After months of bravado about how it could beat any economic sanctions that the world might impose on it, South Africa’s white-minority regime now knows how vulnerable it is. International banks have begun cutting off its credit.
Citing worsening civil unrest here and political pressures on them at home, the banks last week refused to extend South Africa’s short-term loans. The potential impact of international economic sanctions was felt here for the first time, and both the government and the business community were shaken to the core.
South Africa, which had minimized the impact of likely sanctions, is now threatened with measures that could shatter its whole economy, ending the prosperity whites have enjoyed for decades, if apartheid is not dismantled.
Short-Term Debts Due
Faced with the prospect of having to repay in the next year most of $12 billion in short-term debts-- much more money than it has in foreign reserves, gold bullion and this year’s trade surplus put together--Pretoria on Sunday suspended repayment of most of its $16.5-billion total foreign debt. And it introduced exchange-control regulations that will heavily penalize foreign investors who withdraw their money.
Last week, it was forced to suspend foreign currency dealings and trading on the Johannesburg Stock Exchange while plans were made to rescue the rand, South Africa’s greatly devalued currency.
Although bankers and government economists are confident that most of the debts can be rescheduled, that tighter exchange controls can slow the outflow of capital and that the rand can recover some of its lost value, there is now grave concern about what will happen if the United States, the European Community and others adopt meaningful sanctions this month.
“We came close enough to the brink (last week) to see how far down we can fall, and now we know how easily we can be pushed,” a veteran economic consultant commented, asking that he not be quoted by name because of his role as a government adviser. “Those here who said that economic sanctions can never work, that we don’t need to fear them and that we should ignore these attempts to ‘bully’ us will have to think again. . . . We are a lot more vulnerable than we thought.”
Until last week, many in the government had been laughing up their sleeves at sanctions that the United States and West European countries were in the process of imposing, including bans on the sale of its Krugerrand gold coins, restrictions on computer sales and the closing of trade offices. They were confident that the world needs South Africa’s gold, platinum, manganese and chrome, and in return wants its business far too much to take such severe action as a trade boycott.
South Africa need not worry about sanctions, President Pieter W. Botha assured a National Party rally in Pretoria last month, because its economy, though weakened by a three-year recession, is fundamentally strong and because international sanctions are rarely effective.
Sanctions ‘Don’t Work’
“History proves they don’t work,” Botha declared, “and South Africa’s own experience of the oil embargo and the arms embargo proves that they don’t.”
Two of the proudest boasts of South Africans are the country’s success at developing its own armaments industry after the U.N. Security Council imposed a mandatory embargo on arms sales to Pretoria in 1977 and its success at turning coal into oil to get around an oil embargo.
Much of this was done with South African talent and massive state allocations of resources, and some of it was accomplished through industrial spies, foreign agents and middlemen looking for a quick profit on what were legally contraband sales.
If faced with tough economic sanctions, South Africans have told each other, they would cope again in the same way.
According to E.J. du Plessis, a bank economist who has studied possible sanctions and South Africa’s ability to survive them, the countries considering such restrictions are asking, in effect, “How can we hurt (South Africa) enough to end apartheid but not destroy Africa’s strongest economy?”
“The answer,” he said, “is several paradoxes and that makes policy choices, for them and for us, quite difficult. The first paradox is that despite our government’s angry objections to sanctions, those imposed so far by Canada, Australia, Sweden and other countries, and those under consideration by the United States and the European Community, are probably not going to have much impact economically in the short run.
“The next paradox is that what would really hurt us most--a total trade embargo, total withdrawal of foreign investments, an international effort to put us in economic isolation--other countries really are not prepared to do because it would damage their own economic interests far too much and actually could benefit us economically through the medium term as we developed domestic industries to replace our present imports. There would probably be a boom, in fact, that would pull us out of our present recession and give us a good decade of growth.
“And the final paradox is that there are, in fact, some specific, fairly narrow vulnerabilities that, if exploited cleverly, could do us real damage very quickly. Our dependency on foreign bank loans has proved to be one. There are others--certain industrial machinery, certain technologies, certain markets for South African products--that I am not going to identify and give aid and comfort to our enemies, but whose impact could be at least as brutal and dramatic as the reduction of short-term bank credits was.”
There are hints from time to time that suggest where these weaknesses lie--things South Africa cannot do and probably will not be able to do for years because of the scale of its economy and the sophistication of its engineering, research and development and basic science skills.
Although its electronics industry is growing, for example, South Africa is only approaching the sophistication of Taiwan, which has graduated from copying to designing computers and their components. Computer engineers must still be brought here from London and sometimes from New York to install and repair many of the large computers used by banks and for telecommunications.
South African engineers concede that years of efforts to produce a fighter aircraft, as Israel has done, have failed because of insufficient skills in aircraft and engine design, metallurgy and avionics. Even Israel at one time depended for much of this on the United States.
South Africa’s dependence on American and French commercial aircraft also leaves it vulnerable. A South African Airways flight from Rome last week was delayed nearly a day when an engine part had to be flown from the United States.
Many of the same precision machine tools that the United States will not sell for strategic reasons to the Soviet Union--and reviews very carefully before selling to China--are quietly imported here, although middlemen could probably be found to supply them if sales were shut off.
And then there is oil, bought secretly in the Middle East or on the spot market in Europe and shipped here secretly, mostly aboard Norwegian and Dutch ships. The strict legal prohibitions here on any discussion of how and where South Africa gets its oil suggest continuing vulnerability.
South Africa’s greatest weakness, however, is perhaps psychological rather than economic, according to many white South Africans who oppose apartheid but fear that sanctions would hurt blacks the most by depriving them of jobs and creating a siege mentality that will make reforms more difficult to achieve.
“The general moral condemnation of South Africa is itself an important sanction,” Harry Oppenheimer, retired chairman of the Anglo American Corp., the country’s largest company, wrote in a recent article on economic sanctions. “White South Africans who still hold the monopoly of power are not hardened to such criticism. They love their country and they are proud of it. They like to feel that it can hold its head high among the nations, and they know very well that economic and military power cannot in the long run be buttressed by a system of oppression. The disapproval of South African policies so strongly felt and expressed throughout the world in itself brings powerful pressure to bear on the government.”
Oppenheimer and others point to the great impact of the international sports boycott on South Africa, leading to integrated playing fields and locker rooms and promoting contacts between blacks and whites that were unthinkable a decade ago. They argue that the West would exert more influence for change here through similar campaigns with clearly defined objectives.
“We bluster a lot about how we don’t give a damn what the world says or does,” Michael le Roux, a Cape Town businessman, said last week, “but we do. Bill Cosby is now South Africa’s No. 1 favorite television personality, and that call from Cosby from Los Angeles to Dorothy Boesak (wife of the Rev. Allan Boesak, the jailed anti-apartheid campaigner) to say he was praying for them counted more than everything the American State Department said.
“But the problem is, I know, that moral suasion does not seem to bring action fast enough, and the world has grown impatient with us and wants something that will bring change now, not next year. . . . Sanctions are not the way, but sanctions it will be.”
South Africans consequently are anxiously watching the coming Senate vote on proposed U.S. sanctions and the speculation in Washington over whether President Reagan will veto the bill and whether a veto would be upheld.
The assumption here is that the United States will impose some kind of sanctions, either by legislative action or an executive order by Reagan, and that this will then become the standard for most European countries and Japan and perhaps could be adopted by the U.N. Security Council as mandatory sanctions.
“If the United States, Britain, West Germany, France and Japan got together and worked up a plan to put us out of business, we would not last for very long,” Stephen Hunter-Smith, the owner of a specialized metalworking firm, said in Johannesburg. “They could target our weak points and start shutting us down--factory by factory, industry by industry--within weeks by ending supplies of certain industrial chemicals, ending maintenance on sophisticated equipment, barring sales of computers, machine tools and capital equipment, that sort of thing. . . .
“Oh, we would still be eating,” he added, “but the economy would be pushed back 20 years to the point where our industries simply were not competitive with those outside the Third World. These are not sanctions that are going to starve us out; their intention would be to drive us slowly into bankruptcy.
“But none of this is likely to happen because the United States, Britain, West Germany, Japan and our other major trading partners are not going to cut off their sales to us, not when it means lost jobs for their workers and lower profits for their companies.”
There is another type of sanction that has been defined by one commentator here as “the self-righteous cheap shot"--the consumer boycott of South African goods in Ireland, the union ban in some ports on handling goods bound to and from South Africa, the threat in Australia to cut telecommunications links, the ban in Ontario on the sale of South African wines, Finland’s decision not to buy fresh fruit from South Africa next winter.
“These don’t have much impact, except on the exporter who loses a sale or the shipping company that has to find another port,” a government trade official in Pretoria said. “But they make doing business abroad very, very difficult because you never know when your partner will phone up and say, ‘Well, sorry, but. . . . ‘
Creating an Atmosphere
“We also worry that, little by little, they will create acceptance of much broader measures, even a total trade embargo. That, of course, really would be serious for the nation as a whole. And that is why we must fight even the silliest of sanctions.”
But South Africa, in fact, is largely self-sufficient in consumer goods, which account for less than 15% of imports. Luxuries such as coffee, Scotch whisky, British woolens and Coca-Cola could be brought in through one of its black-ruled neighbors, which are economically too dependent on South Africa to impose trade sanctions.
Exports of South African manufactured goods, in the event of a trade boycott, might also be shipped through South Africa’s black neighbors and perhaps be finished there to acquire a different certificate of origin.
Some companies here, hoping to sell to countries that ordinarily will not buy South African products, have already approached trade officials in Swaziland and Botswana about such arrangements but have been turned down. Other companies are holding similar talks with potential Israeli partners.
South Africa’s most important export, however, is gold, which accounts for half of its foreign earnings. And, despite proposed bans on the Krugerrand, no one expects a halt to the West’s purchases of South African gold in favor of, say, gold from the Soviet Union or Canada or Australia.
Would Drive Prices Up
“Such a ban would be unenforceable,” a senior Western diplomat in Pretoria observed, “and if effective it would tend to drive the price up.”
The same is true of most of South Africa’s major mineral and metal exports--platinum, manganese, chromium and vanadium among others--and their sale is of such importance to South Africa’s economy that few observers see the government carrying out its occasional threats to halt these exports.
What holes might be left in the marketplace by broad trade sanctions would be quickly filled by local entrepreneurs, encouraged by protective tariffs, government subsidies and tax rebates to undertake a major import substitution program.
Looking at the 14-year trade embargo imposed on white-ruled Rhodesia (now Zimbabwe) to the north, some economists predicted that the medium-term result of trade sanctions would be a boom. If foreign companies were forced to withdraw--and more than a dozen U.S. firms have pulled out in the last year--there would be South African buyers waiting to take over.
As a top American executive here put it, they would be able to buy out the Americans “at fire sale prices of 10 cents on the dollar.”
“The Rhodesians showed how it is possible to evade much tougher sanctions than we are likely to face, without a fraction of the resources and skills that South African businessmen can deploy,” Johannesburg business consultant Martin Spring said last week.
‘Blessing in Disguise’
Spring, who called sanctions “a blessing in disguise,” argues that, in economic terms, sanctions should spur the development of high-technology industries in South Africa. High-tech products ranging from sophisticated machine tools to precision instruments to computers are needed increasingly and are almost all imported at present.
A ban on their sales to South Africa would make them 15% to 30% more expensive, because middlemen would have to be used, but it would also encourage development of these industries in South Africa and that, in turn, would help modernize other sectors of the economy.
“The more hostile international environment will put more pressure on the government and the business community to develop local high-tech resources, just as we did in the 1960s, when we reacted to the arms embargo by establishing one of the world’s largest defense weapons industries,” Spring said.
“Pressure that forces us into greater self-sufficiency gives us more room to maneuver to evolve solutions to our problems that meet the disparate and often clashing needs of our various peoples, rather than the domestic or foreign-policy interests of foreign nations.”
Warning Against ‘Siege’
But three of South Africa’s leading business groups--the Federated Chambers of Industries, the Assn. of Chambers of Commerce and the National African Chambers of Commerce--warned last week against such a “siege” economy.
“The loss of direct access to international markets, finance and technological transfer will lead inexorably to a decline in international competitiveness,” the groups said in a joint statement, which called urgently for political negotiations to solve the country’s problems.
“In these crucial areas, unlike Rhodesia in the years of the unilateral declaration of independence (from Britain), South Africa will stand much more alone. As a reaction to political pressures, a siege economy essentially treats symptoms rather than causes.”