Next Step : Americans Keep Up the Heat on S. Africa : Striving to be on the ‘right side,’ U.S. firms jump belatedly on the sanctions bandwagon.

As recently as a few months ago, the American makers of Nike running shoes had a lock on the South African market. They sponsored the country’s top runners and were selling 150,000 pairs of shoes a year, at $80 to $200 a pop.

The only trouble: the company pulled out of South Africa three long years ago.

When the Beaverton, Ore., firm discovered that its shoes were still pounding the pavements here, it put its foot down. Hard.

“Somehow, the word got back to them,” admitted a contrite representative of Ajay-Sports, the local Nike distributor. “They sat us down and told us to stop selling their shoes down here. We were frankly surprised it took that long for them to find out.”

The Nike crackdown reflects a new, growing trend that has mystified many South Africans: Just as sanctions imposed by Europe and other African countries have begun to crumble, growing numbers of American firms are pulling out, and American products are vanishing from the shelves.

One explanation is that American businesses want to be seen as standing on the politically correct side of sanctions on the day they are lifted. After all, most people figure that the leader of the sanctions drive, Nelson Mandela’s African National Congress, soon will wield a lot of power in South Africa.

But another reason is that American sanctions, already the most stringent of all worldwide measures against Pretoria, actually are getting tougher.

President Bush is expected to lift most U.S. sanctions when South Africa formally removes the legal pillars of apartheid--the laws that have segregated neighborhoods, restricted black ownership of land and classified all South Africans by race. The South African Parliament is expected to take those steps this month, and Congress is considered unlikely to override Bush on lifting of the sanctions.

But even if Bush succeeds, American businesses won’t come rushing back to South Africa. Those congressional sanctions have been dwarfed by an array of even more potent weapons--laws passed by Los Angeles and dozens of other cities, counties and states to stop letting contracts to firms that do business in South Africa.

The laws, many adopted in the past year, have forced large American companies to choose between lucrative local contracts and their business interests in South Africa. And most of those sanctions will remain until the ANC and other black liberation groups inside South Africa give the thumbs-up sign.

“Most cities and states are not going to move until the ‘democratic movement’ inside South Africa tells them to,” said Richard Knight of the Africa Fund, an anti-apartheid group based in New York. “We’re not talking about another 20 years, but the timing of all these things is important.”

Are times right now? The government and the South African business community certainly think so. And some world leaders agree. Eleven of the 12 members of the European Community recently voted to lift the EC’s ban on imports of iron, steel and gold coins from South Africa. But the move was blocked by Denmark.

Even Archbishop Desmond Tutu, whose pro-sanctions stance has long angered white South Africans, recently urged anti-apartheid groups to consider lifting sanctions to help ease black unemployment, now estimated at 45%.

But the ANC and anti-apartheid organizations in the United States and Europe do not agree. They want the pressure maintained because they doubt that the white-led government is ready to turn over power to a government elected by the majority in a country where blacks account for 80% of the 35 million population.

“Yes, there have been changes (in South Africa),” Thabo Mbeki, the ANC’s international affairs director, recently told the left-wing weekly New Nation. “But they are not changes which merit a termination or cessation of international pressure.”

Even if the ANC changes its mind, no one knows for sure whether investors will come rushing back to South Africa. Many American firms have sent teams to South Africa to investigate, but the black factional fighting that has claimed 1,500 lives in the past year and the already rocky road to black-white power-sharing has them worried.

“As we all know,” South African Foreign Minister Roelof F. (Pik) Botha said recently, “investors do not easily invest in a situation where people are killing each other on such a scale in this bloodthirsty manner.”

Wayne Mitchell, executive director of the American Chamber of Commerce in Johannesburg, has fielded many inquiries lately from South Africans interested in doing business with American firms. But only a few American companies appear to be exploring the new terrain, and they are doing so secretly.

“You can do away with every bit of sanctions legislation, but unless there is political stability, it will be difficult to attract investors here,” Mitchell said.

Mitchell believes it will be easier to attract new investors than to lure back investors who left the country, often after bitter fights with South African unions and their own American stockholders.

“Many companies went through a tough process of disinvestment,” Mitchell said. “The umbilical cord was cut, and they will find it difficult to patch up those past differences.”

C. Joseph LaBonte, a former president of Reebok International, has been urging American corporate chiefs to meet the ANC and other South African groups to explore business opportunities before sanctions are removed.

“There are a lot of companies willing and ready to come back when sanctions are lifted. I’ve not had a ‘no’ from anybody,” LaBonte said in a recent interview. “And now is the time to cut the deals.”

LaBonte, a Los Angeles financial consultant who has visited South Africa twice in the past year, says American business people “will be refreshingly surprised at the intellect, and the vision,” among blacks here. But, he added, “South Africans have got to make it attractive so that everybody knows the ground rules and people can invest with peace of mind.”

ANC economists agree that they will need to draw up an investor code to show that investments will be safe from nationalization. But the ANC still is debating its economic policy, and its close ties with the South African Communist Party have some investors worried.

Business experts say, though, that if American companies wait too long to return to South Africa, they may find it difficult to break into the market.

“The biggest problem the American investor faces is that he’s already 10 meters behind in the 100-meter sprint,” Mitchell said. “The Japanese, Germans, British, French and Italians already are getting their act together in the country.”

Since 1986, when Congress passed its sanctions law, 190 of more than 300 American companies left South Africa. But disinvestment didn’t rob the country of many American brand names. Many of those that pulled out, such as IBM and Ford, still allow their products to be sold in South Africa.

A few may even be unaware that their products are sold here. Kodak disinvested from South Africa, for instance, yet its film, manufactured by subsidiaries in the Far East and Australia, is sold in almost every pharmacy and photo-processing store.

Nike ordered its southern Africa distributor, Ajay-Sports, to pull its shoes off the shelves in June, 1988. But Ajay was reluctant to stop selling the country’s most popular brand, which accounted for about half of Ajay’s revenue.

So Ajay began importing the shoes through another African country and lowered its marketing profile, trimming its athletic sponsorships and advertising.

When Nike put an end to Ajay’s arrangement earlier this year, the local sporting goods distributor was forced to lay off 10% of its staff.

“What they’re doing is just making sure nobody jumps the gun before apartheid is gone,” said an Ajay spokesman, who asked not to be named. “I have no doubt that most of these guys will come back. But they will wait until times are right.”

Other American firms, including Dell Computers in Texas, recently have felt the bite of local U.S. sanctions laws and severed their ties with South African distributors.

Sanctions legislation now exists in 28 states, 20 counties and 90 cities.

In Los Angeles, the city is prohibited from purchasing goods from companies doing business in South Africa. And California has a law that bars state pension funds from investing in the stock of companies operating in South Africa.

Chicago and Detroit last year joined Los Angeles in passing selective purchasing laws, and New York City expanded its sanctions legislation in July to target companies with licensing, franchise or distribution agreements in South Africa. The governor of New Jersey recently ordered the State Turnpike Authority not to renew the service station contract of Shell, which still does business in South Africa.

Meanwhile, though, the South African economy is ailing.

Chris Stals, the governor of South Africa’s Reserve Bank, told a conference in Italy recently that South Africa could become ungovernable by 1995 unless the economy improves.

Nearly 40% of the potential labor force lacks formal employment, and economists say only 10% of newcomers can find work. They say South Africa needs 10,000 new jobs a week to keep pace.

The government’s inability to obtain loans, falling gold prices and a worldwide recession have prevented the economy from expanding fast enough to keep up with its 3% annual population growth. Last year, for example, the economy shrank by 1%, and the prospects for this year are only slightly better.

President Bush is one of a growing number of foreign leaders who want to help South Africa’s economy, arguing that the ANC and other anti-apartheid organizations won’t have a country to inherit if sanctions remain in place.

The Bush Administration can get rid of the 1986 Comprehensive Anti-Apartheid Act after President Frederik W. De Klerk removes two remaining obstacles. One of them, the Group Areas Act, which legally segregates South African neighborhoods, is expected to be formally repealed within weeks.

The other is the release of political prisoners. De Klerk has freed about 1,000 prisoners in recent months, but he has been reluctant to release inmates convicted of more serious political crimes, such as murder. The Bush Administration has indicated that--in determining whether De Klerk has met that provision--it will use the State Department definition of political prisoners. This means people jailed for nonviolent political beliefs. By that standard, South Africa already has met the condition.

U.S. sanctions currently ban landing rights for South African Airways, impose double taxation on American companies operating in South Africa, ban imports of textiles, steel and coal and forbid American banks from accepting deposits from the Pretoria government.

Removing those sanctions won’t rescue South Africa’s economy, although it may be a psychological boost for the nation and prompt other countries to follow the American lead.

However, South African economists are most worried about the Bush Administration’s refusal to consider scrapping the Gramm Act, which requires the American representative at the International Monetary Fund to block any loan application from South Africa. When the IMF refuses to loan a country money, few private banks will, either.

When Herman Cohen, U.S. assistant secretary of state for African affairs, told Congress recently that the Administration plans to retain the Gramm Act, his remarks were widely criticized inside South Africa.

The government-supporting Citizen newspaper, in an editorial headlined “Cynical Yanks,” said: “President De Klerk has turned this country upside down and inside out for the sake of a democratic new South Africa, yet the U.S. continues to talk of leverage, as if we are some puny banana republic that can be pushed around.”

South African Sanctions: Who Has Them, Who Doesn’t

The first nation--as opposed to international organization--to impose limited economic sanctions on South Africa was the United States in 1986. Under the Ronald Reagan Administration, Washington had maintained a policy of “constructive engagement”--a euphemism for maintaining political and economic ties with South Africa in hopes of gradually persuading it to change its objectionable policies and practices. However, the U.S. Congress passed the Comprehensive Anti-Apartheid Act of 1986 over Reagan’s veto. Various other cities, counties, states and nations around the world have imposed a wide array of sanctions since then.

OIL EXPORTS: A ban on sales of crude oil and refined petroleum products to South Africa. In addition to the countries below, most of the oil-producing nations in the Persian Gulf have pledged not to sell to Pretoria, although industry experts say South Africa is able to buy what it needs through third countries at slightly higher market prices. Who adheres totally: Belgium, Britain, Denmark, Finland, France, Greece, Ireland, Israel, Italy, Norway, Spain, Sweden, the United States Who adheres partially: Austria, Britain, Germany, Japan, Luxembourg, the Netherlands, Portugal Doing business: South Korea, Switzerland, Taiwan

NEW INVESTMENT: The curbs on new investment to South Africa vary among countries. The EC ban applies to direct transfer of funds for investment within South Africa but does not prohibit indirect investment, such as doing business with companies that operate there. The U.S. law bans all investment except for funds for firms owned by black South Africans. No country requires that existing investments be withdrawn. Britain and the EC lifted their bans on new investment in 1990.

IRON AND STEEL IMPORTS: A ban on the purchase of iron and steel products from South Africa. In the case of sanctions agreed upon by the 12-nation European Community, economically important iron ore and ferroalloys are not included in the ban. Eleven of the 12 have voted to lift sanctions on iron, steel and gold coin imports from South Africa, but the action has been blocked by the Danish Parliament. The EC needs unanimous consent to lift any sanction. Who adheres totally: Austria, Denmark, Finland, Iceland, Israel, Norway, Sweden, the United States Who adheres partially: Belgium, Britain, France, Germany, Greece, Ireland, Italy, Japan, Luxembourg, the Netherlands, Portugal, Spain

ARMS (IMPORTS/EXPORTS): The U.N. Security Council passed a proclamation in 1963 for a voluntary embargo on the sale and shipment of military equipment and material to South Africa. It made this embargo mandatory in 1977. Who adheres totally: Belgium, Britain, Denmark, Finland, France, Germany, Greece, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, the United States Who adheres partially: Austria, Israel Doing business: Taiwan, Switzerland, South Korea

BANK LOANS: This sanction involves both loans to South African companies and loans to South African government agencies. Most sanctions allow short-term loans of either type but ban loans with maturity dates of five years or longer. No country bans maintenance of existing loans of either type. Britain lifted its ban on new loans to South Africa in 1990. Total ban: Denmark, Finland, Israel, Norway, Sweden Partial sanctions to either government or private enterprise: France, Greece, Ireland, Italy, Luxembourg, Spain the United States Doing business: Austria, Britain, South Korea, Taiwan

TOURISM AND TRADE PROMOTION: Includes the promotion, advertising and sale of goods and services related to South African tourism. Also applies to government and private industry sponsorship of, and participation in, South African trade missions and related activities. Partial ban: Denmark, Finland, Iceland, Ireland, Norway, Spain, Sweden, the United States Doing business: Belgium, France, Germany, Greece, Israel, Italy, Luxembourg, the Netherlands, Norway, South Korea, Switzerland, Taiwan

BACKGROUND

The policy of separate development of the races, or apartheid, which had already existed unofficially, became official South African policy in 1948, when the National Party came to power and began to implement a series of programs to separate the races. By the time the U.N. Security Council imposed its mandatory ban on shipment of arms to South Africa in 1977, there already existed a small but vocal movement advocating universal economic sanctions as the only means of forcing the government to back down. The International Olympic Committee barred South Africa from participating in the Olympic Games in 1964 and subsequently banished the South African National Olympic Committee in 1970. The United Nations stepped up its campaign in 1979 by establishing an international oil embargo against South Africa. International banking institutions began to limit and restrict loans to South Africa as early as 1985.

COST TO PRETORIA

The Investor Responsibility Research Center of Washington, D.C., a nonprofit group that monitors companies’ social politics, reported last year that sanctions had cost South Africa roughly $20 billion over the past 20 years. The World Bank, meanwhile, attributes much of the country’s social strife, unemployment and economic decline to the effect the sanctions have had on the country. According to the bank’s calculations, South Africa has slipped from an upper-middle-income to a lower-middle-income developing country.

U.S. SANCTIONS

U.S. sanctions imposed in 1986 ban: new investment in South Africa except for that in firms owned by black South Africans; imports of South Africa iron, steel, gold coins and agricultural products, and exports to South Africa of crude oil, petroleum products, munitions and computer services to security forces. Government-owned South African Airways may not land in the United States.

DIPLOMATIC TIES

Fewer than 40 nations have full diplomatic relations with South Africa, but it has developed a number of lower-level contacts with African states and Eastern European countries during the past two years. It is a member of the United Nations but has no voting rights.

Sources: Associated Press, Investor Responsibility Research Center, Africa Fund and Association of West European Parliamentarians for Action Against Apartheid.