conservatively stated. 59 The $4.2 billion in the differential between the 1974 and 1976figures in the first entry. The $3.8 billion is the sum of the 1971-76 figures in the third entry.


to public corporations and local authorities and $646 million to the private sector). In the 1974-76 period the inflow to public corporations and local authorities had become substantially greater than that to the private sector; $2,416 million compared to 1,513 million, respectively. Section C shows that this trend was of sufficient weight to reverse the annual positions of the public and private sector in terms of being majority investors in the economy; Public Corporations and Authorities accounted for 47 percent of gross domestic fixed investment (GDFI) in the 1971-73 period and for 51 percent in the 1974-76 period.
Section D, on capital goods imports (CGI) shows estimated new international bank lending increasing in relation to CGI from 31 percent in 1974 to 48 percent in 1975, to 62 percent in 1976; and in relation to GDFI from 13 percent in 1974 to 19 percent in 1975, to 30 percent in 1976. Capital Goods Imports as a percentage of GDFI increased from an average 38 percent for the 1971-73 period to an average 43 percent for the 1975-76 years. These figures suggest that the South African economy is becoming more capital intensive and clearly more reliant on international credit.60 On the latter point Section E shows that net capital inflow as a percentage of GDFI approximately doubled between the 1971-73 and the 1974-76 periods in each sector-Central Government and Banking, Public Corporations and Local Authorities, and the Private Sector.
Section F shows that the long-term net capital inflows of Public Corporations and Local Authorities as a percentage of their gross domestic foreign investment (GDFI) increased from 9.6 percent in 1971-73 to 15.9 percent in 1974-76, or a 67 percent increase between the two periods. For the Private Sector the corresponding figures were 7.7 percent for 1971-73 and 8.6 percent for 1976-76, or a 14 percent increase between the two periods. Long-term development capital international markets has clearly become much more important to the public than the private sector as the former become the majority annual investor in the economy.
Moreover, it would appear that these net capital flow figures represent international credit much more than they do foreign equity investment; Table 13 shows that in 1974-75 the direct investment capital inflow was $1.2 billion while the international credit portion of the non-direct investment increased $4.6 billion for the same period.6'
The close relationship between international credit and public and private sector infrastructure and development projects is shown most clearly through the importation of capital oods.62 Implicit is the
critically important transfer of technology which contributes to the modernization of South Africa's plant and its ability to compete in world markets as well as contributing to increased productivity."
W Ibid.
61 The direct investment category basically represents multinational corporation ownership in South Africa. These corporation typically finance their own expansion, one of the reasons being that: "it pays to borrow money locally bksed on investor's savings locally and not to channel it in from outside countries. The major ,xpwrience we have learned in the last 20 years is that threat of devaluation. That is, we lose the wealth we have put in there in dollar terms. As a result, most companies attempt to borrow locally almost equal to the assets they have invested so as to protect them against that devaluation." (U.S. Congress. Senate. Committee on Poreign Relations. op. cit., p. 174. Statement. by Joel Stern, then of Chase Manhattan Bank.. Another reason for internal financing is the greater degree of control retained by the corporation. U6 See Table 21. p. 66 for types of goods financed by U.S. private banks and supported by the ExportImport Dank of the United States.
6 "The inflow of foreign capital has been important more for the technical knowledge that thas gone with it than the physical claim on overseas resources that the capital gave to SA." Suckling, op. cit., p. 15.


Suckling states that the importance of various factor inputs to the
increase in South Africa's gross domestic product for 1957-72 were,
by percent:
Exogenous technical 60
Increases in labor 21
Increase in domestic 12
Increase in foreign owned 647
64 Ibid., P. 23. The close correlation between advances in technology and productivity Increases which Suckling examined in South Africa is typical for other economies as well. Pen notes that "90 percent of the growth of labor productivity in the United States over the past 50 years resulted from teehincal progress and only 10 percent or so from material inputs." Pen, Jan. A Primer on International Trade. New York: Random House. 1967. p. 30.

[in millions of U.S. dollars)

1971 1972 1973 1971-732 1974 1975 1976 1974-76,

A. Total bank lending outstanding at
the end of year (BL) ------------ NA NA NA NA 2,730 4,762 6,966 NA
Estimated new bank lendings- NA NA NA NA 1,183 2,063 3,019 6,365
Bank lending to South African
Government and public corporations (identified) ------- NA 227 477 NA 668 797 1,613 3 078
B. Net ca ital inflow (NCI) ----------- 1,002 665 -10 1,659 1,214 2,623 525 41362
C central Government and banking sector:
Long 157 124 -16 265 190 431 159 780
Short term -------------- -25 72 -20 27 109 -79 191 221
Public corporations and local
Longterm --------------- 216 221 388 825 634 964 818 2,416
Short term -------------- 43 10 -17 36 46 228 2 276
Private sector: 4
Long term --------------- 241 468 -63 646 296 926 291 1,513
Short term -------------- 217 -161 -157 -101 643 373 -498 519
C. Gross domestic fixed investment
(GDFI) ------------------------ 5,244 5,556 7,092 17,892 8,871 10,654 10,046 29,571
Public corporations and local
authorities ---------------- 2,396 2,783 3 235 7,994 4,215 5 431 5 435 15 081
Private business enterprises--- 2,848 2,853 3:673 9,374 4,657 5:223 4:721 141,601 Public corporations and local authorities as percent of GDFI ------------ 46 50 46 (47) 47 51 54 (51)
Private business enterprises as percent
of GDFI -------------------------- 54 50 54 (53) 53 49 46 (49)
D. Capital goods imports (CGI) ------- 2,105 1,939 2,739 6,783 3,833 4,297 54,555 12,695
Estimated new bank lending as
percent of CGI 31 48 62 (48)
Estimated new
of 13 19 30 (22)
CGI as percent of GO A ------- 40 35 39 (38) 43 40 46 (43)
CGI as percent of total imports- 56 54 56 (56) 54 60 62 (58)
E. Net Capital inflow to central Government and Banking as percent
of GDFI ----------------------- 2.5 3.5 0 (2) 3.4 3.3 3.5 (3.4)
Net capital inflow to publiccorporations and local authorities as percent of
4.9 4.2 5.2 (4.8) 7.7 11.1 8.1 (9)
Net capital inflow to privMe
sector as percent of GDFI. 8.7 6.5 -3.1 (4) 10.5 12.2 -2 (7)
F. Long term net capital inflow of
public corporations and local authorities as percent of their
9.0 7.9 12.0 (9.6) 15.0 17.7 15.0 (15.9)
Long term net capital inflow of
private business enterprises as
percent of 8.5 16.4 -1.7 (7.7) 13.9 5.7 6.2 (8.6)

1 Sources: MOL figures from BIS; international credits to South African Government from ch. I tables; net capital flow figures from table 18; GDFI figures SARB; capital goods imports figures from South African Bulletin of Statistics. Many of these figures are estimates and for 1974-76, should be considered as provisional.
2 In these 2 columns parentheses indicates a percentage. No parentheses equals a total figure.
3 Assumption is that two-thirds of the outstanding figure is term lending (see ch. 1) and that 15 percent (equivalent of average maturity of approximately 6 and 7 years is amortized annually) is paid off each year. New lending is (assumed) one-third short-term lending plus this amount. For example, 1974 new lending is $910 short term plus 15 percent of $1,820 long term ($273) or $1,183. 1975 new lending is $1,587 shod term plus 15 percent of $3,175 long term ($476) or $2,063. 1976 new lending is $2,322 plus 15 percent of $4,646 long term ($697) or $3,019.
4 Does not include errors and unrecorded transactions.
A Estimate. With import cost up 6 percent in 1976 assumption is that CGI 1976 is CGI 1975 times 1.06.



Authori- Export Guaranteed,
nation Maturity value (A.I.S. insured, or
date date Bankloan Product or purpose thousands) pending

1972 1977 Chase Manhattan Bank, New Authorization business forms, $157 Insured.
York. printing press, and Collator.
1972 1975 -----do ------------------------- Textile dyeing machine -------- 48 Do.
1973 1977 ----- Collator ---------------------- 101 Do*
1973 11,177 CitiBank NA, New York City ------ Construction equipment-------- 1 000 Pending.
1973 1977 -----do ------------------------------ do ----------------------- 1:100 Do.
1973 1977 Terey scrapers ---------------- 1,100 Do.
1975 1979 Construction equipment -------- 650
1975 1979 ----- do ------------------------------ do ----------------------- 130
1973 1980 Irving Trust Com., New York ----- Train control system ----------- 1,500
1977 1983 Bank of America, N.T. and S.A---- Continuous coal mining equip- 1,000 Guaranteed.
1969 1974 Manufacturers Hanover Trust, Locomotives ------------------ 651
New York.
1970 1971 -----do ------------------------- Diesel electrical locomotives---- 836
1973 1979 -----do ------------------------- Diesel locomotives ------------- 2,000
1976 1982 -----do ------------------------- 2 coal mining machines -------- 550
1974 1980 Philadelphia National Bank ------- Computing system ------------- 400 Pending.
1974 1980 ----- do ------------------------------ 300 Do.
1974 1981 -----do ------------------------- Computer control system -------- 500
1972 1979 North Western National Bank, Dump trucks and spare parts-.- 500 Guaranteed.
1975 1981 -----do ------------------------- Truck 440 Pending.
1972 1979 Central National Bank of Cleveland- Temper mill ------------------ 2,287
1972 1978 Recoiler and scale breaker ------ 918
1972 1979 Slitting and coiling line ------- 1,391
1972 1979 -----do ------------------------- Shear and trim ---------------- 1,761
1972 1979 ----- do -------------------------- Resquaring shear -------------- 122
1973 1979 ----- do ------------------------- Leveling line-steel processing--- 3,100
1973 1979 -----do ------------------------- Tire ma-nufacturing equipment.- 1,730
1974 1979 Electric motors ---------------- 89 Do.
1977 1983 Pipe finishing equipment ------- 3, 500 Guaranteed.
1977 1983 Gear, shafts, and bearings ------ i,102 Do.
1973 1977 Citizens &Southern National Bank, Construction equipment-- 500 Pending.
1975 1978 -----do ------------------------- Farm tractors ----------------- 1 050 Do.
1975 1979 Farm machinery-------------- 2',000 Insured.
1975 1978 ----- do ------------------------- Commercial washers and dryers- 2 200 Pending
1976 1980 ----- Farm machinery --------------- 1,111 Guaranteed.
1970 1972 Bankers Trust New York Corp--- Ground support equipment----- 200
1973 1976 Trust Co. of Georgia, Atlanta---- Regulator --------------------- 36 Pending.
1976 1981 Security Pacific National Bank-,- Turbo commander 690A -------- 780 Insured.
1976 1980 Aircraft (1) aero commander---- 51 Do.
1977 1982 Turbo commander aircraft ------ 818 Do.
1972 1980 Morgan Guaranty Trust Co., New Trucks ----------------------- 6,250 Pending.
1973 1979 -----do ------------------------- Communication equipment for 3,400 Do.
1973 1979 Nut former ------------------- 270
1973 1979 -----do ------------------------- Drilling machine--------------- 400
1973 1980 Tire Manufacturing equipment-- 1,922
1974 1981 -----do ------------------------- Steel mill equipment ----------- 4,000
1976 1981 -----do ------------------------- Coal mining machines --------- 800
1973 1977 American National Bank & Trust Construction equipment -------- 1,100 Insured.
Co., Chicago.
1974 1976 -----do ------------------------------ do ----------------------- iooo Guaranteed.
1971 1977 Wells Fargo Bank NA, Los Angeles Computer system-------------- 500
and San Francisco.
1972 1978 -----do -------------------------- --- do ----------------------- 774
1972 1979 -----do ------------------------- 2 waterwheel generators -------- 3,000 Pending.
1973 1976 -----do --------- Construction equipment -------- 150
1975 1977 First Wisconsin National Bank, Earth moving and construction 30,000 Guaranteed.
Milwaukee. equipment.
1969 1970 Continental Illinois National Bank Crane ----------------------- 230
& Trust Co., Chicago.
1972 1976 -----do ------------------------ Construction equipment-------- 666 Do.
1973 1978 ----- do ------------------------- Aircraft ---------------------- 566
1973 1979 ----- ------------------------- 605 Pending.
1973 1977 750
1975 1978 -----do ------------------------- Farm equipment -------------- 741 Guaranteed.
1975 1981 -----do ------------------------- Steel foundry equipment ------- 500
1975 1981 -----do ------------------------- Metal working equipment ------ 1 300
1973 1977 Society National Bank of Cleveland- Construction equipment -------- 1,778 Insured.
1973 1977 -----do ------------------------ Tire servicing equipment ------- 67 Do.
1972 1978 Pittsbur ,h National Bank --------- Electrical equipment for manu- 700 Guaranteed.
1972 1982 ---do Flectr cal equipment ----------- 9,600 Do.
1972 1980 ----.do ------------------------ Pickle line revamp ------------- 2,800 Do.
1972 1980 -----do ------------------------- Cold shear line ---------- 4,000 Do.
1972 1980 Contour lathers for roll 1,200 Do.
1972 1979 -----do ------------------------- Coil buildup line --------------- 3,000 Do.
t% lw nntre :-t nd nf tphlo.



Authori- Expirt Gijarante d,
nation Maturity value (U.S. inured, or
date date Bankloan Product or purpose thousands) pending

1972 1979 Pittsburgh National Bank Wire drawinp machines--- $1,000 Guaranteed.
1972 1979 -----do ------------------------- Coil rewind line --------------- 600 Pending.
1972 1980 -----do ------------------------- Cold shear 5,250 Gjaranteed.
1972 1986 -----do ------------------------- Galvanizing line --------------- 7,500 Do.
1972 1980 Tensing leveling line ----------- 2,900 Do.
1972 1979 Manufacturing equipment ------ 1,200 Do.
1973 1979 Iron mill rolls ----------------- 2,500 Do.
1973 1980 -----do ------------------------- Steel plant equipment and 700 Pending.
engine services.
1973 1981 Steel mill equipment----------- 4,000 Do.
1973 1981 -----do ------------------------ Paint line 2,800 Do.
1974 1987 -----do ------------------------- Pickle line for steel plant ------- 11,500 Guaranteed.
1973 1981 Cold shear line ---------------- 4,000 Do.
1974 1987 -----do ------------------------- Pickle line -------------------- 9,642 Do.
1974 1981 ----- do ------------------------- Billet inspection plant- 2,500 Do.
1974 1988 ----- do ------------------------- Steel fabrication equipment---- 9,000 Do.
1974 1978 Aircraft ---------------------- 1,000 Pending.
1975 1981 -----do ------------------------- Miscellaneous manufacturing 3,333 Guaranteed.
1975 1981 1 continuous mining machine-.- 276 Do.
1971 1983 -----do ------------------------- Tension leveling line ----------- 1,200 Do.
1976 1981 -----do ------------------------- Continuous mining machine----- 570 Pending.
1976 1978 -----do ------------------------- Replace gear for dragline ------- 210 Do.
1976 1981 ----- do ------------------------- Mining machine and component 460 Guaranteed.
1976 1982 -----do ------------------------- 4 u underground coal shuttle cars- 258 Do.
1976 1982 -----do ------------------------- 2 Marietta mining machines----- ?00 Do.
1972 1977 Continental Bank International, Bottling equipment ------------ 300 Do.
New York.
1972 1978 ----- Bottling and packing machine--- 341 Insured.
1973 1977 -----do ------------------------- Trucks ----------------------- 300 Pending.
1974 1977 Harris Trust & Savings Bank, Laundry equipmenL ---------- 300 Do.
1976 1978 -----do ------------------------- Commercial laundry equipment- 1, 111 Do.
1975 1977 American Express International 16 general aviation aircraft----- 2,222
Brokerage Corp., New York.
1974 1977 First Chicago International Bro- 1 Helici super courier 75 Insured.
kerage Corp., New York.
1972 1976 Chemical Bank, New York -------- Manufacturing machinery ------- 500
1972 197 -----do ------------------------- Metal presses etc -------------- 750
1975 1982 Can-producing machinery ------ 2,054 Guaranteed.
1972 1978 Crocker National Bank, Los Industrial heating and cooking 200 Do.
Angeles and San Francisco. equipment.
1973 1978 -----do ------------------------- I Cessna aircraft-------------- 300 Do.
1972 1975 Mellon Bank International, New Grove cranes------------------ 125
1972 1975 Concrete pumps and accessories- 54
1974 1978 -----do ------------------------- Printing presses --------------- 70 Pending.
1975 1979 Cranes ----------------------- 400 Do.
1976 1980 United California Bank Interna- Machine tools ----------------- 275 Do.
tional, NeN York.
1973 1977 Bank of Boston International, Hydraulic cranes -------------- 2POOO Do.
New York.
1973 1980 ----- do ------------------------- Trucks ----------------------- 5,500 Do.
1974 1977 Cleveland Trust Co -------------- Business forms press ---------- 112 Insured.
1975 1980 -----do ------------------------------ do ----------------------- 161 Pending.
1975 1980 ----- do ------------------------- One collator- 135 Do.
1975 1979 ----- do ------------------------- Heavy duty farm tractors -------- 2,000 Guaranteed.
1972 1976 Fidelity International Bank, New Beechcraft aircraft ------------- 250 Pending.
1973 1977 -----do ------------------------- Aircraft ---------------------- 1,823 Guaranteed.
1976 1979 -----do ------------------------- Helio aircraft ------------------ 205 Pending.
1976 1982 ----- do ------------------------- Concrete block manufacturing 700 Do.
1976 1982 European-American Bank & Trust -----do ----------------------- 251 Do.
Go., New York.
1973 1978 First City National Bank of MU-2.1 prop-jet airplane -------- 345 Guaranteed.
1976 1987 North Carolina National Bank--.-- I Industrial crane ----------- 200 Do,
1976 1980 -----do ------------------------- Minicomputers--------------- 160 Dcu
1976 1981 ----- do ------------------------- Aircraft ---------------------- 412 Do,
1972 1979 Central National Bank, Chicago --- Dump trucks and spare parts ... 500 Do.
1975 1978 Hards Bank International Corp., Aircraft ---------------------- 2,000 Insured.
New York.
1973 1975 Philadelphia International Bank, 500 Dot
New York.
1975 1980 ----- do ------------------------- Helicopter-------------------- 850
1973 1976 Northern Trust International Bro- Cranes ----------------------- 425
kerage Corp., New York.
1973 1981 First National City Bank (interna- Train control and communica- 3,060
tional, Chicago). tions.
See footnotes at end of table.



Authori- Export Guaranteed,
zation Maturity value (U.S. insured or
date date Bank loan Product or purpose thousands) pending

1974 1980 First National City Bank QI nterna- Construction Machinery-------- $1, 200
tional, Chicago).
1975 1978--do --------------------- Laundry equipment------------ 1,111 Guaranteed.
1975 1981--do --------------------- Sheeting machine-------------- 736
1972 1975 First National City Bank (interna- Engine labs------------------- 48 Insured.
tional Los Angeles).
1974 1978 Crocker Mid-America Interna- Street cleaning equipment ----222
tional Bank.
1975 1977 Continental Bank International, Rice sorting machine------------ 51
1976 1981 ---do --------------------- Helicopter.------------------- 200

1 U.S. banks which finance trade with South Africa may in turn discount (usually a portion of) these loans with the Export-Import Bank of the United States. The last column identifies those loans which also have been guaranteed or insured by the Export-import Bank. This table includes all loans to South Africa discounted by the Export-import Bank.
Source: Adapted from information supplied by the Export-import Bank of the United States.

The basic economic strategy of the South African government is to maintain a strong current account on the balance of payments by improving the export sector and also by following a policy of import substitution. Given present uncertainties about the continued inflow of foreign capital the authorities believe that a long-term adjustment in the balance of payments, to be achieved through a reduction in the traditional net inflow of foreign capital which had' averaged 3 percent of GNP since WWII, is also necessary. The reduction in the current account deficit and the net capital inflow over the long term will require a continuation of the shift of resources into export expansion and away from domestic consumption.
The 1977 budget manifests the policy of a reduced dependence on foreign capital; however, the depressed state of the economy and the concomitant pressures to stimulate growth and reduce unemployment will almost certainly create a continuing pressure to import foreign capital (in the form of international credit since direct investment has practically ceased) for the investment stimulus the economy needs to break out of three years of sluggish behavior. Moreover, the govemment has a current need to get out of the awkward position caused by its sizable short-term debt. The triple pressures of servicing this short-term debt, of stimulating a sluggish economy, and of funding its continuing strategic investment requirements pose a major challenge to the long-term strategy of reducing the current account deficit and the historic dependence upon large net capital inflows.
The major question mark for the economy in 1977 is whether the normal trade cycle and stock cycle effects-downward trends in both the stock cycle and the trade cycle should reverse themselves-will quicken the pace of economic activity sufficiently for the economy to recover from three years of sluggish behavior. The recovery of the Western economies has already had a pronounced effect on South African trade with the 33 percent increase in export income in 1976 and, very encouraging to South Africa, a (provisional) current account deficit of only $170 million for the first four months of 1977.1 The stock cycle however, remains stagnant with a continuing high level of surplus capacity after a two-year sharp decline in stock levels.2 The availability of investment capital will be a major factor in converting the surplus capacity to production, to the buildup of stocks, and to economic growth.
I South African Digest. May 27,1977. p. 9.
2 Chase Manhattan reported in July 1977 that over one-fifth of South Africa's productive capacity remained idle. (International Finance. July 11, 1977. p. 4.)


Economic recovery will be inhibited by a number of structural factors: the adjustment to a lower level of foreign investment, the lack of skilled labor, and the inelasticity in the increased costs of oil and defense imports. One survey of U.S. companies with direct investments found that over half do not plan further investment over the next five years (although Volkswagen, British Petroleum and Leyland have announced expansion plans),3 15 of 100 U.S. businessmen interviewed were considering withdrawal of their investments,' and a U.S. based group that examines international creditworthiness dropped South Africa from 5th to 19th place.5 Of more immediate concern was the 1976 short-term outflow of $751 million "not related to reserves" 6 reflecting "leads and lags" speculation based on a fear of devaluation and possibly a reduced confidence in the future of the economy. Beyond this, the reduction in direct investment implies a reduction in the technological progress which is achieved through the transfer of technology.
The apartheid laws have limited the development of skilled labor, inhibited development of a single manpower plan for the economy, and skewed development in such a manner as to make the capital component of the capitalflabor/production relationship of greater importance in a capital hungry developing economy.7 In the most recent investment survey done by the BER (1973) 59 percent of the respondents stated they would invest more if they did not anticipate bottlenecks and of these "86 percent expect that a lack of skilled workers and technicians will be a serious bottleneck." 8
These structural problems underlie a number of particularly bleak business indicators registered in 1976. Manufacturing output was down 9 percent, auto sales 19 percent, and mortgage advances 29 percent from 1975.9 Consumer spending and business orders declined, businesses in liquidation were among the worst in history; 10 and late in the year two banks were placed in receivership and another suffered heavy losses."
Real gross domestic expenditure, real fixed investment, and inventory investment, were all down in 1976.12 Private fixed investment showed the greatest decline and, beginning in the second quarter of 1976, the fixed investment of public corporations also began to decline. The latter was due to "the partial completion of the Sishen-Saldanha project and the forced postponement of outlays on other projects due to a general shortage of capital." 11 Expenditure by public authorities continued to increase in 1976, however, and real government consumption expenditure is projected to increase in 1977.4
1 United Nations. Special Committee against Apartheid. "Present economic situation in South Africa and the importance of urgent international action." UN. A/AC. 115/L.456
4 Ioaland, Jim. "U.S. firms imprint in South Africa deep", Washingqtn Post. San. 16, 1977. I)oini Business with a Blacker Africa. Business Week. Feb. 14, 1977. p. 67.
6 1977 Budget speech. p.4. (Total private short-term capital outflow was $945 million.)
7 While apartheid permits low wages, which reduces capital requirements to a degree, its restraints on the development of skilled labor forces more capital intensive practices. The South African Government's Economic Development Pro-ramme for 1976-81 notes the increasing capital intensity of the economy over the p st 20 years which it attributes to an underutilisation of labor and excessive imports. (Simon, Beruard. Gloo my official fore-for South African economy. ThA Financial Timnes, June 6, 1977. BE It. "Survey of Investment Inten 1ions, 1973-1975. Cipe Town, Albion Press. 1973. p. 14. SBusiness. "Angola 1975, Soweto 1976." April 9, 1977. p. 12. (Reprinted in AF Press Clips. April 12, 1977, Dept. of State.)
10 Standard Bank. op. cit., January 1977. p. 1.
1 1977 Budget Speoch. op. cit. p. 5.
12 1977 Budget Speech. op. cit. pp. 7-S.
13 SA RB. December, 1976. op. cit. 1..
14 Ibid., and 1977 Budget Speech. op. cit., p. 8


Unemployment rose rapidly in 1976 although total employment increased.'" From 1973 through early 1976 unemployment among "Whites, Asians, and Coloureds" fluctuated between 8,000 andl12,000 or approximately one-half of one percent. By F~ebruary 1977 there were 22,207 registered unemployed, or approximately one percent.') Black unemployment (no official statistics are kept), is estimated to be between 1 and 2 million, or approximately 10 to 20 percent of the active labor force.'17 A reported 10,000 to 20,000 Blacks are losing their jobs every month'18
Wages have also increased sharply-35 percent in 1976 over 1974 levels-but there was no corresponding expansion in productivity.' Black wages were up 24.2 percent in 1975 and wages of Whites, Asians, and Coloureds were up 13.6 percent. Wages were projected to have increased another 15 percent in 1976,20 but with the dlifferential between the Black and White wage increase reduced.
The major bright spots in the economy have been the ability of the government to reduce the rate of increase of the money supply and of its own expenditures since mid-1976, the great surge in exports, and the increase in the price of gold, Gold, which sold for just over $100 an ounce in August 1976 was selling for nearly $150 an ounce from April to June 1977. If these prices hold, South Africa's foreign exchange income from gold in 1977 could be $500 million or more higher than it was in 1976. As noted above, 1976 merchandise exports increased 33 percent in value while imports increased only 6.2 percent 21 and the trend in 1977 has shown continual improvement. The 1977/78 budget holds the line on government expenditure, with the exception of defense and some social services, and the rate of increase of the supply of money dropped sharply after mid-1976.

B. THE 1977-78 BUDGET
In 1977 South Africa's fiscal authorities are making adjustments for
(1) major external events of the 1970s-the quadrupling of the price of oil and increased political instability in southern Africa-and its own domestic political unrest, both of which give continuing impetus to the strategic investment program; (2) the domestic economic downturn which began in 1974, reached recession proportions in 1976, and has persisted through early 1977; and (3) a sharply reduced ability to obtain international term lending which places a financial squeeze on an economy in which one of the primary constraints to growth has been investment capital.
The government response to these conditions has been the adoption of a 1977/78 22 budget designed to reduce the deficit on current account and the rate of inflation while continuing infrastructure development, increasing defense expenditure, and providing more money for the Black sector. Credit requirements will be met through
15 Ibid. p. 2.
16 Bulletin of Statistics. September 1976. Republic of South Africa. Department of Statistics. Pretoria. pp. 2.34-2.35. 1976 Budget Speech. p. 4
17 Goodwin, June. "Black Trade Unions Gain in South Africa." Christian Sric'nce Monitor. Feb. 16, 197. Hlatton, Graham. "South Africa and the Foreign Money Taps" The Financial Timns,"NMarch 8,1977. 1S Ibid., Goodwin and Hlatton.
19 BE R. op. cit. p. 2.
20 Ibid., p. 29.
21 IMF Survey. Feb. 21, 1977.
22 Miitrof Finance. 1977 Budget Speech. March 30, 197-7. p. 8. The budget year is from April 1, 1977 to March 31, 1978.


an enforced channeling of domestic savings into the public sector to take place of more limited access to international term-lending. Little or no economic growth is expected in 1977 although the "government continues to attach the highest importance to the long-term growth of the economy." 23 In addition, an interdepartmental committee under the Secretary of Finance has been set up "to investigate the capital priorities of the public sector, of which the public corporations of course form an important part." 24
Dependence on international credit by South Africa is clearly reflected in the 1977 budget speech of the Minister of Finance:
The pressing needs of the Treasury arise basically from
the urgent requirements of defence and from the need to build up our economic and social infrastructure in the broadest sense of the term. There are also the financial requirements of the public corporations. . On the other hand we are faced with a relatively slow growth of State revenue and with a likely reduction in the availability of foreign capital.25
The government is calling directly on the private sector to fill the gap created by the projected international credit shortfall.26 These monies are to be obtained through bond sales to the public$92 billion in defense bonds and $184 billion in national defense savings bonds; from a requirement to increase investment in government securities from bank and building societies and other financial institutions-$138 million each from the bank and building societies and $598 million from the financial institutions; and an estimated $460 million to be earned from a 15 percent import surcharge.
These funds total $1606 million of which $1524 million will be used to meet government expenditures associated with international credit, defense, public corporations and general government purposes. More specifically, $207 million is required to redeem foreign loans, $171 million to renew existing foreign loans, $295 million to be capitalized for the public corporations, $276 to be allocated for defense purposes, and $575 million to be invested in government securities for general government purposes.
South Africa's acceptance of its reduced ability to obtain international credit combined with its decision to draw on the private sector to meet public sector spending requirements creates an apparent conflict with the possibility of economic recovery in 1977. The 1976 decline in gross domestic fixed investment (at constant prices), high and increasing unemployment, and the sharp draw-down in inventories would be expected to continue longer than normally, given reduced amounts of investment capital. However, the government hopes that the present high level of plant surplus capacity can be converted to productive output with a relatively low level of new investment.27 (Exhibit V reveals the sharp-downturn in 1975-76 in housing industry sales which implies a large margin for increased output with given capacity. The housing industry, as noted above, is also to be stimulated by government expenditure.) In essence, it hopes to shift demand from imported
Ibid., p. 16.
164Ib ., p.16.
Ibid., p. 25.
T'ITotal hudg.e expenditure projected for 1977/78 is $10 billion. Of this amount $2.3 billion is to be obtained through various borrowing techniques. One technique announced in the 1977 budget speech, this one designed to inhiidt the outflow of foreign capital, is a prohibition against the repatriation of profits earned before Jan. 1, 1971.
7 However, a B E R survey showed that 22 percent of productive capacity was idle in May 1977. (-Africa Report. July-AugiAst 1977, p. 42.)


goods to domestic products made more readily available to consumers through utilisation of surplus capacity.28 This short-term strategy could reduce the current account deficit as well as provide increased earning which could be channeled into the government sector.


... 1 I 1 _ _"t I !I\


/ 1$
L'\,,E, "V S

1965 1966 1967 1968 1SO 1970 1971 1972 1973 1974 1975 1976 19'7 .1.78 YEARS
The uscs ho bem "vmfed b" of 1ft *fdonfIt mt o oftsome of thi deta..
Sourmi M&arW ml ied by the BER. Chd Eeoomi. Laort. dated 329m7.

South Africa's fundamental need for foreign capital derives from (1) its historic and continuing status as a nation with a growing economy actively trading and competing in world markets,9 (2) the lack of a local capital market with sufficient depth to finance expansion at a rate desirable to meet both domestic and foreign demand, (3) its recently increased requirements for security and self-sufficiency, and (4) its high demand for capital goods and technology imports. The latter is of particular importance because, although South Africa does possess a significant research and development capability, it still urgently needs to acquire from abroad new technological capabilities to help maintain its competitiveness in world markets.
28 1977 Budget Speech. op. cit., p. 9.
21 South Africa's annual exports and imports are each equivalent in value to approximately 25 percent of its GDP. The magnitude of trade, much of it financed by international credits. is not only important, it is fundamental to the well being of the South African economy. In 1976, the U.S. became South Africa's major source of imports, followed closely by Britain and West Germany.


More specifically, international credit requirements in 1977 will be determined by the need to service debt, the trade balance, and new term lending required for the investment to stimulate growth. South Africa may be in the market for approximately $1 billion in new credit in 1977, most to service its substantial borrowing from international commercial banks in the 1974-76 period.
To service its $7.6 billion in international bank credits South Africa must repay $3.4 million in principal and an estimated $.6 million in interest in 1977.30 An estimated $2.6 billion (see above, p. 62), of the $3.4 billion is short-term credit which is typically rolled-over but the estimated $.8 billion in maturing term lending and the estimated $.6 billion in interest gives $1.4 billion which must be repaid in 1977.
This repayment schedule is sufficiently sizable as to place South Africa in a awkward repayment position in 1977. A financial squeeze may be in the making. In 1976, when international credit was available in large quantities, South Africa engaged in foreign exchange transactions which gave it $1.2 billion in credits to meet balance of payments needs (see Table 19, p. 62, column entitled "Change in net gold and other foreign reserves owing to balance of payments transactions"). These credits were obtained from the IMF a and from a reported near $500 million gold swap with Switzerland.2
In April 1977 South Africa arranged another gold swap 33 and suspended the gold reserve requirement of the Reserve Bank.34 It is likely that this was done to help meet short-term obligations as its net foreign assets dropped over $300 million from the previous month, a reduction probably representing repayment of foreign debt with foreign exchange obtained through the gold swap."5 South Africa has also drawn its reserves down $112 million in the first six months of 1977.36 The gold swap, the suspension of the legal requirement that gold reserves be maintained at a specified level, the reduction in net foreign assets-each of which occurred in April 1977-and the reduction in reserves, all suggest that South Africa is having difficulty obtaining adequate levels of credit in 1977.
c Campbell, Mary and Francis Ghiles. New Data on LDC debt. The Financial Times. June 17, 1977. p. 32 for the $;:.4 billion figure which is attributed to the BIS. Assume an average interest rate of 8 percent on the $7.6 billion for the $.6 billion interest figures. [The international bank repayments are the only important repayments in 1977. The bulk of the IMF repayments fall due in 1979 and repayment on bond indebtedness is estimated at $100-200 million.]
31 South Africa is also eligible to negotiate another standby arrangement with the IMF for a maximum of $267/SD R232 million. It is also likely that IMF articles will be ratified this year to provide new country quotas. Together, these times could give South Africa access to another near $500 million in credit, much of which could become available in 1978.
Various sources. Although details on the gold swap are not publicly available, a typical arrangement would involve a South African sale, at a market-related price, with an option to buy back at or within aspecific time period at a specific price. It is likely that the gold swapisaccounted for in the $710 million drawndown oni its foreign assets which South Africa registered last year. (IMF, International Financial Statistics, June, 1977. p. 324.)
South African Digest. May 6, 1977. p. 4. In this article the Governor of the Reserve Bank (SARB) stated that the gold swap was to "ensure the adequacy of the bank's foreign exchange holdings during the period ahead" and noted that the holder would not soll the gold on the market but that it would revert back to the SARB on tho "various due dates of the agreement." The country with which the gold swap was arranged and the amount was not designated.
3' The South African Reserve lBank was "legally required to maintain minimum gold reserves equal to 25 percent of public liabilities less assets" until the Minister of Finance announced on April 25, 1977 that thi requirement was to be suspended. (IMF Survey. MAlay 16, 1977. p. 159).
South I Africa's gold reserves are almost certainly now less than one-half their 1975 end-year value of $711 million. At end-year 1976 they were $4:31 million and a sale-swap of gold reserves of $70 million would have reduced this to one-half tihe 1975 cnd-N ear posit ion.
a' Sout i Africa's reserves have fallen from $1216 million in 197a to $940 million in 1976 to $828 million at end-June 1977. Reserves now equal approximately one month of imports which leaves little room, if any, for further reduction. (Chase Manhattan. International Finance, July 25, 1977. p. 8, for the $828 million figure A


South Africa's payments position will be eased however, due to a much improved trade balance, zomir from a $1.7 billion current account deficit in 1976 to a probtible balancee or even surp us in 1977. The BER projected a 28 percent increase in export eamin s 11 which would improve the current account by $1.5 billion RTI d e price of
gold stays around the $150 an ounce mark for the year this will add an additional $0.5 billion in income. Other things being equal this would yield a $300 million current account surplus for 1977 an(l, in fact, by end-May 1977 South Africa has already achieved a surplus
on current account for the first five months of the ve ar of $123 million.
Thus, in order to pay the estimated $4 billion in principal and interest which South Africa owes the international banks in 1977, it would appear that it would roll over its $2.6 billion in short-term credits and cover $300 million with its possible current accounts surplus, leaving $1.1 billion to come from new borrowing or other sources.
South Africa does have $1.7 billion in credit commitments from international commercial banks which had not been disbursed by
end-year 1976. While some of this could theoretically be used to service debt, the assumption is that the bulk of this money has already been earmarked to pay for capital goods placed on order when the loan commitment was made and to be disbursed to South Africa to pay foreign manufacturers upon delivery of these goods.
In fact, under normal circumstances, South Africa's stage of development and development capability is such that it should be importing around $1 billion annually in new foreign capital .40 This figure, coming from experienced observers, is further supported by a calculation relating capital goods import requirements to growth. If South Africa were to achieve 2.5 percent growth in GDP for 1977, a figure projected by the BER,41 it would need to borrow $869 million in new international credits in 1977.42
Given the increasingly capital intensive nature of the economy, the ongoing infrastructure projects, and the security-related goals of greater economic self-sufficiency and an improved defense capability,

37 BE R. 1977 prospects. op. cit. p. 8.
38 South African Dige8t, op. cit. June 24, 1977. p. 1.
32 Campbell. op. cit. p. 32.
40 Director, Barclays NB of South Africa, op. cit.; Private banking sources; The B E R. The B E R projected a net capital inflow requirement of $1,350 million for 1977. op. cit., p. 9.
11 BE R, Ibid. p. 20.
42 The $869 million is derived from the following calculation which focuses on foreign exchange earnings required for capital goods imports. The assumptions are an organically integrated economy, which South Africa is, and a projected real growth rate in GDP of 2.5 percent which is the BE R projection. The calcuation which flows from this figure is as follows: $33.376 billion (1976 GDP) times 0.025 (projected growth in GDP which equals $834 million (estimated real GDP growth in 1977). The $834 million is multiplied by the capital output ratio of 2.56 (Dagat, op. cit., p. 16. 2.56 is 1970's average), which is $2,135. $2,1& is multiplied by the percentage of fixed capital imports over gross domestic fixed investment as averaged over 1966-76 which is 0.407. The result, $869 million, is the projected increase in net foreign exchange earnings required to pay for the fixed capital goods imports required to attain a growth rate of 2.5 percent in 1977.
This 1977 projection will be difficult to reduce from a capital output standpoint in that the capital output ratio is increasing, i.e., more units of capital are required per unit of production. The reasons were outlined by a former director of Barclay's National Bank of South Africa as follows:
"First, our production methods (characterized by increasing automation and mechanization) arebecoming more capital-intensive requiring ever increasing investment in plant, machinery and equipment. Second, rapid technological change tends to quicken obsolescence and thus replacement investment. Third, high level technology requires the allocation of an increasing proportion of capital resources on research and development. Fourth, raising social aspirations and accompanying relatively rapid changes in the community's demands are probably leading to a good deal of malinvestment-dare one mention televisionthereby destroying part of our capital stock and necessitating a high rate of replacement investment. Fifth, rising labour costs and low levels of labour productivity under today's conditions of relatively full employment are probably resulting in the substitution of labour by capital to an ever increasing extent. Nowhere is this more true than in my own industry-banking-where we are forever seeking ways of being less dependent on capricious labour. In fact even if we could find the labour, in today's conditions we would be unable to process current volumes in the time available, thus we are obliged to invest more and more in automation."



it would appear that South Africa would seek-in addition to the $1 billion in new credit needed to service debt-approximately $1 billion in term lending in 1977 in order to stimulate growth.
However, statements by South African officials and their creditors indicate that a degree of restraint is now being observed in the credit relationship-on the debtor side in the requesting of funds and on the creditor side in the granting of funds. Both the South African Reserve Bank and the Ministry of Finance have stated that they have decreased expectations in this regard and some U.S. commercial bank officers state that medium-term lending to South Africa is in abeyance until political and economic conditions improve.4 No term loan commitments, in fact, were recorded during the first two quarters of 1977 although reports of new credits extended appeared in July 1977."
In sum, beyond the financial pressures which derive from the need to service its international debt, the sharply reduced availability of longer term credits which are so important to economic growth will not serve to build confidence in a political economy with a high level of black unemployment and labor unrest 4 and with little immediate prospect for economic growth.
Bell Geoffrey. "The Eurodollar Market and the International Financial System."
London, Macmillan Press Ltd. [1973] 125 p.
Clarke, William M. "The City in the World Economy." London, Penguin [1967]
231 p.
Houghton, D. Hobart. "The South African Economy." 4th ed. Cape Town.
Oxford University Press. [19761 310 p.
Friedman, Irving S. "The Emerging Role of Private Banks in the Developing
World." New York, Citicorp. [1977] 116 p.
Kaplan, Irving, [and others]. "Area handbook for the Republic of South Africa."
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Pen, Jan. "A Primer on International Trade." New York, Randon House. [1967]
231 p.
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International Financing in the Eurobond, Eurocurrency and Related Financial
Markets." London, Macmillan Press Ltd. [1975] 271 p.
Rogers, Barbara. "White Wealth and Black Poverty." Westport, Conn., Greenwood Press. [1976] 331 p.
43 With respect to U.S. spokesmen, this is a generalization from a number of sources, each of which might offer some variation on this statement. For some, concern about an improvement in political conditions refers to the dismantling of apartheid with economic conditions being a lesser concern. On the South African side, see the statement by the Minister of Finance, page 90, and the following from the SARB Quarterly Bulletin, December 1976, p. 1:
". .. a smaller net inflow of capital from abroad can be anticipated during the year ahead than during the preceding two years. Political developments in Southern Africa will, of course, have an important influence on capital inflows to South Afica. If the net inflow of capital should run at a lower level in the near future, the current account deficit will also have to be smaller with a concomitant lower real growth rate than would have been possible with a higher level of capital inflow. In such circumstances, austerity in general, and the generation of a higher level of domestic saving will be called for." However, the desirabilty of obtaining such credits remains as suggested by the Minister of Finance in his 1977 budget speech: "It is my intention, as State revenue becomes more buoyant and as foreign loans become more readily available, to reduce the percentages (of the assets of financial institutions to be channeled to the government) wherever practicable."
A Financial Times publication reported a $60 million Eurocurrency loan to Black Mountain Mineral Development Co. of South Africa with Citibank as the lead manager. (Euromarket Letter. July 15, 1977. pp. 4-5,. Africa magazine reported that a consortium of 12 banks was preparing a $138 million loan for South Africa. (Cauadians Invest in Apartheid. Africa. June 1977. p. 97.) Placement of the first Eurobond issue since .January 1977 was reported in July. The Financial Times reported that SARII had privately placed a D.M35 million Eurobond with financing aranged by B-Il-F. (Campbell, Mary. Eurobonsd: S. Africa rail DM35m. issue. Financial Times. July 20, 1977. p. 20.) Manufacturers Hanover and Kidder Peabody were also listed as underwriters. (International Bond and Eurocurrency Financing Review. AGEFI Press Ltd. July 15, 1977. p. 5).
Wright, Robin. "South African Township's cars Remain. The Washington Post. June 16, 1977, p. 16.

7 7

The stud y project on external investment in South Africa and Namibia (S.W.
Africa). "Foreign Investment in South Africa; The Economic Factor." London,
Africa Publications Trust. [1975] 195 p.
Feis, Herbert. "Europe: The Worlds Banker 1870-1914." (Reprint 1964) Clifton,
N.J., Augustus M. Kelley. [1974] 469 p.

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First meeting on the condition of the banking system. Hearings, 95th Congress,
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U.S. Congress. Senate Committee on Foreign Relations. Subcommittee on
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U.S. Congress. Senate. Committee on Foreign Relations. Subcommittee on
Multinational Corporations. "Multinational Corporations and United States Foreign Policy." Hearings, 94th Congress, 1st session. Washington, U.S.
Govt. Print. Off. 1975. 133 p.
U.S. Congress. House. Committee on International Relations. Subcommittee on
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U.S. Congress. House. Committee on Banking, Currency and Housing. "Financial
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U.S. Federal Reserve Board. Federal Reserve Bulletin Washington, U.S. Govt.
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U.S. Department of State." Economic Trends Report: South Africa." (Airgram,
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U.S. Department of State. "Economic Review: South Africa." (Airgram Message
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Republic of South Africa, Department of Information. "South Africa 1975:
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Republic of South Africa, Department of Information. South African Digest.
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International Bank for Reconstruction and Development. International Finance
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1976. Washington, World Bank. 1976.
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Washington, World Bank. 1975--1976.


International Bank for Reconstruction and Development. International Finanoe
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International Bank for Reconstruction and Development. International finance
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(Volumes for 1972, 1973, 1974, 1975) Washington, World Bank. 1972-1975. International Bank for Reconstruction and Development. International Fiance
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(Volumes for 1972, 1973, 1974, 1975). Washington, World Bank. 1972-1975. International Monetary Fund. Bureau of Statistics. (Director, Earl Hicks)
International financial statistics. June 1977. Vol. 30, no. 3 Washington, IMF.
International Monetary Fund. Secretary. IMF survey. February 21, 1977. Vol. 6, no. 4, and May 16, 1977, Vol. 6, no. 10. United Nations. Special Committee Against Apartheid. Role of recent loans in
strengthening the apartheid regime in South Africa. United Nations General
Assembly Document A/AC.15/L.448. Nov. 10, 1976. 10 p.
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Sept. 30, 1976.
The Chase Manhattan Bank, N.A. Economics Group. International finance. (Bi-weekly issues, Jan. 12, 1976 through July 25, 1977). 1976-1977. Citicorp. Publications Unit. Citicorp Quarterly Report. May 2, 1977. Credit Suisse White Weld Limited. Eurobonds. Dec. 31, 1976. Deutsche Bank Aktiengesellschaft. International DM bonds. Frankfurt. October
Kidder Peabody and Co., Inc. 1975 Annual report. 1976. 'Manufacturers Hanover Limited: 1969-1975. London, Williams Lea. 1976. Morgan Guaranty Trust Company of New York. World financial markets.
March 1977.
The Nedbank Group. Annual Report 1975/76. Johannesburg, Penrose. 1976. Standard Bank Investment Corporation Limited. Economic Research Department. Standard bank review. (Monthly, February 1976 through February 1977.)
Johannesburg. 1976-1977.
White Weld Securities. The International bond guide: 1976 year-end prices.
London, Dec. 31, 1976.
Bennett. Robert A. "Less-Developed Country Loans Pose Questions for Regulators." The New York Times. May 17, 1977: Sec. 3, p. 1.
Campbell, Mary and Francis Ghiles. "New Data on LDC Debt." The Financial
Times. June 17, 1977: 32.
Campbell, Mary. Eurobonds: "S. African Rail DM 35m. Issue." The Financial
Times. July 20, 1977: 20.
Cooper Wendy. "Debate on Bank Loans to South Africa Rekindles." Journal of
Commerce. Feb. 11, 1977: 1.
TDagat, Merton. "South Africa's Figures Look Bad But the Reality is Worse."
Euromnoney. Nov. 1976: 14-16.
Goodwin, June. "Black Trade Unions Gain in South Africa." Christian Science
Monitor. Feb. 16, 1977:
Greenberg, Stanley B. "Business Enterprise in a Racial Order." Politics and
Society. 1976. pp. 213-240.
tttton, Grah:am. "Funding South Africa." The Financial Times. Dec. 3, 1976:
"South Africa and the Foreign Money Taps." The Financial Times.
Mtrch 8, 1977:
Hoagland, Jim. "U.S. Firms Imprint in South Africa Deep." The Washington
Post. Jan. 16, 1977: D1.
Randal, Jonathan C. "Young's African Mission: Ending the Disbelief." The
Washington Post. May 30, 1977: 30.


Rolf'e, Richard. "Heavy Demand in South African Bond 'Market." The Fin'anTC ia-l
Times. May 27, 1977: 31.
Simon Bernard. "Gloomy Official Forecast for South African Economy." The
Financial Times. June 9, 1977: 6.
Wright, Robin. "South Africa's Township's Scars Remain." The Wa'shington Post. June 16, 1977: 16.
"Angola 1975, Soweto 1976". Business. April 9, 1977: 12.
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"South Africa Payments Deficit Increases." Africa Research Bulletin:
Aug. 14-Sept. 15, 1976: 3998.
"Barclays NB in South Africa." The Financial Times. Dec. 16, 1975:
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"Foreign Loans: Identifying the Lenders." Financial Mail. Nov. 12,
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"Canadians Invest in Apartheid." Africa. June 1977: 97.
Africa Report. July-August 1977: 42.

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Cape Town, Albion. Sept. 1976. 41 p.
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July 1, 1977. p. 5.
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The Financial Times. Euromarket letter. July 15, 1977.

South African Minister of Finance, Owen Horwood. 1977 Budget Speech. March
30, 1977.
Member, Board of Governors of the Federal Reserve System, Henry Wallich.
Statement before the Subcommittee on Financial Institutions Supervision, Regulation and Insurance of the Committee on Banking, Finance and Urban Affairs of the U.S. House of Representatives. Washington, March 23, 1977. Director, Barclays National Bank of South Africa, Frank Dolling. "The Outlook
for South Africa's Capital Requirements." 1976 Speech to the Annual Conference of the Associated Chamber of Commerce of South Africa. 1976.
Transvaal Chamber of Industries. "Black unrest". Memorandum to the Honourable B. J. Vorster, M.P. Prime Minister. July 29, 1976.
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World Council of Churches Communication. Geneva. April 28, 1977.


The Subcommittee on African Affairs will respect the right of confidentiality of any corporation which participated in this survey. However, unless confidentiality was specifically requested, the Subcommittee's policy is to regard the data collected in this survey as public information. Due to financial constraints, the punch cards and printouts used in the data processing are not available. However, individual replies received from the 260 firms which were sent questionnaires by Senator Dick Clark, Chairman of the Subcommittee on African Affairs, may be read in our offices by members of the public who make their requests in writing to the Senate Foreign Relations Committee, Dirksen Senate Office Building, Washington, D.C. 20510, for the attention of Nancy Richards Akers. For further information, call (202-224-9032).

In September 1976, the Senate Foreign Relations Subcommittee on African Affairs conducted a series (: f hear*zs entitled, "South Africa: U.S. Policy and the Role of U.S. Corporadons." At that time, testimony was received from lobbyists, academicians, journalists and representatives of the business community and federal government agencies. To supplement the hearing record, Senator Dick Clark, chairman of Subcommittee on African Affairs, directed that a questionnaire be sent to American firms with business activities in South Africa for a broader study of U.S. corporate interests in that country'.
The questionnaire was written for the Subcommittee by Desaix Meters III, a consultant with the Investor Responsibility Research Center (IRRC). The majority of the questions were taken from a previous IRRC survey on labor practices of U.S. companies in South Africa. The IRRC report was designed to assist investors in assessing the practices of portfolio firms. At the request of the Subcommittee, the scope of the questionnaire was broadened to include foreign policy and political issues. Three new series of questions were added relating to: a) corporate representations to the South African Government; b) corporate representations to the United States Government; and, c) future investment plans. In addition, firms were asked to describe the changes which they anticipate in South Africa within the next five to ten years, and how these changes might affect their business operations. (See Appendix A.)
The basis of the Subcommittee sample was the May 1976 Directory of American Firms, Subsidiaries and Affiliates Operating in the Republic of South Africa prepared by the U.S. Consulate General in Johannesburg. The DirectoFy was compiled by the Commercial Section "based upon information provided by the companies involved." It purports to include only those companies in which there is "substantial" U.S. investment in stock, ownership or as a partner, and to eliminate firms ODerating under contract, license or on a commi sion basis. (See A pendix B.)
In October 1976, Senator Clark forwarded the questionnaire to each of the 312 corporate names appearing on the Consulate General's list. Although there are 312 entries on that list, many of them are multiple offices of single firms. The actual number of individual firms listed is 260.

iThe Subcommittee found that the Consulate General's Directory neither an exhaustive nor a fully accurate list of U.S. firms operating in South Africa. Seventeen (17) of the companies contacted informed the Subcommittee that they had either discontinued their South African operations, or had never had business operations there at any time. Others indicated that they did in fact operate on a license or commission basis, but declined to complete the questionnaire because they had no direct supervision over the South African operations', In addition, the Consulate General's Directory omits many firms which appear in other listings of American firms with business operations in South Africa. Thus, such companies as Bethlehem Steel, Canada Dry, Atlantic Richfield and United Technologies were not sent questionnaires.
It is important to bear in mind that there is no definitive list of American firms with business activities in or with South Africa. No United States Government agency could provide one to the Subcommittee. The most likely source, the Commerce Department, does not keep track of private business activities abroad. The Department explained that it would involve a massive bureaucracy to monitor U.S. investments and business operations overseas and that such monitoring might infringe on the corporate right to privacy. The Department also pointed out that the term "business activities" is imprecise; individual firms may or may not feel that it applies to their activities.
Private publications which attempt to list American firms with business activities in South Africa are also incomplete or inaccurate. For example, the World Trade Academy Press and Barbara Rogers, author of White Wealth and Black Poverty: American Investments in Southern Africa, have compiled lists including firms which informed the Subcommittee they had no business operations in South Africa.
In view of the foregoing, the Subcommittee was unable to survey all American businesses operating in South Africa which are estimated to number approximately 300. Nevertheless, this study represents the broadest examination of American business activities in South Africa that is available to date.

A (Iraft report was prepared in the Spring of 1977. At that time, completed questionnaires had been received from fifty-one (51) firms; a total of 130 companies (50 percent) had not responded in any way. In June 1977, a follow-up letter was sent to the firms which failed to respond, and in July and August 1977, the committee staff telephoned eanch of the remaining firms from which a response was still outstanding. rI'llie Suibcommittee exerted every effort to ensure that all the firms on Ihe list had been contacted in order that a response could be recorded for each.
As of Sep~tember 8, 1977, every nonrespondent, except for Muller an(id Phipps, had been reached by letter or by phone. A total of fiftyfour (,54) firmnS never replied to the Subcommittee, even after these repeated contracts. A total of seventy-five (75) firms, representing 30 Jpercenit of the sample, returned the questionnaires with all or nearly all of the datat requpestedJ. A total of one hundred and thirty-one (131) firmiis responded buit, for a variety of reasons discussed in the following section, (leclitiedl to complete the questionnaire.


Of the 260 questionnaires sent out by the Senate Foreign Relations Subcommittee on African Affairs, a total of 205 responses (including completed and incompleted questionnaires) were received. One questionnaire sent to Muller and Phipps was returned to the Subcommittee marked "no forwarding address." The following 54 firms representing roughly 20% of the total sample did not respond to the Subcommittee in any way:
AAF International Co.
Addressograph Multigraph Corp.
Applied Power Inc.
Automated Building Components Inc.
Berkshire International Corp.
Black Clawson.
Bucyrus-Erie Co.
Carnation International.
Cheeseborough-Ponds Inc.
Coca Cola Export Corp.
Columbus McKinnon Corp.
Dames & Moore.
Dart Industries Inc.
Del Monte Corp.
DHJ Industries Inc.
Dresser Industries Inc.
Dubois International
Echilin Manufacturing Co.
Ferro Corp.
G. D. Searle & Co.
Gardner-Denver Co.
Gates Rubber Co.
Geo. J. Meyer Manufacturing.
Heublein International.
International Flavors and Fragrances Inc"
J. A. Ewing & McDonald Inc.
Johnson & Johnson.
Masonite Corp.
Max Factor & Co. Inc.
Measurex Corp.
National Chemsearch Corp.
National Standard Co.
National Starch & Chemical Corp.
Newmont Mining Corp.
A. C. Nielson International Inc.
Pan American World Airways Inc.
Parker Pen Co.
Parke, Davis & Co.
Parker Hannifin Corp.
Perkin-Elmer Corp.
Permatex Inc.
Phillips Bros.
Pizza Inn Inc.
Precision Valve Corp.
Ramsey Engineering Co.
Revlon Inc.


Rexnord Inc.
Robbins Co.
S. C. Johnson & Sons Inc.
Scholl Inc.
Tampax Inc.
Timkin Co.
Titan Corp.
Trane Co.
Seventy-five firms or 30 percent of the total sample provided all or nearly all the data as requested on the questionnaire. The information from all these firms is the basis of the aggregate analysis:
A. H. Robins Co.
Abbott Laboratories.
American Express Co.
Arthur Anderson & Co.
Batten, Barton, Durstine & Osborn Inc.
Blue Bell Inc.
Borden Co.
Borg-Warner Corp.
Bristol Myers International Corp.
Caltex Petroleum Corp.
Carborundum Co.
Cascade Corp.
J. I. Case International
Caterpillar Tractor Corp.
Celanese Corp.
Colgate-Palmolive Co.
Rockwell International Corp.
Control Data Corp.
CPC International Inc.
American Cyanamid Co.
Donaldson Co.
Dow Chemical Co.
Dun and Bradstreet Inc.
Eastman Kodak Co.
Envirotech Corp.
ESB Inc.
Esso Africa Inc.
F & M Systems Co.
Federal Mogul Corp.
Firestone Tire & Rubber Co.
Ford Motor Co.
General Electric Co.
General Motors Corp.
Geosource Inc.
Gillette Co.
Goodyear Tire & Rubber Co.
Grolier Inc.
Helena Rubinstein Inc.
I loneywell International Inc.


International Harvester Co.
The John Deere Co.
Kellogg Co.
Kendall Co.
McGraw-Hill Book Co.
M & T Chemicals Inc.
Merck, Sharp & Dohme Inc.
Miles Laboratories Inc.
Mobil Oil Corp.
Monsanto Co.
Nabisco Inc.
Nashua Corp.
NCR Corp.
Norton Co.
Otis Elevator Co.
Preformed Line Products Co.
Pfizer International Inc.
Schering Plough Corp.
Richardson-Merrell Inc.
Simplicity Pattern Co.
Singer Co.
Smith, Kline & French Laboratories.
Standard Brands Inc.
Tokheim Corp.
TRW Inc.
Van Dusen Air Inc.
Valvoline Oil Co.
Walter E. Heller International Corp.
Warner Lambert Co.
Wilbur-Ellis Co.
Union Carbide Corp.
W. R. Grace and Co.
Eli Lilly and Co.
Because responses and completed questionnaires trickled back to the Subcommittee over a seven-month period it was necessary to establish a cut-off date. None of the questionnaires received for analysis after September 8, 1977 were included in the aggregate data and final report. The following firms completed the questionnaire, but their responses were received by the Subcommittee after September 8: The Inmont Corp.; Beckman Instruments Inc.; and Texas Gulf Incorporated.
Bulova Watch Company Incorporated reported that they completed the questionnaire, but did not forward it to the Subcommittee. Bulova's response is available through the firm's New York Office.
American International Group Inc. submitted its completed questionnaire in October, 1977. It is available in Committee files.
Eleven (11) companies acknowledged receipt of the questionnaire, or contacted the Subcommittee to indicate that the data was being considered and a response would be forthcoming. As of September 8, the final responses from these firms were still outstanding:
American International Group Inc.
Fram Corp.


Hoover Co.
Interpublic Group of Companies Inc.
Mine Safety Appliances Co.
Motorola Corp.
Readers Digest Association Inc.
Tenneco International Corp.
U.S. Filter Corp.
West Point Pepperell Inc.
XM World Trade Inc.
Of the 205 firms which responded to the Subcommittee, 108 declined to provide the data requested on the questionnaire, citing seven basic reasons: (1) it was "not applicable" to their business operations in South Africa; (2) the firm did not have any supervisory authority over the South African operation; (3) the firm had disposed of all South African operations; (4) the firm did not have a subsidiary in that country; (5) the necessary data was not available; (6) the firm felt that its operations were too small to be significant; or, (7) the firm had never had any business in South Africa. In several instances, firms indicated that more than one of these conditions applied to their company. The predominant reason each firm gave for declining to complete the questionnaire is indicated below.
Nine companies did not believe the questionnaire was "relevant", "gOermane") or applicablel" to their business activities in South Africa:
t5 American Bureau of Shipping.
Ampex International.
Arthur Young and Co.
Bundy Corp.
Kidder, Peabody & Co.
Macmillan Publishing Co.
Moore-McCormack Lines Inc.
Price Waterhouse and Co.
United Artists Corp.
Nine companies reported that they did not have direct supervision over any business operation in South Africa:
(1) Allied Chemical indicated it has no investments or direct operations in South Africa. Its only operations are sales on an export basis.
(2) Computer Sciences Corporation.
(3) Farrell Lines Incorporated, a shipping firm, stated that it has no shoreside operations and no South African employees.
(4) The First National Bank of Boston replied that it is a small shareholder in a South African investment; no employee of the Bank is directly involved in South African operations.
(5) J. Gerber and Company reprted it has "close association" in South Africa, but has no actual shareholding in any firm there.
(6) Ihammond Corp oration said it simply sells its products through an independent distributor.
(7) Preload Engineering Corporation.
(8) Rtath and Strong Incorporated.
(9) Oak Induistries Incorporated.
Ten companies reported that they had disposed of their operations or planned to dlo so in the immediate future:
(1) Americani Motors Corporation operations via subsidiaries in South Africa termninatedl "somel time ago."


(2) In May 1976, the DeWitt International Corporation entered into a contractual agreement to sell its South African subsidiary to a local firm.
(3) In April 1976, Encyclopedia Britannica disposed of its subsidiary operations in Johannesburg.
(4) The Hussman Refrigerator Company stated its small sales outlet in South Africa will be terminated August 31, 1977.
(5) In 1973, Metro-Goldwyn-Mayer Incorporated discontinued their film distribution operations in South Africa; the firm is currently in the process of discontinuing all activities in that country.
(6) in September 1976, Middle West Service Company operations in South Africa ceased.
(7) In 1975, the Oshkosh Truck Corporation sold their interest in a South African joint venture.
(8) The Weyerhaeuser Company no longer has any manufacturing investments in South Africa.
(9) in 1969, Scripto Incorporated sold its investment in a South African company.
(10) Stowe Woodward Industries Incorporated no longer conducts any business in South Africa.
Nine companies replied that they did not complete the questionnaire because the information was not available in their U.S. office, or they were unable to obtain the requested data. These firms explained that the information could be obtained through an associated office in South Africa:
Avis Inc.
Champion Spark Plug Co.
Ernst and Ernst.
FMC Corp.
Heinemann Electric Co.
Ingersoll-Rand International.
Pacific Oilseeds Inc.
Rheem International Inc.
United States Gypsum Co.
Nine companies declined to complete the questionnaire because they had no subsidiary in South Africa:
ABS Worldwide Technical Services Inc.
Amchem Products Inc.
Baxter Laboratories Inc.
Boeing Co.
General Tire and Rubber Co.
Hydro-Air Engineering Inc.
Johns-Manville Corp.
Owens-Corning Fiberglass Corp.
Phillips Petroleum Co.
(The specific wording "subsidiary operations'? was used in the initial cover letter and repeated throughout the questionnaire. Declinations to respond to the questionnaire reflect varying interpretations of the word "subsidiary." The term was used by the Subcommittee in its broadest sense and was intended to refer to firms which participate in the direction of South African operations. Technically, however, a subsidiary company is one having more than half its stock owned by another company. There are firms with extensive involvement and management oversight in South Africa through non23-748-78-7


subsidiary operations. Exxon, for example, completed the questionnaire for its four affiliate firms in South Africa, 'even though, technically, it does not have a South African subsidiary. Other firms, such as Union Carbide, have management interests in non-subsidiary South African business, and also responded to the questionnaire.)
Seven firms reported that they did not complete the questionnaire because they do not have any operations in South Africa whatsoever:
American Airlines.
Anderson Clayton & Co.
Diners Club Inc.
PepsiCo Inc.
Samincorp Inc.
Trans World Airlines Inc.
Western Airlines.
Twenty-six companies declined to complete the questionnaire because they felt their operations were too small to be of significance:
Buckman Laboratories Inc.
Burlington Industries Inc.
CBS Inc.
Chicago Pneumatic Tool Co.
Chrysler Corp.
Dow Corning Corp.
Englehard Minerals and Chemicals Corp.
INA International Corp.
Joy Manufacturing Co.
Kimberly-Clark Corp.
Lykes Brothers Steamship Co.
P. R. Mallory and Co.
Olin Corp.
Placid Oil Co,.
Standard Pressed Steel Co.
The Stanley Works.
Sybron Corp.
Tanatex Chemical Co.
Taylor Instrument Co.
r1echnicon Corp.
Twentieth Century-Fox Film Corp,
United States Steel Corp.
U.S. Industries Inc.
Valeron Corp.
Warner Brothers International.
Westinghouse Electric Corp.
Twenty-four companies did not complete the questionnaire but attemnptedl to supply some portion of the requested data:,
Ayerst International Inc.
Bechtel Corp.
Burroughs Corp.
Chicago Bridge & Iron Co.
Ciutler-H Iammer Inc.
Diversey Corp.
Fiat-Alfus Construction Co.
Hewlett-Packard Co.


Hyster Co.
International Minerals & Chemical Corp.
Interpace Corp.
LifeSavers Inc.
Maremont Corp.
Minnesota Mining & Manufacturing Co.
Nalco Chemical Co.
Phelps Dodge Corp.
International Playtex Inc.
Sperry Rand Corp.
Sterling Products International Inc.
E. R. Squibb & Sons Inc.
Twin Disc Inc.
The Upjohn Co.
Uniroyal International.
Wyeth International Ltd.
Although the information provided by these firms will be of great value to the Committee's permanent data banks, it did not follow the format of the questionnaire closely enough for in-put and aggregate analysis.
Four companies orally declined to respond to the questionnaire, and did not provide a specific reason or a written response for the Subcommittee's records:
Black & Decker.
Crown Cork & Seal.
H. H. Robertson Co.
Rohm & Haas.
One company did not complete the questionnaire because it was not company practice to do so. The Lubrizol. Corporation returned the unanswered questionnaire with a notation to that effect.
Seven firms did not respond directly to the questionnaire, but had a parent or affiliate respond ,in their behalf:
American*Can Co. "(M & T Chemicals).
American Home Products (Ayerst).
Collins Radio Group (Rockwell International).
Gilbarco (Esso Africa)
Kelley Springfield (Goodyear Tire and Rubber).
Plough (Schering Plough).
U.S. Shulton (American Cyanamid).
To facilitate aggregate analysis, not all of the data requested in the questionn aire was incorporated in the final analysis. Data provided in the categories a) implementation of company policy, and b) fringe benefit programs was selected out entirely. The remaining data was further limited. For each issue analyzed, a single question or series of related questions was considered. If a firm supplied at least one response pertaining to a particular issue, it was included in the subsample for that issue. Analysis pertaining to each issue includes a listing of the specific responses considered, and the size of the subsample in question.


Firms which did not fill in the questionnaire but which submitted an essay were not automatically eliminated from the aggregate analyriis. Each essay was read thoroughly and a decision to incorporate the data was based on the degree to which the supplied information conformed to the questionnaire format. Firms whi 'ch provided only one or two usable pieces of data were eliminated: it seemed reasonable to expect a firm to respond to no less than 50% of the questions. Companies also provided comments in footnotes and appendices to the questionnaire. Whenever applicable or unique, these comments are included in the report.