Disinvestment, Sanctions and the European Community's Code of Conduct in South Africa¶
Martin Holland (1989). Disinvestment, Sanctions and the European Community's Code of Conduct in South Africa. African Affairs, Vol. 88, No. 353. Oxford University Press on behalf of The Royal African Society.
| Type | journal article |
| Scope | Wider apartheid literature |
| Method | policy analysis |
| Period studied | 1977–1988 |
| Regions | South Africa, European Community, United Kingdom, West Germany, Netherlands |
| Themes | sanctions divestment, labour markets wages, business and state, unions strikes, mining migrant labour, macro fiscal finance debt |
| Citation key | holland1989 |
Argument¶
Holland reviews the first decade of the EC Code of Conduct for European firms in South Africa and argues its effect on apartheid was marginal. The Code's coverage was narrow, compliance was voluntary, and the revised 1985 Code lowered the pay benchmark. The EC's 1986 ban on new investment and the wave of commercial disinvestment undercut the Code by shrinking the number of firms it covers, so EC policies are inconsistent and partly contradictory. Disinvestment was driven mainly by falling profits and the 1985 financial crisis rather than by morality. The Code is best read as a symbol that deflected sanctions pressure and fostered European Political Cooperation. The argument rests on the national company reports (UK, German, Dutch), supplemented by independent critiques and wage-determination data.
Evidence and method¶
Annual national reports under the Code (UK Dept of Trade and Industry 1977/8-1987/8, German and Dutch government summaries), EC Council Decision 86/517, texts of the 1977 and 1985 Codes, EIRIS independent surveys of UK company pay, SALDRU minimum wage monitor, Labour Research Department studies, press and Africa Research Bulletin, and secondary works. Research was done in Cape Town in 1987.
Place in the debates¶
- Sanctions and disinvestment effectiveness (see Sanctions, disinvestment and the anti-apartheid movement). Sceptical. The EC investment ban was diluted by loopholes such as reinvested earnings, and companies left for profit reasons. Disinvestment sometimes preserved economic links through licensing and sales to local managers.
- Constructive engagement and codes of conduct (Sullivan Principles/EC Code) as a tool against apartheid (see Sanctions, disinvestment and the anti-apartheid movement). The Code improved some labour practices and spurred domestic codes, but its overall effect was marginal and it served as a justification for continued economic links.
- Purpose of EC policy: genuine anti-apartheid instrument vs symbolic policy (see Sanctions, disinvestment and the anti-apartheid movement). Sees the Code as successful only if judged by different objectives: delaying sanctions, protecting business interests, and building common EPC policy.
Findings¶
- The 1986 EC investment ban was weakened by definitional loopholes, notably exempting reinvested earnings. (p. 4)
-
Disinvestment was driven by profitability and the 1985 financial crisis, with capital flight, rather than moral pressure. (p. 5)
While the anti-apartheid lobbyists claimed a political victory, in fact hard-headed economics and not morality had proved the stronger motive force.
-
Barclays' exit reflected collapsing South African profit share more than the boycott. (p. 6)
Barclays derived approximately ten per cent of their net profits from South Africa; this had slumped to 2 7 per cent by 1985
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The 1985 revision lowered the Code's minimum pay standard, from subsistence plus 50 per cent to plus 28 per cent. (p. 8)
The old HDL stipulated the subsistence level plus 50 per cent as the EC minimum; the new SLL5 has been calculated at just 28 per cent above the subsistence level.
-
The Code ignores racial pay differentials, which were unchanged between 1947 and 1982. (p. 9)
the ratio of white to African wages in the manufacturing and construction industries was 4 4:1 ln 1982, precisely the same as in 1947.
-
Coverage of the Code is tiny relative to the black workforce. (p. 10)
as of 1988, the Code effects less than 100,000 out of an economically active black workforce of approximately ten million.
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Only a small share of EC firms in South Africa fall under the Code's reporting rubric. (p. 11)
Contemporary estimates have indicated that 1200 British and 300 West German firms were involved in the South African economy; yet just one in seven qualify under the Code's rubric.
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Disinvestment shrank the UK Category A workforce, creating a policy contradiction. (p. 13)
In 1981/2, the total stood at 134 000; in 1987/8 thisfigure hasfallen by more than Alalf to just 62,600.
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Better reported pay compliance was partly an artefact of firms leaving the reporting category rather than improved wages. (p. 18)
disinvestment, rather than better wages, was improving the image of the EC's labour record in South Africa.
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UK government interpreted the Code's 50 per cent margin as 30 per cent, explaining discrepancies between official and independent pay data. (p. 18)
since 1977 30 per cent rather than SO per cent has been interpreted by the UK Government as meeting the EC's requirements
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Real minimum wages fell in the mid-1980s. (p. 18)
in 1986 only one of the 105 determinations showed a real wage increase
Evidence ledger¶
Sources used¶
| Source | Kind | Period | How used |
|---|---|---|---|
| UK Department of Trade (and Industry) annual reports on the EC Code of Conduct: analysis and summary of companies' reports, 1977/8-1987/8 (HMSO) | commission or official report | 1977/8-1987/8 | Source of Table 2 and the time series on British Category 'A' reporting, black employment, union recognition, desegregation, training and pay compliance. |
| Netherlands Government, EC Code of Conduct for Companies with Interests in South Africa: analysis and summary of company reports, ninth reporting period 1 July 1986 to 30 June 1987 | commission or official report | 1 July 1986-30 June 1987 | Source for Dutch figures in Table 1 on union recognition, migrant labour, pay and desegregation. |
| Federal Republic of Germany, Eighth Summary Report of the Reports Submitted by German Companies Active in South Africa (1987/88 publication) | commission or official report | 1986/7 reporting period | Source for German figures in Table 1 and for the admission that black promotion remains too small. |
| UK Department of Trade and Industry, Code of Conduct analysis and summary of companies' reports, 1 July 1986 to 30 June 1987 (HMSO, 1988) and 1987-88 (HMSO, 1989) | commission or official report | 1986/7 and 1987/8 | Provides British data for Table 1 and the migrant-labour details in the British record section. |
| Council of Ministers of the EC, Decision Concerning the Suspension of New Direct Investment in the Republic of South Africa, 86/517 (27 October 1986) | legislation gazette | 27 October 1986 | Text of Articles 1 and 3 is analysed to show the weakness and loopholes of the investment ban. |
| Department of Trade, Code of Conduct for Companies with Interests in South Africa, Cmnd. 7233 (1977) and Cmnd. 9860 (1986) (HMSO) | legislation gazette | 1977 and 1986 | Texts of the original and revised Codes are quoted to compare their provisions on wages, unions, training and black business. |
| Netherlands Government, Memorandum on Measures in Respect of South Africa (11 June 1985) | commission or official report | 1985 | Documents the Dutch proposals to add legal competence to the Code that were not adopted. |
| Ethical Investment Research and Information Service (EIRIS) reports, 1986-87 (incl. UK Companies South African Pay and Conditions; EEC South Africa Code: the reporting practices of selected UK companies) | other | 1984/5-1986/7 | Independent survey of UK firms' pay, used to contradict official British compliance figures and show the lowering of the minimum standard. |
| Southern African Labour and Development Research Unit, 'A Monitor of Minimum Wage Measures', Quarterly Bulletin (1986) | official statistical series | 1984-1986 | Wage board and industrial council determinations used to show real minimum wages falling and that most labourer wage rates were below the SLL5. |
| Labour Research Department publications (South Africa: How British Business Profits from Apartheid, 1989; Profiting from Apartheid, 1986) | secondary literature compilation | 1986-1989 | Used for the count of over 75 British firms leaving South Africa between 1986 and mid-1989 and for criticism of the Code. |
| Hanlon and Omond, The Sanctions Handbook (Penguin, 1987) | secondary literature compilation | 1987 | Supplies the estimate that the investment ban affected less than three per cent of UK investment in South Africa. |
| E. S. Schmidt, UN Centre Against Apartheid Notes and Documents no. 1/87 | secondary literature compilation | 1985-1986 | Source for share sales by foreign investors and capital flight figures during the 1985 financial crisis. |
| Newspapers and periodicals: The Guardian (25 November 1986); Africa Research Bulletin (Feb 1987, March 1986) | newspapers periodicals | 1986-1987 | Cited for Barclays' withdrawal and Lonrho's increased stake in Western Platinum. |
| International Campaign Against Banking on Apartheid, Newsletter no. 4 (1987) | other | 1987 | Source for Standard Chartered's sale of Stanbic and its continued loan exposure. |
| UK-South Africa Trade Association, British Trade with South Africa (1982) | employer association records | 1982 | Estimate of the number of British and West German firms in South Africa, showing the Code covers only about one in seven. |
| M. Lipton, Capitalism and Apartheid (1985) wage ratio data | secondary literature compilation | 1947-1982 | Used for the white-to-African wage ratio, which was unchanged between 1947 and 1982. |
Inference¶
Quantification: Descriptive tables.
Descriptive analysis of official EC member-state Code reports over time (Table 2 for the UK, 1977/8-1987/8) and across countries (Table 1), cross-checked against independent surveys (EIRIS, SALDRU), plus qualitative policy analysis of Council Decision and Code texts to argue that EC policies are inconsistent.
Key claims¶
| Claim | Basis | Strength |
|---|---|---|
| The EC ban on new direct investment was weak because of definitional loopholes (reinvested earnings, leasing, third countries) and its legal form as a Council Decision. (p. 531) | Textual analysis of Council Decision 86/517 Articles 1 and 3, and the Hanlon and Omond estimate. | Partial data |
| Corporate disinvestment from South Africa was driven mainly by declining profitability and economic crisis rather than morality or politics. (p. 532) | Illustrative figures on rand collapse, share sales and capital flight (Schmidt), and the Barclays profit share (Africa Research Bulletin, ICABA). | Illustrative or anecdotal |
| The number of British Category 'A' firms reporting and black workers covered under the Code has declined sharply, shrinking the Code's scope. (p. 540) | UK DTI annual reports compiled in Table 2; British record section. | Systematic data |
| The Code covers only a small fraction of firms and black workers (under 100,000 of about ten million). (p. 537) | National Code reports and UKSATA estimate of firms in South Africa. | Partial data |
| Compliance with the Code's minimum pay standard rose to 97.6 per cent in UK firms, but this reflects a lowered standard, lenient UK interpretation, and disinvestment of low-paying firms. (p. 544) | UK DTI reports versus EIRIS independent survey and the revised SLL5 calculation. | Partial data |
The author's caveats¶
Notes that the revised reporting format makes comparison with the original Code difficult, that the 1985/6 UK report was transitional, that some company figures were not given in the national reports, and that late submissions affected the number of reports analysed in early years.
Gaps in the evidence¶
The argument rests on self-reported company data and aggregate national summaries, with no firm-level verification or counterfactual on whether the Code changed labour practices. Firm-level wage data, trade-union records and South African labour surveys would test compliance and impact better. Investment flow and disinvestment motives are shown by selected cases rather than systematic data on capital flows, which Reserve Bank and company accounts could provide.
Replicability: Data described but not public.