INTERNATIONAL BUSINESS : ‘Lion’ Still a Distant Dream : South Africa Finds Foreign Investors Remain Gun-Shy

President Nelson Mandela sounded grateful, to say the least, when he delivered a brief speech of welcome at a conference for potential foreign investors in a hotel ballroom here this week.

Mandela repeatedly and effusively thanked the 200 or so business leaders, bankers and financial analysts “from the bottom of our hearts” for attending the session. He also sent his top aides and cabinet ministers, while the chairmen or directors of nearly every major company and state-run utility in South Africa painted promising pictures of local economic opportunities.

But a Western diplomat in the room laughed when asked about the impact of the high-powered Southern Africa Investment Summit, sponsored by the International Herald Tribune as part of an ongoing series around the world.

“Look around,” he said. “There’s only about 10 people here who are really looking to invest. Nearly everybody else is already based here. . . . This is a very expensive and time-consuming exercise.”

Some potential investors clearly agreed. A Canadian investment portfolio manager confided that his brief visit, so far limited to the five-star hotel, had convinced him that South Africa was still plagued by violence and instability, not lucrative business deals waiting to be exploited.

Similar fearful assessments have dogged Mandela’s fervent attempts to lure international investment, even though political violence and labor unrest have plummeted in the 17 months since the collapse of apartheid brought an end to crippling economic sanctions and the opening of Africa’s richest economy.

Despite high hopes and endless conferences and trade missions, officials here are openly disappointed that many foreign investors remain gun-shy. The government’s goal to leverage a flood of foreign money to become a roaring African “lion,” similar to Asia’s booming “tiger” economies, remains a distant dream.

South African companies have invested heavily. Capital projects now in progress here are valued at a total of $31 billion. But only about $1 billion of that sum is from foreign companies.

To be sure, South Africa is in its third year of a modest economic recovery after years of decline. Annual economic growth this year is projected at about 3%, or just above population growth. But that’s far less than the 6% or more the new democracy needs simply to soak up unemployment. And little of the new investment creates desperately needed jobs. The government estimates almost 33% unemployment, with another 16% informally employed at the edge of the formal sector.

At the same time, senior officials are conceding for the first time that the government’s widely touted Reconstruction and Development Program will fail to meet some of its more ambitious goals. The RDP, as it is known, is a still-evolving policy framework that aims to deliver houses, electricity and other tangible benefits to the poor.

Jay Naidoo, the minister in charge of the program, acknowledged at the conference that some of the program’s most-publicized goals--such as promises to build a million homes in five years, and to redistribute 30% of arable land to landless farmers in the same period--probably can’t be met.

“At this stage, obviously we’ve discovered major obstacles in the delivery process,” Naidoo said. He said a more realistic time frame to achieve the goals may be “20 or 25 years.”

“We have recognized our weaknesses,” Naidoo added. “We can’t do everything. And we certainly can’t do everything overnight.”

John Maree, chairman of the now-commercial electric utility, Eskom, complained that the government had relied too little on the private sector in planning and delivery of services. Eskom is the only agency that has successfully met its RDP goals, wiring an average of 1,000 homes each day for electricity. Most are in impoverished urban townships or rural villages.

The institutionalized racism of white minority rule left a majority of South Africa’s 41 million people with grossly inadequate schools, health care, sanitation and housing. It also left an expensive, largely unskilled and relatively unproductive labor force. Hence, the anxious pleas from Mandela and other key leaders here for more trade and investment to fuel exports, jobs and sustainable economic growth.

High-profile international business delegations have come by the dozen, often led by government leaders. German Chancellor Helmut Kohl is leading 90 German business leaders on a five-day visit this week, for example. Germany is South Africa’s No. 2 trading partner after the United States, and, thanks to German automobile manufacturing plants here, its chief foreign employer. But the trade is heavily one way: Germany exports nearly four times as much to South Africa as it imports.

“We are endeavoring to even out this imbalance,” Kohl told Parliament in Cape Town on Monday. He also promised greater German support for easier South African access to European markets and the European Union.

Scores of European, American and Asian companies have opened their doors for business here, often with much fanfare. But only a few, including PepsiCo and Levi Strauss & Co., have opened factories that create jobs. Many others simply reacquired subsidiaries that they sold when international sanctions were in effect, or opened sales offices for goods produced elsewhere.

During the two-day investment conference, South African financial and business leaders generally praised the government’s fiscal and financial discipline, its market-oriented policies and its conservative use of public resources.

They invited investment in infrastructure, housing, communication, agriculture and tourism. And they extolled the country’s virtues--a sophisticated business climate, a population hungry for foreign goods, rich natural resources and a base for business in a region of 120 million people.

“Our aim in South Africa is to follow the political miracle with an economic miracle,” explained Roy Andersen, executive president of the Johannesburg Stock Exchange.

The exchange, which has market capitalization of about $240 billion and is the world’s 10th-largest stock bourse, probably has profited most from foreign involvement so far. International bargain seekers have flocked to buy long-established South African companies.

In the first six months of this year, foreign buying accounted for about 40% of turnover on the exchange, said M. J. Levett, chairman of Old Mutual, South Africa’s largest insurance and investment conglomerate. He said the stock market and long-term bonds had “provided sound returns” for foreign investors, yielding a steady 15% annual return for dollar-based investors in recent years.

Levett said the government of national unity led by Mandela’s African National Congress “has on balance followed reasonably sound policies” toward corporate profitability and that a “major shock does not appear likely.”

Chris Stals, governor of South Africa’s Reserve Bank, agreed. He said inflation has dropped below 10% since 1993 for the first time in two decades. He promised a “major and concerted attempt” to push inflation below 5% in coming years.

Stals said the abolition of a dual currency system for investors, which was scrapped earlier this year, removed a key obstacle for foreign investors. He pledged to remove remaining exchange controls, although he gave no timetable for doing so.

But as he looked out at the conference hall, Stals acknowledged that many potential investors were still skeptical. “It reminds me of an old saying,” he joked, “You can lead a horse to drink, but you can’t make it water.”

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Struggling to Attract Investment

Foreign investors have largely stayed out of South Africa, fearing political violence and labor unrest. In addition, the only recently dismantled apartheid system left South Africa with a largely unskilled and relatively unproductive labor force. But the country still has Africa’s richest economy, and South African companies have invested heavily at home.

Economic Indicators

Real GDP

Percent change

2000: 4.7%

Inflation

Year to year

2000: 6%

Trade Balance

In billions of dollars

2000: 0.4

Note: For all charts years 1995-2000 are projected.

U.S. Investment

Direct U.S. investment in South Africa, in billions of dollars:

1994: $1.04

Sources: Bank of America World Information Services, Investor Responsibility Research Center. Researched by JENNIFER OLDHAM and DAVID NEIMAN / Los Angeles Times