Assessing the Impact of Sanctions

By Ed Magnuson

In the emotional debate in the U.S. over applying sanctions against South Africa, the impact that various measures may have often gets lost. Sanctions come in a wide variety of forms and, according to economists and other analysts who have studied the range of possible measures, the economic consequences can vary considerably. In order of increasing severity, here is what specific proposed actions may do:

LANDING RIGHTS. The government-owned South African Airways flew 100,000 passengers, mostly white officials, businessmen and tourists, to and from the U.S. last year. The proposal by some Senators and others to rescind the country's landing rights in the U.S. would inconvenience such travelers, probably causing a half-day detour through European cities. Quite quickly, however, small airlines in Swaziland or Botswana could expand, with South Africa's help, to fill the void.

CONSULATES. Proposals to end visa services at U.S. consulates in three South African cities are aimed at the same white travelers, who would have to leave their country to pick up visas before catching flights to the U.S. It would be a nuisance that would have little effect on blacks.

PRIVATE LOANS. A Senate option would ban U.S. bank loans to private firms and individuals in South Africa. But these were declining sharply anyway, even before South Africa placed a moratorium last year on the repayment of private foreign loans. U.S. banks reduced their outstanding loans to all South African borrowers from $5 billion in 1984 to $3.24 billion at the end of 1985. Lack of foreign capital sharply limits the growth of South Africa's economy. Eventually the effect could be lower profitability for white-owned businesses, but it could also mean an increase in black unemployment.

NEW INVESTMENTS. The proposed ban on all new investments by U.S. businesses in South Africa, including improvements in subsidiaries there, is another example of a trend already taking place because of market forces. Rather than pump new money into these operations in the unpredictable situation in South Africa, parent companies in the U.S. have been selling off assets or letting branches use their profits to modernize. Result: a net flow of capital from the subsidiaries to their U.S. headquarters rather than the reverse. No U.S. company has moved into South Africa since 1983. Less U.S. business activity in South Africa crimps the country's economic growth, deprives it of technology, but hits black employment hardest.

GOLD. Experts agree that one of the most effective ways to hurt the South African economy without creating higher unemployment among blacks would be to force down the price of gold. South Africa earns $7 billion a year from its sales of gold, priced at about $350 per oz., to other countries. The British magazine the Economist has suggested that countries holding large amounts of gold in their central banks could merely issue a threat to sell significant quantities unless Pretoria eased some of its repressive measures, and then "private hoarders from Bombay to Brittany would be rushing to sell their gold at crashing prices." The U.S. is well positioned to do this, since it owns more than a fourth of all such banked bullion. Such an act, of course, would hurt all holders and producers of gold.

TOTAL TRADE EMBARGO. This House-approved measure could clip the profits of white-owned businesses and apply marginal pressure on the government, while probably throwing blacks out of work on a significant scale -- particularly if mining of gold, coal and diamonds was seriously impeded. American exports to South Africa declined to $1.3 billion last year, while U.S. imports have remained fairly steady at slightly above $2 billion. A trade embargo would thus have little financial effect on the U.S. As for South Africa, it could probably evade export restrictions by shipping its goods through other countries. This would increase its costs, perhaps by 15%, and reduce profits.

DISINVESTMENT. Possibly the most sweeping and controversial sanction is the House-passed proposal that would give all American companies 180 days after the bill became law to get rid of all their assets in South Africa. This would involve disposal of what is now left of the $1.35 billion in direct holdings by 281 U.S. companies operating in that country at the end of 1985. American firms have been withdrawing at increasing rates: seven in 1984, 39 in 1985, 15 in just the first five months of this year.

A forced withdrawal would lead either to a dissolution of these private U.S. assets or their disposal at fire-sale prices to private buyers. The loss to the U.S. owners would be heavy. The impact on South Africa would probably be at least a temporary loss in skilled management and lower profits. But the Pretoria government, long anticipating all possible sanctions, has developed a two-tier exchange rate for the rand, with lower rates on money from the sale of foreign assets, that would minimize its own capital loss in any foreign- business pullout.

White business leaders and the government would feel the pinch of the business decline, while blacks would suffer more severely from the higher unemployment. Opponents of disinvestment contend that American firms are among the most racially progressive. Their departure would reduce black influence in labor unions and on job conditions.

Opponents of sanctions argue that since blacks make up as much as 65% of South Africa's labor force, they will suffer the most in loss of jobs if the country's economy is seriously hurt. While this is true, it is a fear apparently being exaggerated by Pretoria to ward off sanctions. Massive unemployment does not seem likely unless many more nations join in a total trade embargo against South Africa than now seem willing to do so.

The main leverage South Africa can apply in its trade with the U.S. is its near monopoly of some strategic metals, which worries the Pentagon. If Pretoria decided to retaliate against U.S. sanctions, it could refuse to sell these materials. South Africa holds 84% of the world's known reserves of chromium, which is essential in the production of stainless steel and superalloys used in the defense, aerospace, chemical and power-generation industries. Private stocks of chromium in the U.S., which does not mine the ore, would last only a few months. South Africa has 81% of the world's platinum and its closely related metals, which are needed for many explosives and fertilizers and are essential in electronic equipment and the clean-up devices for automobile exhausts. The U.S. could get along for about six months without imports. South Africa has 71% of the world's reserves of manganese, which is vital to the making of batteries, various chemicals, steel and cast iron. U.S. supplies could last nearly two years and non-Communist countries have excess manganese that could fill the gap.

In a form of official blackmail, the Pretoria government has been threatening to take reprisals against its black neighboring countries if sanctions get too severe. It is in a solid position to do so. Nearly all foreign trade for Botswana, Lesotho and Swaziland passes through South Africa, as well as 90% of Zimbabwe's. Some 350,000 foreign workers are legally employed in South Africa, almost 85% of them in mining, and they could be fired. Many of its neighbors are dependent on South Africa for electricity, which could be cut. Pretoria, however, rarely mentions the benefits it gains from these relations, including cheap labor and a regional trade surplus estimated as high as $1.5 billion a year.

With reporting by Gisela Bolte and Johanna McGeary/Washington