Invest in S. Africa, Official Urges : Diplomacy: U.S. firms could lose out to European, Japanese firms, ambassador says.
U.S. companies will lose out on investment opportunities in the new South Africa--deals that their Japanese and European counterparts will seize--unless American business becomes more aggressive, South Africa’s U.S. ambassador said Tuesday in Los Angeles.
Although U.S. consumer products firms have recently increased their presence in South Africa, those in aerospace, engineering and telecommunications need to make greater financial commitments, said Harry Schwarz, who spoke at a forum arranged by a Long Beach-based investment partnership. Schwarz said European and particularly Japanese companies are beginning to show a willingness to bet on South Africa’s economy. He said Japan is providing more foreign aid than the United States and that Japanese firms are investing faster.
“It’s very easy to wait and go in at the top of an investment market,” Schwarz said in an interview. “There is growing (American) interest, but we need more of a commitment at this time--particularly from small and medium-sized businesses.”
Schwarz said profit opportunities have been enhanced by the elimination of apartheid--South Africa’s system of racial discrimination--and by a mandate on the part of the new government headed by Nelson Mandela to create an economic climate that will lead to higher wages for the country’s black majority.
“As a result, there will be an increase in the demand for products (such as) prepared foods, clothing, household items and computers,” Schwarz said.
Some major U.S. firms--PepsiCo, Honeywell, IBM, Sara Lee and Procter & Gamble among them--returned to South Africa this year after having pulled out in the 1980s. The American corporate exodus was prompted by protests, U.S. economic sanctions and other forms of pressure to abandon the apartheid system.
In 1981, more than 300 U.S. firms were maintaining South African assets of about $2.6 billion. In 1989, they reached a low of about $714 million. But five years later--and three years after the U.S. sanctions had been lifted--just 164 U.S. firms with assets of $1 billion have operations there. Twenty-nine of those companies have gone in since Mandela called for an end to all economic sanctions against the country last September.
U.S. investors have not taken adequate advantage of the opportunities for direct investment, said Regional Cook, sponsor of the Schwarz visit and managing director of South African Partners, a Long Beach group that is raising money to create and acquire companies in South Africa.
“Investors who hesitate in the face of this opportunity will be crying in their soup 10 years from now,” said Cook, whose partner is former Coca-Cola executive Ian Wilson. Wilson separately leads a venture to return Pepsi to South Africa.
But Dan O’Flaherty, executive director of the U.S.-South Africa Business Council in Washington, says it is not surprising that U.S. firms are moving cautiously.
The new South African government “has operated for just more than 2 1/2 months, and its policy directions have only been sketched,” said O’Flaherty, whose organization provides economic data to companies in the two countries. “New rules governing investment, labor and taxes are being developed, and investors are waiting to see the fine print.”
South Africa is also competing with fast-growing markets in countries such as China, Argentina and Mexico, noted Bill Moses, a senior analyst at the Investor Responsibility Research Center, a Washington-based organization that conducts research for pension funds.
The economic “world that South Africa is re-entering is very different,” Moses said. “Communism has collapsed, and there is an economic revival in much of Asia and Latin America.”