CASE STUDIES Assessing the effects of disinvestment US ... · Coke. CocaCola provided franchises, management, marketing, and other ser vices to the other boulers ofCoke through Coca

CASE STUDIES

Assessing theeffects ofdisinvestmentby US companiesBetween 1986 and 1988, some 134 US firms "disinvested"from SA. But anti·apartheid activists and trade unionists arehighly critical of the way in which most companies havepulled out. DEBBIE BUDLENDER investig",at".e",s~. _

In January 1986, the Coca Cola Com- assess the response of US companiespany of Atlanta, USA, donated $10 to calls for disinvestment.million to establish the Equal Oppor- Most of the organisations sup-tunity Foundation (EOF). In mid- ported disinvestment and sanctions.1988, the EOF commissioned the They agreed that the chief aim of theCommunity Agency for Social En- disinvestment campaign was to exertquiry (CASE) to conduct a short re- pressure on the SA government tosearch project on disinvestment. force it to negotiate an end to apart-

I conducted more than 100 inter- heid. A union organiser said that theyviews. Most of the interviews were would also use the threat of disinvest-wilh people from organisations in ment to force companies to improveSoulll Africa or the USA who are conditions. But interviewees also ac-fighting apartheid. I also interviewed knowledged that the oppressed maySA and US spokespeople of eight US have to endure extreme suffering orcompanics which have or had South pain because of sanctions. Some alsoAfrican subsidiarics. One of the main were worried about 'inheriting aquestions in the research was how to wasteland' after apartheid goes.

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DISINVESTMENT

Because of the possible sufferingdisinvesunent could cause, manypeople said their assessment of a par­ticular company would depend on thestrategic or other value of the pro­ducts, the size of the undertaking, thenumber and type of workers em­ployed, and to whom the productswere sold.

At least 57 of the 114 companiesthat 'disinvested' between 1 January1986 and 30 April 1988 still keptsome link - licensing, managementand technology agreements, loans,product sales, buy-back clauses, etc ­with their former SA subsidiary.'" Or­ganisations expressed anger aboutthese sham withdrawals. They feltcompanies had been dishonest in port­raying them as disinvestment.

Checklist of demands

The checklist below containspoints which organisations wantedcompanies to comply with when with­drawing from SA. These points cameout of the interviews as well as fromthe written policies of the ChemicalIndustrial Workers Union (CWIU)and a coalition of five of the main USgroups campaigning for disinvestment.

o Management must consult andnegotiate with the workers' unionand federation, or with workerswhere there is no union. Theymust not just announce a fait ac­compli. Management must supplyfull information before and duringnegotiations, and workers r ;t be

able to get advice from auditors,lawyers or other professionals.

• Management must provide separ­ation pay, social security, pensionor providcnt funds and trust fundswhere there is full disinvestment.With partial disinvesunent. man­agement must consult workersabout changes in the sharcholdingand the terms offered to thosebuying the company. The newmanagement must guarant.ee con­ditions ofemployment and conti­nued recognition of the union.

• The company must provide hon­est and complete information tothe public.

o In cases of partial disinvestment,the 'new' company mustagrcenot to do business with homelandor government structures.

o Management must make a publicstatement which includes politicaldemands. In partial disinvest­mcnts, managemcnt must statethat they will reconsider theirpresence in South Africa ifcertain changes do not happen bya specific date.

o The social wealth embodied inthe local company - i.e. assets orproceeds of the sale - must remainthe property of the oppressedpeople in the form of plant,profits, a fund, or some otheracceptable and negotiated form.

• Where the company establishes afund. they must negotiate allaspects with the workers andother relevant groups.

• 'Leaving South Africa: The impact of US corporate disinvestment' by Jennifer Kibbe andDavid Haue}{, IRRC, Washington, Jufy 1988, page 24.

Apri/1989 48

Companycase studiesWith the above checklist as a guide.we can comment on the actions offour of the eight companies inter­viewed. The comments show how theguidelines could be applied in specificcases.

Coca Cola

Coca Cola owned shares in Amalga­mated Beverage Industries (ABI) andAmalgamated Beverage Canners(ABC), a factory in Durban which pro­duced the secret syrup which makesCoke. Coca Cola provided franchises,management, marketing, and other ser­vices to the other boulers of Cokethrough Coca Cola Expon. which waswholly-owned by Coke.

In 1986, Coke sold its last sharesin ABI and moved me syrup factoryto Swaziland. Fonner management ofCoca Cola Expon established Na­tional Beverage Services (NBS). NBSnow pays Coke Atlanta (the parentcompany) for the license to sell itsfranchises and provide the other ser­vices previously provided by CocaCola Export. NBS also imports thesyrup from Swaziland and supplies itto the bottlers.

At the time of withdrawal. an NBS• 'Daily Desparch', 19 September 1986

CASE STUDIESspokesperson said : ~ ....no changes re­garding the existing production.manufacturing and distributionmrough the independent bottler net­work will occur.~· Although 1986was widely reported as the date ofCoke's wimdrawal, Coke only sold itsfinal shares in ABC in late 1987.Today. in 1989, we are still drinkingCoca Cola in South Africa.

A Coke spokesperson said that thecompany discussed withdrawal withmany people - inside and outside thecompany. in townships and in ruralareas, domestic workers and profes­sional people. Yel the company didnot infonn or negotiate with its ownworkers. One interviewee suggestedmat the company took advantage ofme fact that different plants were or­ganised by different unions.

When workers (and researchers!)asked questions about withdrnwal.ABI, NBS and Al1anta referred thequestioners backwards and forwardsand denied knowledge of and/or re­sponsibility for the topic about whichquestions were being asked. Formermanagers of Coke said that they weretold that only Al1anta could commenton the wiLhdrawal. Al1anta said thiswas 'to retain orderliness' and toavoid 'communications gettingcrossed.' A worker said that pre­viously he 'would have died' forCoke. Now he would be happy ifthey 'became bankrupt'. He said thewithdrawal was done in a 'dubious.underhand way'. NBS was like a 'sc­cret bureau'. Workers felt that theyhad still nOl received full infonnation.

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DISINVESTMENT

Coke has symbolic importance.For many it is the symbol of theUnited States. Management spoke oftheir wish to use Coke's good nameand trademark 'to make clear to theSouth African government that theywere running out of patience'. Criticsfeel the fact that Coke is still so vis·ible in SA has the opposite effect. Aworker felt that as Coke is probablygelling even greater revenue lhan be­fore, they are 'having their cake, aswell as eating it with cherries on'.

Several people said lhat even be­fore the wilhdrawal, Coke was notparticularly good on social responsi­bility projects. The African-AmericanLabour Commillee (AALC) of theAmerican Federation of Labour (AFL­CIO), said that within the US, Cokewas known for its anti-union Slance.

At about lhe same time that Cokewithdrew, they donated the SIOm toestablish the Equal OpponunitiesFund. The company said that this do­nation was not in any way connectedwith their withdrawal. Workers saidlhat lhe money used to fund the EOFhad been promised to them forhouses. Coke workers were given norepresentation on the Fund, nor was itdiscussed with them.

Today, Coke Atlanta says that ithas no power to innuence currentworking conditions because it docsnot own the bottling plants. In 1984,however, Atlanta said that it could laydown conditions for its franchiser.·NBS also said that they wcre able to

arrange jobs in ABI for syrup workerswho did not want to move to Swazi­land or take early retirement.

When Coke withdrew,lhey ar­ranged an offer of shares to theirsmaller distributors and to workers.Many, particularly COSATU-affil­iated workers, rejected individualownership, especially because no con­trol was involved. The SowetoChamber of Commerce also rejectedthe share offer. They said that theywould not "be enticed by 'blood'riches rejected by the unions~.n

EXXON

EXXON is the largest American oilcompany, but for historical reasons,its operations in South Africa have al­ways been much smaller than somc ofthe other big oil companies. WhenEXXON withdrew from SA, news­papers reported that they handed overall of lheir assets to a trust. Profitswould go to charity. What did thismean?

When EXXON decided to with·draw, there was no local buyer withmoney available. The company there­fore established a trust on the ChannelIsland of Jersey, New England. It lentthe trust the money to buy its SA com­panies. The trust would repayEXXON from its profits over an undis-

.. 'Update: COC<] Cola Co.' South AfriC<]n Review 5ervice./RRC. Washing/on. June 1984

•• 'Business Day' 8 October 1987.

Apri/1989 50

Anti-apartheid, pro-disinvestment cato: Bin BiggartlAfrapi

closed period. Once the EXXON loan pay various high fees to EXXON.had been paid back, the uust would This would reduce the amount of dis-donate profits to 'SA charities'. tributable profit available for charity.

The companies formerly owned by Channel Island law says that oneEXXON have been renamed AKTOL of the uustees has to be someone withand ZENEX. EXXON's products arc financial skills. At present thestill being sold by the new companies, EXXON trust consists of three 'per-which also continue to use existing sons' - the Channel Island companylCChnology. The withdrawal agree- handling the trust for EXXON, a pc-ment did not include new lCChnology, leOl expert and a financial expertbut also did not exclude it EXXON chosen by the regional head office ofsaid that they would consider this EXXON in Europe. Once the loan hasmatter when the time came. AKTOL been repaid, these three will choosesaid the transfer agrecmem gave the other truSlCCS, with advice from'assurance of imported supplies and local SA management.continuing access 10 IeChnology'.* AKTOL and ZENEX supply thc

The off-shore trust agreemcnt of- South African government Manag-fcred lax advantages for EXXON. II ment would nOI tell me whatwould be casy for them to milk the percentage of their sales arc totrusl b makin the SA com ~;os,,--_---,-~th~e~ ovemment.

.. 'BusirH1sS Day' 4 Mly 1987

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DISINVESTMENT

52Ap"J 1989

Mobil documents said Mobil and the founda-tion work very closely lOgether.

Wllh '"W'OU'" __ One.. The foundation counts towards

Mobil Mobil's fulfilment of the Sullivanprinciples. A large pioportion of lhe

Mobil is the US company with the money is tax-dcductible. An AALCbiggest investment in South Africa. It spokesperson said that Mobil had 'nois one of the main target companies of concept' of social responsibility in lheUS anti-apartheid organisations, as a US and their SA expenditure wascompany which 'fuels' the apartheid therefore obviously a camounage.Slate, including its anny and police Mobil also tuls a smaller internalforce. Mobil iS,on the other hand, in fund, from which employees can re-the forefront of the campaign against quest small grants for 'non-political'disinvestment. Sal Marzullo, vice- community projects. The committeepresidem of Mobil, is chairperson of which decides on grants consists ofthe Corporate Council, a body formed employees. The company advertisedto advance the anti-disinvcstment posi- for members of lhe commiuee on theLion. In June 1988, Mobil warned the company notice boards. CWlU has or-US government it would sue for S400 ganiscd several of the bigger Mobilmillion, which is the value of its SA plants. Mobil said thai. union peopleassets. if it were forced through the were 'free 10 be involved' on lhe com-Ocllums Bill 10 leave. mince, bUI on the same individual

Mobil was the only one of the basis as any olher workers.eight companies in the Uniled Stalesthat would not give me an interview.Marzullo's assistanl said thai Marzul-

810 was very busy campaigning againslthe Ocllums Bill. He was 'too busyeven to go to a banquet'. SA manage-mem said that Mobil was worried Steiner Companyabootlosing control over what wassaid aboti Mobil as this 'does damage Steiner, a private, family-owncdin lhe market-place.' linen and laundry business, has its

Mobil established its own charit- headquarters in Salt Lake City, USA.able foundation with S20m to be spent The company employs a total ofbe-over 5 years. Only 14 of the 23 trus- tween 7,500 and 8.000 peopletees are black. Three are Mobil world-wide. Steiner is private andpeople. A fonner employee of the therefore oot subject to shareholderfoundation said it acted independently pressure and keeps a very low profile.of"management - somewhat to Yet by May 1988, ilemploycd 2,500Mobil's surprise. But both manage- people in eight different plants withinment and the foundalion's own South Africa.

•

I interviewed several Steiner wor­kers on Friday I July. The same day Ireceived a call from Steiner head of­fice 10 say they had sold their SAsubsidiary the previous day. At thatstage, neither the Transport andGeneral Workers Union (TGWU) ­which had a recognition agreementwith the finn - nor the workers wereaware of the withdrawal. Later inJuly, Steiner assured me workers hadbeen told about the withdrawal onMonday 4 July. In mid·August. theunion organiscr said the union andworkers had still not been informed.

Steiner said they had disinvestedbecause of mounting pressure of vari­ous sons and the ihreat of morepressure 10 come. Even the conserva­tive local students in Salt Lake Cityhad taken up the South African issue.They had, for example, built squattershanties on the campus as an anti­apartheid demonstration.

Steiner did not sign the Sullivancode. They paid wages below thoselaid down by the US Stale Depart­ment. Steiner explained the low wagesby the chiefly unskilled nature of theworkforce. He said they paid wages15 to 30% higher than their competi­tors and at the level demanded by theumon.

Steiner workers' wages were thelowest of all factories organised byTGWU. Union lists show that theoverwhelming majority of their mem­bers were earning the minimum wage- about R62 per week. The union ratementioned by Steiner was the Indus­trial Council rate agreed upon by aprevious, more conservative union.

CASE STUDIES

Workers had deserted this union tojoin the TGWU. but had not yet re­negotiated wages. Steiner onlyrecognised TGWU after lengthy bat­tles involving victimisation and astrike.

The local financial manager saidthat Steiner had no social responsi­bility programme. Steiner head officereponed small-scale funding ofa localschool. Both they and the workerssaid that the company refunds fees tosuccessful night school students.

Opponents of disinveslment arguethat US managements in general arcmore progressive in their handling ofworkers. The particular experience ofSteiner tells them differently.

Conclusion

This research highlights the com­plexity of disinvestment. Thechecklist is only a guideline to what isideal. Unionists from both COSA11Jand NAcru said that checklists couldnot provide a quick answer. It is un­likely that any companies will act in acompletely ideal manner. Companiesexist to make profits and not 10 takepan in the struggle for a new SouthAfrica. But, while understanding this.interviewees felt that most companiescould have been more honest, bothwith their workers and the public. andshould have been involved in muchmore negotiation. i?

Note: this article is based on a longerreport wrilten for CASE (see theadvert on page 96)

53 SALB Vol 14 No 1

completcly and withdraw all financialassets, machinery, tcchnology, etc.Sccondly, the foreign company maysell the plant, including all the assets,to another company. Only the firslform of disinvesunenl involves anecessary loss of jobs. In the secondform of disinvestment the plant con­tinues to operate under a new owner,so there should be no loss of jobs.

More American companies havedisinvestcd than companies fromother countries. Some of them beganwithdrawing before the sanctions/dis­investment campaign intensified in1986. This suggeslS that many foreigncompanies were already questioningtheir South African investment on

DISINVESTMENT

AmericandisinvestmentandunemploymentMany businessmen argue that disinvestment causes joblosses and hardship to black workers. MIKE SARAKINSKY~ues that this is not the case.

In The Star of 10 January 1989,("Thousands lose jobs because of sane·tionn, Me Adrian Botha, the Execu­tive Director of the AmericanChamber ofCommerce (AMCHAM),claimed that between 8,000 and10,000 people, -mainly black~, losttheir jobs or were retrenched becauseof the withdrawal of American com·panies from South Africa in 1988. MeBotha has pointed out that he was mis­quoted, and that he actually said theselosses occurred between 1984 and1988. In any event, Mr Botha's claimsarc extremely questionable.

. Disinvestment may take, broadlyspeaking, two fonns. Firslly theforeign company may close the planl

April 1989 54

EFFECTS ON UNEMPLOYMENT

Only 1,000 jobs lost

The IRRC report calculates thatjust over 1,000 workers wcre cm-

£300 million in 1983 to about£100 million in 1986 as Britishcompanies began to reduce theirholdings in South Africa or (0leave completely. Clearly manyforeign companies were question­ing the long tenn profitability ofinvesting in South Africa be­cause of the economic crisis inthe country. Yet no one ex­pressed concern over the fate ofthe workers affected by thisspate of disinvesunenl

Contrary to the claims of theanti-disinvcslment lobby, the cur­rent wave of disinveslmcnt hashad very liule effect on the levelof unemployment because it hasseldom meant the complete clo­sure of the operation. Usually ithas simply meant a transfer ofownership. Very few Amcricancompanies have actually closeddown their operations complete­ly, and those that have, tend to

be small-scale employers. Thus,according to Invcstor Responsi­bility Research Ccntre (IRRC),of the 114 American companiesthat withdrew between the begin­

Unemployment - not caused by ning of 1986 and mid-1988, onlydisinvestment ho A Zi . wA' . 13 closed down their operations_______~p~~~~'~n~oo~~~~m~'~-~,~."'~,complctcly. Much more commoncconomic grounds before the sanc- has been the sale of the company.tions and disinvestment campaign got This has meant that jobs were retaincdoff the ground. According to the AM- in the rcmaining 101 companiesCHAM, 47 American companies left which sold their assets.South Africa in 1984 and 1985, withanother fifty leaving in thc course of1986.1Similarly the value of Britishcompany invcsunents in South Africafell from a high ofapproximately

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DISINVESTMENf

ployed in lhe 13 factories thaI doseddown compktely.2This means thaIliu1e more than I,CXXJjobs had beenlost as a direct result of American dis­investment up to mid-1988. The IRRChad employmelll figures for 106 of the114 companies concerned. Although12% of the companies closed downcomplelely,lhe workforce in thosecompanies represents only 3% of thetalal workforce in the 106 companieswhich disinvested. This demonstratesquite clearly that, at least as far asAmerican disinvestmelll is concerned,disinvestment has had only a negli­gible effcct on unemployment.

While the nwnber ofcompaniesapparently withdrawing from SouthAfrica looks signifJCarlt, most of thesecompanies have found indirect waysof retaining access to the South Afri­can market whik simultaneously con­tinuing ta provide the country with thecommodities and tee.hnology it needs.

The IRRC Report showed that50% of American companies thathave lefl South Africa since 1986"relain a contract, or a licensing, dis­tribution. tcchnological, trademark orfranchise agreement wilh a companyin South Africa"?

A more recent report by the IRRCshows that in total 132 American com­panies had left by the end of 1988."This means Lhat 18 companies disin­vested between mid· 1988 and the endof 1988. If Mr. BoLha's c1ai m that8,000 workers had lost their jobs be­<;ause of disinvestment were true, then7,000 jobs must have been lostthrough the disinvestment of these 18companies. This is impossible, unless

April 1989

a number of them completely closeddown lheir operations and they wereextremely large employers. Mr. BoLhahimself. however, discounts this possi­bility by saying that most of lhedisinvesting companies -were eithersold 10 local inlCreStS or to other inter­national companies".

How can Mr. Botha claim that be­tween 8,000 and 10,(0) blacks losttheir jobs as a direct result of Ameri­can disinvestment? What happensvery oflen is thatlhe ncw owncrs andmanagers ofcompanies bought fromforeign companies which have disin­vested from South Africa engage in aprocess of "rationalisation- involvingchanges to the labour process, the in­troduction of new technology andretrenchments. This has happened forexample at Ford and Genernl MOlOfS.

Retrenchment to blame, notdisinvestment

"Rationalisation" is separate fromdisinvestment and it is lhc rationalisa·tions which create the unemployment,not the disinvestment. It may well bethe case that over 8,CXXJ people em­ployed by companies whichdisinvestcd flOm Soulh Africa losttheir jobs. But the evidence suggeststhat it was not disinvestment whichcaused them to lose their jobs, butralhcr the rationalisations. In fact Mr.Botha has since acknowledged lhis tobe the case.S

ftRationalisations" have been oc­curring long before the currentupsurge in lhe sanctions and disinvest­ment campaigns, and should not be

56

seen as a necessary outcome of disin­vestment. Decisions regardingretrenchment made by the newowners are a separate issue from thedecision made by the Americanowners 10 sell the company.

The South African economy hasnot only been unable to create jobsthroughout the 1980's, but it has alsobeen actively destroying jobs. It is sig­nificant that this has been the trendsince long before the sanctions anddisinvestment campaign intensified inmid-1986. Betwccn 1981 and 1985,181,634 African jobs were lost acrossall sectors of the economy. excludingthe "independent" bantustans, agricul­ture and domestic service. Thiscontributed to the overall level of Afri­can unemployment of over 6 millionby 1986.6 Since the early 1980's, in­vestment has increasingly beenspeculative. Investors have boughtexisting shares on the stock market orhave made loans to existing com­panies rather than opening newfactories or starling new businesses.What direct investment has occurredhas been largely capital intensive7,that is, it is investment in sophisti­cated technology which creates fewjobs or even leads to retrenchments.

Even if we accept Mr. Botha'sfigure of 10,000 job losses, when wecompare this to the increase in unem­ployment that has occurred since1984, which is approximately 1 mil­lionS. then we see that 10,000 is onlyabout I%. Disinvestment has thus con­tributed almost nothing tounemployment.

Mr. Botha's claims do not'emerge

EFFECTS ON UNEMPWYMENf

in a vacuum. One of the favourite ar­guments against disinvestment is thatit creates unemployment and there..fore. insofar as pressurising thegovernment into moving away fromapartheid is concerned. it is counter­productive and deals the most hann tothose it is meant to help, i.e. blacks.However, Mr. Bolha is engaging insleight of hand. He simply lumpstogether the two processes of rationali­sation and disinvestment and claimsthat disinvestment is responsible forthe loss of jobs. -et

References

I. Adrian Botha, Executive DireclOr ofAMCHAM, personal communication,

Feb. 1988.2. Kibbe & Hauck: "Leaving South Africa:

The Impact of US Corporate Disinvest­ment", 1RRC, Washington,

July 1988, p. 50.3. Kibbe & hauck, pp. 20.4. Quoted in the Sunday Times Business

Times, 15/1/89, "Heat comes off as exo­dus from SA slows".5. Personal communication. 18 Jan 1988.

6. Suakinsky and 1 Keenan, "Unemploy­ment in South Africa", South AfricanLabour Bulletin, Volwne 12 Number l,

November/Deccmber 1986.7. See any edition of the Reserve Bank

Quarterly Report after 1987 for figures

which cover most of the preceding yearslhroughout the 1980'5.

8. This is calculated by adding or subttact·ing lhe nwnber of jobs destroyed or

created over the period IO/from the250,000 new job seekers entering the job

market each yeu.

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