At the height of colonial repression in South Africa under the racialist policy of apartheid, the leaders of the so-called “free world” not only condoned the deplorable situation but actively worked to keep it alive. This was done through foreign direct investment as well as loans provided by banks from the United States of America.
The position adopted by the American elites in political and financial circles was premised on economic interests – the insatiable desire for mega-profits – rather than caring about the political situation. The banking system in America kept funneling funds to South Africa, and this money was mostly used for defense purposes. And this was causally linked to the oppression of black people and using them as a cheap source of labour.
In 1976, it was reported that American banks had loaned out at least $777 million to prop up the white minority regime. Some of the banks included New York Citibank, Chase Manhattan, Morgan Guaranty Trust, Manufacturers Hanover, Orion, Bank of America, First National City, Chemical Bank, New York Trust Company, Irving Trust Company, Continental Illinois Bank and Trust Company and, First National Bank (Chicago).
In the book “Portugal’s African Wars: Angola, Guinea Bissao and Mozambique” by Arslan Humbaraci and Nicole Muchnik, the authors took their time to explain why Western financial investments were eager to support the South African white minority government. They argued that the aim was to exploit the cheap labour for immediate returns. The authors highlighted that rates of return on American direct investments in South Africa averaged at roughly 19% per year, against an average return on similar investments of no more than 2%.
This is echoed by the sentiments of William E. Schaufele, Jr. who was the Assistant Secretary of State for African Affairs. In 1976 he remarked, “I recognize that our primary long-term interests in Africa are - and will remain - economic. We must not let the present political problems in southern Africa distort our perception of that reality.” This was the prevailing view among the elites in the global north, who cared little about the political situation not only in South Africa but the rest of Southern Africa as well.
At that time, several groups within black liberation movements in South Africa and their Left-leaning supporters in the US vehemently opposed the bank loans that were availed to the South African government. Even though they maintained that this money was directly used to allow the white minority government to stay in power for a long time, it did little to stop the inflow of that foreign assistance. This money was responsible for bolstering the John Vorster-led apartheid regime at a time when South Africa was “pressed for fundamental change from the inside.”
In the 70s and 80s, there was some vindication, both on the part of South Africa and the private American banks, to save South Africa’s economy from its widening, imbalanced trade deficit – the difference between the value of its imports and exports. A drop in the price of gold had dealt South Africa a blow, and the cost of its major import, oil, kept shooting up. In 1976, it was estimated that South Africa’s deficit gap stood at $2 billion.
Defense spending skyrocketed too, especially with the tides of revolutionary change that were sweeping across Zimbabwe, Mozambique, and Angola. This was compounded by the black uprisings that were prevalent in South Africa. Over 1975, defense costs flared up by 42%.
These factors necessitated unending borrowing by the South African government from both American and European banks. But it was the readily-available assistance rendered by private capital in the form of American banks which proved to be the lifeline of the white minority regime.
From 1974 to 1976, American banks and their overseas branches had advanced nearly $2 billion in loans to South Africa. The loans were availed at interest rates higher than those offered to other countries because of political and economic risks.
The majority of the loans were given to government-run corporations involved in specific development projects. The biggest single US loan was advanced to Electricity Supply Commission (now Eskom). Another loan was granted to the Iron and Steel Corporation (ISCOR) as well as other companies engaged in the business of mineral extraction. This included Richards Bay Minerals and the Phosphate Development Corporation (Foscor). It was hoped that if these companies (who were essentially the government) would increase their production then the balance of payments would be concomitantly reduced.
Other loans went to South African Airways for the purchasing of Boeing airplanes from the US. But at that time the line between purchasing planes for civilian or military purposes was heavily blurred – the “dual purpose.”
The U.S. Export-Import Bank, through Chase Manhattan, granted a loan to the Industrial Development Corporation (IDC). The IDC was a state-run company, so in reality, this was the U.S. government granting a significant loan to the South African government.
American bankers were of the view that promoting market-oriented investment would have a trickle-down effect of wealth creation among the black population. He thought that apartheid restricted the functioning of the capitalist economy since it restricted the purchasing power of blacks. And this was entirely wrong. “By contributing to the creation of a pluralistic marketplace, we think we assist in the development of a more pluralistic system,” said the Executive Vice President of Citibank, George J. Vojta.
Thus, there was intense opposition to these loans by the liberation movements in South Africa. In 1972, the South African Student's Organization (SASO) unequivocally stated that it “sees foreign investments as giving stability to South Africa's exploitative regime and committing South Africa's trading partners to supporting the regime. For this reason, SASO rejects foreign investment.”
In truth, American interests in South Africa were purely for economic gain, with several transnational companies in collaboration with local capital to exploit the black labourers – who were some of the cheapest labour in the world at that time. As such, American financial institutions were unfazed when it came to sponsoring these companies, which in turn sponsored the apartheid regime for its defense needs. This prolonged their stay in power by marginalizing black people.
At that point, U.S. banks clandestinely preferred the continued existence of apartheid because they benefited immensely from such a racialist policy. Apartheid provided a profitable source of cheap African labour. South Africa was important to the West because of its vast mineral wealth, and the West ensured that the apartheid regime did not crumble.
South Africa was strategic to the U.S. as oil routes went around the Southern African nation. Because of this, it was inevitable that American capital would be heavily engrossed in the South African economy, despite the bad political situation that prevailed at the time. Opposing apartheid was tantamount to destroying these economic interests that the West had in South Africa.