Public and Private Sanctions against South Africa¶
Kenneth A. Rodman (1994). Public and Private Sanctions against South Africa. Political Science Quarterly, Vol. 109, No. 2 (Summer 1994). The Academy of Political Science.
| Type | journal article |
| Scope | Economics and economic history of apartheid |
| Method | mixed |
| Period studied | 1978–1989 |
| Regions | South Africa, United States |
| Themes | sanctions divestment, macro fiscal finance debt, business and state, comparative theory, resistance social movements |
| Citation key | rodman1994 |
Argument¶
Rodman challenges the state-centred realist view of economic statecraft. He argues that the growth of the multinational corporation (MNC) limited the ability of the US state to command corporate behaviour toward South Africa, because extraterritorial reach was weak and firms resisted political direction. The most damaging sanctions were private. Banks refused to roll over loans from July 1985, and anti-apartheid NGOs, through divestment, shareholder action and municipal contract ordinances, raised the costs of staying. Public sanctions, actual and potential, worked mainly by raising business perceptions of risk. Because these strategies induced rather than commanded firms, MNCs chose forms of disengagement (licensing, sales to local management) that imposed little cost on South Africa and weakened social-responsibility goals.
Evidence and method¶
Secondary literature, congressional hearings and testimony, IRRC reports, Financial Times, Economist, Euromoney, New York Times and Business International reporting, and a 1981 Conference Board survey. It also uses a comparative case, the Nestle infant-formula boycott (Sikkink), and the GM/Delta sale as a case study. There is no original archival or quantitative dataset.
Place in the debates¶
- State-centred (realist) vs non-state-actor accounts of economic statecraft (see Sanctions, disinvestment and the anti-apartheid movement). Argues that MNCs and NGOs were autonomous actors, and that private actors rather than states delivered the most damaging sanctions. Public authority still mattered indirectly by shaping risk perceptions.
- Sanctions effectiveness / constructive engagement vs sanctions (see Sanctions, disinvestment and the anti-apartheid movement). Rejects the reading of the 1985 bank withdrawal as a vindication of constructive engagement. It sees the credit boycott as driven by anticipated sanctions, the loss of a US-backed IMF safety net, and anti-apartheid pressure, not just market risk. Disinvestment itself was largely cosmetic.
- Market risk vs political pressure as explanation of corporate withdrawal (see Sanctions, disinvestment and the anti-apartheid movement). Holds that external risk alone cannot explain the scale of retreat. Anti-apartheid pressure, the 'hassle factor', municipal contract rules and the threat of future sanctions amplified market signals.
Findings¶
-
The 1985 bank loan recall was the most damaging blow, preceding US legislated sanctions by more than a year. (p. 3)
multinational banks inflicted the greatest damage on the South African economy when they called in their South African loans as they came due in July 1985
-
Chase Manhattan's decision set off a chain reaction that cut South Africa off from capital markets and led to the September 1985 debt moratorium. (p. 12)
a July 1985 decision by Chase Manhattan to stop rolling over its short-term loans as they came due and to freeze unused lines of credit
-
Short-term external debt had doubled by mid-1985, which created a liquidity crisis. (p. 13)
by the summer of 1985, external debt had doubled to $24 billion, with $14 billion due in the next twelve months.
-
Market risk alone does not explain the retreat, since South Africa's banking fundamentals were sound. (p. 14)
It had an excellent repayment record, large reserves, a strong payments surplus on its current account, and a relatively low debt-service ratio.
-
US state and local contract ordinances directly hit corporate balance sheets and made disinvestment economically rational. (p. 15)
adoption by over 140 states and local governments of ordinances which condition eligibility for city purchases or contracts on various forms of corporate noninvolvement in South Africa
-
Constructive engagement, notably US backing for the 1982 IMF loan, sustained bank lending until mid-1985. (p. 16)
strongly supported a $1.1 billion IMF loan to tide over payments difficulties associated with the declining price of gold.
-
Sanctions on oil exports and coal imports imposed costs even though they were partially circumvented. (p. 16)
partially circumvented, but according to some studies at a cost of $2-3 billion per year
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The dual exchange rate (financial rand) gave departing firms an incentive to keep non-equity ties. (p. 19)
South Africa's two-tiered exchange rate system forced the foreign firm to repatriate the proceeds of the sale through the artificially depressed financial rand.
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The GM-Delta case shows divestment weakening labour and social commitments. (p. 20)
Delta's first actions were to cut wages and lay off workers at its Port Elizabeth plant.
-
The credit boycott imposed severe costs, whereas disinvestment did not. (p. 22)
in the case of the private credit boycott, they contributed to a retrenchment, which imposed severe costs on the South African economy.
Evidence ledger¶
Sources used¶
| Source | Kind | Period | How used |
|---|---|---|---|
| IRRC South Africa Review Service reports (Summary of U.S. Sales to the South African Public Sector, May 1988; Divestment Roundup, Feb 1987) | company records or reports | 1987-1989 | Documents U.S. firms' sourcing outside the U.S., the small share of South Africa in firm assets and bank loans, and NGO divestment activity. |
| IRRC studies on corporate withdrawal and disinvestment (Withdrawal of U.S. Companies from South Africa, 1988 Analysis A; GM Corp. report; Kibbe and Hauck 1988; Hauck 1987) | company records or reports | 1987-1988 | Evidence that disinvesting firms kept licensing ties, cut community funding and resumed military sales, and that municipal ordinances had a direct impact on corporate balance sheets. |
| Comprehensive Anti-Apartheid Act of 1986 (Public Law 99-440) | legislation gazette | 1986 | Specifies the content of the 1986 sanctions (import and export bans, ban on new loans and investment) and their loopholes. |
| U.S. Congressional hearings (Senate Foreign Relations 1977 South Africa-U.S. Policy and Role of U.S. Corporations; House International Relations 1978 U.S. Private Investment in South Africa; House Foreign Affairs 1985 Anti-Apartheid Act hearings and Legislative Options) | parliamentary debates | 1977-1986 | Corporate and administration testimony on business internationalism, constructive engagement, and the limits of extraterritorial controls. |
| Congressional Quarterly (5 Nov 1983; 27 Sept 1986) | newspapers periodicals | 1983-1986 | Documents congressional measures in 1983 and the European Community's weaker response in 1986. |
| Financial Times articles (29 Aug 1985; 2 Sept 1985; 25 Nov 1986; 3 Nov 1986) | newspapers periodicals | 1985-1986 | Contemporary reporting on market sanctions, Pretoria's debt standstill, the hassle factor and the anti-Shell boycott. |
| Economist articles ("Loss of Business Confidence Is a Sanction on South Africa", 21 June 1986) | newspapers periodicals | 1986 | Supports claims on capital flight (over-invoicing, under-invoicing, dividends), recession and loss of business confidence. |
| Euromoney, Charles Grant, "The Banks Abandon South Africa" (Dec 1985) | newspapers periodicals | 1985 | Source for Chase Manhattan's July 1985 decision, the chain reaction among banks, the reserve drain and the 1 Sept moratorium. |
| Lawrence Harris, "South Africa's External Debt Crisis", Third World Quarterly 1986 (external debt figures) | secondary literature compilation | 1985 | Provides the figures that external debt had doubled to $24 billion by summer 1985, with $14 billion due in twelve months. |
| U.S. Department of Commerce, Foreign Economic Trends: South Africa, September 1986 | official statistical series | 1986 | Supports the claim that South Africa had a good repayment record, large reserves, a current account surplus and a low debt-service ratio. |
| Hufbauer, Schott and Elliott, Economic Sanctions Reconsidered, 2nd ed. 1990 (estimates of cost of circumventing oil/coal bans) | secondary literature compilation | 1990 | Source for the estimate that circumventing the oil and coal bans cost $2-3 billion per year. |
| Janger and Berenbeim, External Challenges to Management Decisions (Conference Board, 1981) survey of corporate managers | secondary literature compilation | 1981 | 1981 manager survey showing managers discounted the likelihood of U.S. sanctions. |
| Business International (13 Dec 1985; 1 Mar 1985) | newspapers periodicals | 1985 | Cited for NGO activity summaries and advice to firms that disinvesting early was more profitable. |
| New York Times articles on divestment (Cowell 31 Dec 1986; Levin 22 Oct 1986; Hammond 17 Aug 1986) | newspapers periodicals | 1986 | Evidence that disinvesting firms sold to local management and kept licensing and technology ties. |
| Correspondence from Reid Weedon, Arthur D. Little Company (Sullivan Principles monitor), 5 July 1988 | interviews oral history | 1988 | Supports the claim that only one new South African firm allowed independent on-site inspection of workplace practices. |
| Fortune interviews (Kessler, "Goodyear Toughs It Out", 30 Sept 1985) and IRRC South African Reporter June 1989 | newspapers periodicals | 1985-1989 | Evidence on investor reasoning for staying in South Africa and the effect of the Rangel Amendment on withdrawals. |
| Gladwin and Walter, Multinationals Under Fire (1980) (Mobil and Sullivan Principles case material) | secondary literature compilation | 1970s | Used for Mobil South Africa's alleged oil transshipment and Official Secrets Act obstruction. |
Inference¶
Quantification: Illustrative figures.
Qualitative argument that combines theoretical critique of state-centric realism with a single-country case study. Evidence consists of secondary literature, trade press and NGO/IRRC reports, with an analogy drawn to the infant formula (Nestle) case and counterfactual reasoning about corporate and bank motives.
Key claims¶
| Claim | Basis | Strength |
|---|---|---|
| Private banks' refusal to roll over loans from July 1985 inflicted the greatest economic damage on South Africa, preceding and exceeding the effect of formal U.S. sanctions. (p. 323) | Euromoney, Financial Times and Harris account of the debt crisis; no bank-level data analysed. | Partial data |
| Anti-apartheid NGO pressure (state/local ordinances, divestment, shareholder resolutions) magnified corporate retreat beyond what external risk explains. (p. 325) | IRRC summaries, press and counts of state and local ordinances, argued by elimination of risk-only explanations; no causal test. | Illustrative or anecdotal |
| Public sanctions, actual and potential, indirectly shaped corporate and bank behavior by raising perceived risk, e.g., through loss of IMF support and the Rangel Amendment. (p. 326) | Press accounts, IRRC and Hufbauer et al. estimates; the 1981 managers' survey. | Illustrative or anecdotal |
| South Africa was a small share of most U.S. firms' business (1-2 percent of assets and sales, 0.5 percent of bank loan portfolios), so NGO-imposed costs were disproportionate. (p. 320) | IRRC Divestment Roundup; Sikkink for the Nestle analogy. | Partial data |
The author's caveats¶
The author notes that corporate officials mostly attributed withdrawals to economic rather than political factors, and that some of the cost estimates come from 'some studies'. No systematic data limitations are discussed.
Gaps in the evidence¶
The argument needs firm-level and bank-level data on the timing of withdrawals, loan rollovers and capital flows to separate political pressure from recession, gold price and unrest effects. Interviews or internal corporate and bank records on decision-making would test the 'hassle factor' and risk-perception claims. South African Reserve Bank and BIS lending statistics and IRRC data existed then and are accessible now, so a more systematic test is possible.
Replicability: Data poorly documented.