/IPS DEVELOPMENT BULLETIN/ SOUTH AFRICA: When Will the Investors Feel Safe?

By Farhan Haq Reprint | | Print |

NEW YORK, Jun 7 1997 (IPS) - When South African officials come here to court Wall Street bankers and U.S. businesses, they often meet a litany of excuses about why their country still deters investors: high crime, tough exchange controls, political uncertainty.

Tokyo Sexwale, premier of South Africa’s large Gauteng province, sees it another way: “I used to stay in Russia, and with the crime now, I’m scared to go there,” he says. But crime in Russia, or strict exchange controls in Chile, did not stop those nations from attracting investment in the West.

South African leaders say they have earned more respect in the U.S. business community since the African National Congress (ANC) took power after winning April 1994 elections. But although investors are reassured that President Nelson Mandela’s government is following a free-market course, they remain wary of@committing a large amount of money to South Africa.

“There is increasing trust in South Africa by the (U.S.) business community, but it’s not being matched by events on the ground,” says Robin Gordy, an analyst at the ABSA Securities firm. “Ultimately, what investors care about is performance, and that is what South Africa has to show.”

Despite growth rates of more than 3 percent in both 1995 and 1996, investors here simply do not believe that South Africa can manage to expand its gross domestic product by 3 percent regularly, says Frank Savage of the U.S. investment firm Alliance Capital. Nor, he adds, do businesses believe that Pretoria can handle demands to improve South Africans’ living standards and still maintain investor-friendly macroeconomic policies.

Perhaps most importantly, Savage says, investors still question whether South Africa’s government will stay on course even after Mandela inevitably steps down. “You can call it racism, but it’s there,” he argues.

Such doubts about the ANC’s commitment to liberal capitalism remain even after the former revolutionary movement has implemented a wide range of free-market measures, from selling off a 30-percent stake in the state-run Telkom telephone company to Finance Minister Trevor Manuel’s recent call to abolish gradually all exchange controls.

“We had to do something which, in the history of our struggle, was almost anathema to us: privatisation,” Sexwale says. “We realised that, sooner or later, if we were not going to drink this stringent medicine ourselves, someone would compel us to do it.”

Despite tha, U.S. firms continue to give cautious recommendations about the government’s stance.

The Salomon Brothers investment firm notes in its most recent evaluation of the country’s prospects that Pretoria “has indicated a greater commitment towards enhancing South Africa’s international attractiveness as an investment location.”

But at the same time, the report says, other free-market measures may be slow in coming: “South Africa’s major trade unins — which are closely linked to the ruling ANC — remain quite hostile to labour market deregulation.”

Some of the traditional distrust that big business has for labour was felt most clearly when Manuel, an ANC veteran, replaced Chris Lieberman a year after the ANC took power to become South Africa’s first black finance minister. Investors quickly backed away from South Africa, and have remained cautious, several investment analysts note privately.

Others point to the persistent street crime problem in recent years, a legacy of the frayed relations during apartheid between the police and the nation’s black majority. “The government’s plans to crack down on crime and urban violence still have to deliver results,” Salomon Brothers says.

Gordy doubts the crime problem matters so greatl to foreign investors as doubts that the country can improve its macroeconomic performance. “If the performance isn’t there, they’ll find any excuse” as to why a country is a risky investment, he says.

All the current caution means, Savage says, is that Pretoria will have to wait a while longer before its harsh free-market medicine will show results. But foreign money will come if South Africa stays on its present course, he argues.

Some U.S. oficials disagree. Former New York City Mayor David Dinkins, a longtime supporter of the ANC, believes that part of the problem South Africa faces drumming up investment boils down to a simplistic perception of Africa as a savage land straight out of ‘Tarzan’ movies. “An aspect of this is racism, pure and simple,” Dinkins says.

Ultimately, he argues, what is needed is to prove that South Africa has a leadership that “can read, and do math” — an objective, he says, which could be helped if Mandela is seen to have an effective replacement in the man clearly positioned to be his successor, Deputy President Thabo Mbeki.

Sexwale argues that investor caution over Africa is “not because people hate us, or wonder whether we can read or write or count. It’s history.” South Africa, despite its many first-world attributes, is classified along with the rest of Africa, a region with a dismal record for investors.

Yet the Gauteng premier agrees that a smooth transition from Mandela to Mbeki could be crucial to convincing the outside world of South Africa’s stability.

“Nelson Mandela is not presidential material,” Sexwale notes wryly, arguing that the ANC leader is really more an international statesman, comparable to Indian independence leader Mohandas Gandhi. But Mbeki, he argues, can handle the day-to-day tasks of running the government that may be too small a stage for Mandela.

Both leaders, Sexwale adds, have shown South Africa’s mettle at brokering a largely peaceful transition of power in the newly renamed Congo (formerly Zaire). Noting the cooperation between Mandela, Mbeki and U.S. Ambassador Bill Richardson during mediating efforts in that crisis, Sexwale argues that the U.S.- South Africa link shows every sign of growing stronger. That relationship, he contends, should bear fruit among investors eventually.