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Banking and
Business in
South Africa
Edited by

Stuart Jones

Head of the Division of Economic History
University of the Witwatersrand

Palgrave Macmillan

Banks and banking-South Africa-History. p.. New York. NY 10010 First published in the United States of America in 1988 ISBN 978-0-312-00517-7 Library of Congress Cataloging-in-Publication Data Banking and business in South Africa/edited by Stuart Iones. ISBN 978-0-312-00517-7: $39. For information. cm. 175 Fifth Avenue. Central-South Africa-History.A6B36 1988 87-33245 322. Business enterprises-South Africa-History. Capitalism-South Africa-History. Stuart.95 1. Includes index. Bibliography: p. St. 4.1'0968--dc19 CIP .ISBN 978-1-349-09634-3 ISBN 978-1-349-09632-9 (eBook) DOI 10. Banks and banking. Inc.1007/978-1-349-09632-9 © Stuart Iones. 2. Iones. I. write: Scholarly and Reference Division. 1988 Softcover reprint ofthe hardcover 1st edition 1988 978-0-333-44465-8 All rights reserved. HG3401. 3. Martin's Press.

Contents List of Tables Vlll Acknowledgements x Notes on the Contributors 1 2 Xl Introduction 1 The beginnings of capitalism in South Africa The era of wool and diamonds. 1914-48 The era of nationalism and state capitalism. 1839-50 The 1850s: the heyday of independence and the unitary bank The 1860s: increased competition. 1948-80s Conclusion 2 3 11 16 23 Venture Capital and Financial Organisation: London and South Africa in the Nineteenth Century 27 Merchant banks Company promoters and speculators Exploration companies Investment trusts Investment groups Conclusions 28 30 33 35 39 42 Early Capitalism in the Cape: The Eastern Province Bank. bad debts and absorption into the Oriental Bank Conclusion v 7 50 51 55 58 65 . 1820--86 The era of gold. 1886-1914 The early industrial era.1839-73 47 Stuart Jones Stanley D. Chapman 3 Arthur Webb The foundation of the Eastern Province Bank in 1838 The early years.

1945-73 81 Introduction Supporting organisations promoting trade The NBSA role in overseas trade Commodities and markets Conclusion 81 86 87 95 99 Grietjie Verhoef 6 7 The South African Reserve Bank and the Course of the Economy D.Contents vi 4 5 The Separation of Nedbank. Commercial Banking and the Political Imperative 1965-85 Katherine Munro 113 Introduction Background on commercial banking and the financial system The Reserve Bank and the commercial banks Banking regulations and its problems The de Kock Commission and monetary reform Key questions 113 114 115 117 119 120 .a mutual relationship Two affiliated banks .a one-sided relationship End of the relationship Summary and conclusions 69 69 71 73 74 75 76 Aspects of Nedbank's International Activities. 1. Bosman 69 Introduction The Second World War and post-war years Parent bank and affiliated bank Two affiliated banks . South Africa. W. from the Parent Institution in the Netherlands H. Goedhuys 105 The run-up to August 1984 The restrictive 'package' of 2 August 1984 The results Reflections 106 107 108 110 Monetary Policy. W.

gold and monetary policy The Reserve Bank and the foreign exchange market Banking in the 1980s Foreign indebtedness in the 1980s Conclusions 8 The Visible Hand and the Top 100 Companies in South Africa. 1964-84 Stuart Jones Managerial capitalism and the modern business enterprise Company comparisons Industry comparisons National comparisons Changes within South Africa International comparisons and conclusion 9 Multinational Corporations in SADCC (South African Development Coordination Conference) Jacqueline Matthews South African Development Coordination Conference Multinational corporations MTNs in SADCC countries Attitude of SADCC countries to private foreign investment Conclusion 10 Index The Standard Bank and its Records as an Economic Source Barbara Conradie vii 121 124 126 126 128 130 133 134 136 138 140 148 150 155 155 157 161 163 173 175 181 .Contents Endogenous factors and change in commercial banking Exogenous factors .

7 2.1 2.3 5. 1965-73 VIII 4 9 13 15 19 20 21 36 38 41 42 49 52 57 58 59 61 82 83 84 90 91 91 92 93 .3 2. 1945-73 South Africa. 1915-48 Gold output.4 3.5 1. Calcutta.3 1. South Africa. 1947-64 Total bills discounted or bought. 1948-84 Capital expenditure in the South African gold mines.5 5. 1841-9 Assets and liabilities of the Eastern Province Bank. 1947-73 Imports and exports. 1860-9 Liabilities of the Eastern Cape banks.8 Wool exports from South Africa.1 5. 1888-1918 Shareholdings in Bird & Co. April 1900 Wool exports through Port Elizabeth. 1835-72 The annual value of South African gold production. 1850-60 Assets. 1947-73 NBSA total import and export finance. 1948-76 Distribution of Scottish overseas investment. 1945-73 Total deposit funds of the Netherlands Bank in relation to the deposit funds of all the commercial banks.6 5.2 2. 1945-73 Assets and liabilities of the Netherlands Bank and its ratio to other commercial banks. 1966-85 Gross value of manufacturing output in South Africa.4 3. 1885-1981 The value of gold output. gross domestic product.1 3.7 5.3 3.List of Tables 1. 1830-70 Assets and liabilities of the Eastern Province Bank.1 1.4 5. 1861 and 1862 Capital and reserves of the Netherlands Bank as a percentage of the capital and reserves of all the commercial banks..2 3. 1884 Merchants Trust investments and results. 1965-73 Advances.5 3.2 1.4 1.6 5. liabilities and profits of Eastern Cape banks in 1860 Wool exports from Port Elizabeth. 1914--48 Gross value of industrial output.2 5. in 1917 British and continental shareholding in the Rand mining companies.6 1.

List of Tables 5. 1947-73 NBSA bills bought or discounted. 1971 and 1973 NBSA acceptance facilities.6 9.11 5. 1980 IX 93 93 94 96 97 97 142 143 145 147 161 164 166 168 169 170 172 . within African developing countries. 1980 Distribution of foreign affiliates of MTNs from selected home countries in host SADCC countries.12 5. 1980 Distribution among regions of foreign affiliations of companies from selected home countries Distribution of affiliates of transnational corporations by home country within regions. 1945-63 NBSA commodity export financing.2 9.13 5.5 9. 1917-73 Distribution by activity of the 100 largest industrial firms in South Africa.14 8.1 8.2 8.10 5. 1980 Distribution of foreign affiliates of MTNs from selected home countries in host SADCC countries. hides and skins as a percentage of total NBSA export facilities.1 9.3 8. 1980 Distribution of foreign affiliates of MTNs from selected home countries in host developed market economies. 1917-73 Distribution by industry of the 200 largest manufacturing firms: Germany. 1917-73 Distribution by industry of the 200 largest manufacturing firms: United Kingdom.7 Acceptances. 1952-64 NBSA proportion of export finance of diamonds Total export facilities by NBSA for wool.9 5. 1964-84 Ranking of countries and multinational corporations according to size of annual output.4 9. 1952-64 Distribution by industry of the 200 largest manufacturing firms: United States. 1980 Distribution of foreign affiliates of MTNs from selected home countries in SADCC host countries (except Lesotho).3 9. among all developing countries.4 9.

the Council of the Johannesburg Stock Exchange and the South African Reserve Bank. I would also like to thank Pat Brent for help with the typing and preparation of tables.Acknowledgements The editor would like to acknowledge the generous financial assistance given by the following firms towards the cost of publication: The Gold Fields Foundation. STUART JONES x .

Currently he is working on the history of British mercantile enterprise and its activities round the world. W. He was formerly Professor of Finance in the University of the Witwatersrand and is author of Money and Banking (1972 and 1982). For seven years before that she was employed by the government archives first at Pietermaritzburg in Natal and then at Cape Town in the Cape Province. In recent years he has specialised in British overseas trade and finance. W. Goedhuys is Adviser to the South African Reserve Bank. Stanley D. D. magazine and newspaper articles. She is a graduate of Stellenbosch University and University of South Africa and grew up in Bloemfontein. He has been advisor to the EEC. He is the author of The Rise of Merchant Banking (1984) and numerous books on the cotton industry. Barbara Conradie has been in charge of the Archives Department of the Standard Bank group of companies in South Africa since 1980. Chapman is Passold Reader in Business History at the University of Nottingham. He worked in the Dutch Ministry of Finance and then in the Central Planning Office of the Netherlands before joining the Economics Department of the University of Tilburg in 1954 and becoming Professor of Money. a member of the Social and Economic Council of the Netherlands and from 1968-1973 was President of the Societe Universitaire Europeene de Recherches Financieres. Professor Bosman's book on the Netherlands banking system has gone through many editions in both English and Dutch. She has contributed to various historical publications. such as the Dictionary of SA Biographies. but most of her research work has been published under the name of the Standard Bank in the form of pamphlets. J.Notes on the Contributors H. Stuart Jones is a Senior Lecturer in Economic History at the University of the Witwatersrand and Head of the Division of xi . Credit and Banking in 1959. Bosman is a director of Mees en Hope and of the Bank of the Dutch Municipalities.

He was born in Pretoria and studied at the Rand Afrikaans University. Professor Matthews has edited South Africa in the World Economy (1983) and has just completed a textbook. in 1986. graduating in History with a BA cum laude in 1976. an MA cum laude in 1982 and a D. After a short spell in industry.Xli Notes on the Contributors Economic History. 1945-1973. Arthur Webb is Associate Professor in Economic History at Rhodes University and is working on the history of Barclays Bank in South Africa. International Economic Relations for South African Students (1987). In 1983 Arthur Webb received the Founder Medal and Prize of the Economics Society of South Africa for the best PhD thesis of that year. graduating in 1971. Durban. . She is currently Secretary of the Economic History Society of Southern Africa. Her doctoral thesis. examining EEC relations with Africa. et Phil. where she majored in economics. Her first degree was from the University of Louvain and she has received further degrees from the University of the Witwatersrand and the University of Natal.Litt. He has published on textile and banking history and is currently President of the Economic History Society of Southern Africa and editor of the South African Journal of Economic History. Grietjie Verhoef is a Lecturer in history at the Rand Afrikaans University. Katherine Munro is a lecturer in Economic History at the University of the Witwatersrand. was published in 1977. he returned to the university as a Junior Lecturer in Economic History. He studied economics and economic history at Rhodes University. Jacqueline Matthews is Associate Professor in the Department of Business Administration at the University of Natal. Her main research interests are South African economic and business history. economic history and political studies. on the History of Nedbank.

2 This had already happened in Western Europe before Van Riebeeck arrived at the Cape in 1652. but it did not take root and flourish. Van Riebeeck was the representative of the most powerful capitalist institution that world had yet seen. Western capitalism. It was the development of this capitalist economic organisation in Western Europe that accounts for the rise of the West. the Dutch East India Company. while moving the infant colony further away from the economic goal of efficient organisation. but on the way home they used the south-east tradewinds that brought them within the latitude of Cape Town . it dwarfed aU other contemporary Western European institutions. thereby reverting to a form of subsistence agriculture that was the antithesis of the colony's governing body. Africa was of little importance to the Dutch. as the company discouraged settlers. while the absence of formal education institutions led 1 . In the eighteenth century. in its most efficient form entered South Africa in the middle of the seventeenth century. the Dutch East India Company. With such huge resources behind it. Formed in 1602 with a capital of 6500000 guilders (£650000). the companies of the other European states stood little chance of establishing themselves in the Spice Islands. The introduction of slavery from the East reduced sti11 further the likelihood of significant European immigration. and the arrival of Western capitalism in South Africa. preferring to foUow the southern route that made use of the westerly winds.hence their mid-century decision to establish a victuaUing base at the Cape for company ships.1 Introduction StuartJones Efficient economic organisation is the key to successful economic growth and in the Western world this occurred in a capitalist framework. for they bypassed it on the way out. I This entailed the 'establishment of institutional arrangements and property rights that create an incentive to channel individual effort into activities that bring the private rate of return close to the social rate of return'. the subjects of what had been the world's most powerful and efficient capitalist institution declined into inefficient subsistence farming. Indeed it maintained a precarious existence. and the unusual conditions encouraged the Dutch farmer-settlers to break loose from its yoke and go it alone in the interior. therefore.

THE BEGINNINGS OF CAPITALISM IN SOUTH AFRICA Modern capitalism entered South Africa at the time of the Industrial Revolution. this alone imposed a very severe strain . The four phases of capitalist development were marked by investment booms associated with the development of roads and wool growing. The visit of Van Riebeeck to the Cape did not. and all. The last of these was accompanied by widespread industrialisation. It is possible to identify four distinct phases in the development of modern capitalism in South Africa. because generally the capital needs of neither the primary nor secondary sectors were sufficiently large in themselves to alter the scale of operations. that had never seen the emergence of powerful and cultivated middle class. the discovery of gold on the Witwatersrand broke this pattern. urbanisation and further road building. except one. This occurred mainly in the form of British merchants stopping off on the way to and from India. as Arthur Lewis has so admirably demonstrated.3 and the dynamic force of modern capitalism was setting in motion a process of economic change that is still at work today. therefore. Elsewhere in the nineteenth-century world it was the capital needs of these infrastructure developments that determined the pattern of growth. Before the 1820 settlers arrived things had already begun to move. when the Cape was returned to the Batavian Republic. Almost immediately there was a quickening in the pace of economic change as roads were improved and a new order introduced into the currency. of course. already begun to accelerate with the development of the gold mines in the 1890s and. each of which was associated with a burst of investment in a new activity. between 1803 and 1806. and was then given a tremendous boost by the British occupation of the Cape in 1795 that was only briefly interrupted. deep-level mining and the provision of electricity. railway building. Urbanisation had. for the needs of deep-level mining were such as to create a massive demand for capital that could not be met from within the country's own resources. In South Africa.2 Introduction inevitably to the emergence of a semi-literate society that could hardly be described as capitalist. with infrastructure developments. lead directly to the establishment of capitalism in South Africa. It was unique. It was not pre-capitalist: it was a post-capitalist society that had never experienced a period of enlightenment.

Capitalist development in South Africa thus proceeded from the early development of wool as a cash crop. and it was the Eastern Cape that took the lead in the development of a cash crop for export in the form of wool. but the rate of growth did not become marked until the development of the Witwatersrand gold mines gave a boost to the whole economy. to urbanisation and industrialisation. despite the fact that domestic capital formation was proceeding at an ever increasing rate. and then boomed along with the roads in the 1840s. The costs of urbanisation were rising. THE ERA OFWOOLAND DIAMONDS. the majority of the English speaking population had become urban and Johannesburg had become a city of 237000 people. Port Elizabeth and Durban. 1820-86 Agricultural markets in the Western Cape were limited as were the prospects for exports in the early nineteenth century. through the phase of railway development to the exploitation of the country's mineral resources. with its accompanying massive investment in a modern infrastructure. This began to increase steadily from the 1830s. Urbanisation created formidable demands for capital. 5 A quarter of a century later. and the generation of electricity had established its primacy in the capital requirement stakes. In South Africa.Stuart Jones 3 upon nineteenth-century capital resources. sewers and drains laid down and gas or electricity installed. but these costs cannot easily be associated with anyone phase of development. the second largest in Southern Africa. Johannesburg had become the largest city in Southern Africa. 6 The South African experience provides an admirable illustration of the North- . 4 Even the wealthy United States needed to import capital when industrialisation coincided with a rate of urbanisation that rose above 3 per cent a year at the very end of the nineteenth century. had established itself as the principal financial centre of the continent. just prior to the great investment in roads. within a generation. Exports rose rapidly as farmers responded to the stimulus coming from industrialisation in Britain and more efficient forms of marketing and transport emerged. This in turn led to an acceleration in the rate of growth. Then. they began to rise in the second half of the nineteenth century with the growth of Cape Town. By the late nineteenth century paved streets and rows of houses were not enough. Water had to be provided. as what were considered the minimum requirements for decent urban living were raised.

All these developments needed the assistance of financial intermediaries. R. and by J. assisted by state capitalism in the form of road construction. and to the refinement and standardisation of banking techniques. 7 The first widespread banking networks developed in England and Scotland at the time of the Industrial Revolution when the stimulus emanating from the secondary sector was sustained and powerful. the private bankers built their business around the three classic functions of English banking: deposit taking. important in themselves. But these developments. p. H. Agricultural developments by themselves had not until then been sufficient to elicit the formation of nation-wide banking. had led to the emergence of major financial centres in Europe. in the 1860s. Table 1. 1968).Introduction 4 Table 1. 'The Consolidation of a New Society: The Cape Colony'. Thompson (eds). Davenport. With the constraints on the balance of payments removed and market forces bringing about the development of more scientific farming. -Thomas thesis respecting efficient economic organisation and property rights. development in the second and third quarters of the nineteenth century was steady rather than spectacular before the discovery of diamonds in Griqualand West. nor had the development of world-wide trade in the sixteenth and seventeenth centuries. for example. discounting and note issuing. in Amsterdam and London. In London. were confined to a handful of commercial centres and the provision of nation-wide banking services had to wait for the transformation of the economy that we know as the Industrial Revolution. . The Oxford History of South Africa.1 Wool exports from South Africa 1835-72 (£ sterling) 1835 1845 1855 1865 1872 14596 176741 634 130 1 680 826 3 275 150 Source: T. 290. form the lateral linkages that emerge as a response to growth in other sectors of the economy. for banks. Wilson and L. it is true. Inggs of Unisa Economics Department. 1 (Oxford: Oxford University Press. as Hirschman and Rostow pointed out over a quarter of a century ago. in M. in the later seventeenth century. Vol.1 shows how wool exports quickly came to dominate South Africa's exports and to provide the foreign exchange for essential imports. This.

when the diamond diggings of what is now Kimberley were in full swing. Bain's Kloof and the Zuurberg Pass today stand witness to this first burst of sustained capital investment in South Africa. Britain alone being able to construct a network without state support. 8 This was the first achievement of the local colonial secretary. In 1870. Before the era of gold the process of capital formation was slow and linked to the progress of agriculture. The Montagu Pass. Inevitably the main demands for capital came from requirements of the infrastructure. Before the discovery of diamonds gave a boost to the whole economy and particularly to capital accumulation. not only was there insufficient capital but the railways were not economically viable. Michell's Pass. but the Eastern Province. there were only 150 kilometres of . the Cape of Good Hope Bank. the needs of trade stimulated the formation of a number of modern banks in the Cape Colony during the first half of the nineteenth century. there was not sufficient volume of traffic to warrant the building of railways. During the nineteenth century railways made enormous demands upon available capital resources. and not the older Western Cape. only recently settled by English speakers. Steady economic growth based on small beginnings inevitably meant that the rate of capital formation would be slow. both for roads and bridges and then for railways. John Montagu. Nevertheless. that saw capitalist enterprise bind South Africa into the international economy. as Arthur Webb shows in his study of the Eastern Province Bank. this led to rivalry with Cape Town and Port Elizabeth. and this in turn made it very difficult to get railways built in the early nineteenth century. responded first to the stimulus emanating from the industrialisation in Britain.a large sum of money in those days for a poor colony. The initial moves came from the government and the first significant development was the construction of a road across the Cape Flats that was completed in 1845 and cost £40000 . not even the state was wealthy enough to engage in much railway construction. In South Africa. Cape Town led the way with its first modern bank in 1836. under whose leadership (1842-52) the great Trunk Roads were planned and built and Cape Town linked with what are today the main centres of the Western Cape. Then. the Eastern Province.Stuart Jones 5 It is consequently not surprising that modern banking entered South Africa relatively late and had to await the arrival of the British impact in the last years of the eighteenth century. with its development of wool growing and wool exports and. In a land of sparse population and great distances between the various commercial centres. it was the hinterland of Port Elizabeth.

The state capitalism of the Cape Colony was. Later. the same narrow 3 ft 6 ins gauge was used instead of the standard 4 ft 8Y2 ins of Europe and North America. Zaire and Angola to the coast at Lobito Bay. In this way. From Kimberley the nearest port was East London. All three lines were built helter-skelter to Kimberley without any thought of the business of the districts through which they passed. by developing a flow of traffic inwards and by providing the Cape government with a new source of revenue in the form of enhanced customs receipts that were used to finance railway construction. but private capital was either not able or not willing to pay for a line so far inland which passed through territory that offered limited opportunities for picking up additional traffic . therefore. and the tiny line from Durban to the Point. the year before gold was discovered on the Witwatersrand and the year before the Canadian Pacific reached Vancouver. 9 Inland there was nothing because two-thirds of the way through the century South Africa was economically backward when compared with the United States. right from the beginning. as the lines from the coast reached out into the interior of the continent. state capitalism exposed the danger inherent in letting politicians decide important economic questions . including that of the Benguela Railway through Zambia. Indeed the Boer Republics were barely part of the international economy. this particular example of state capitalism had not provided the Colony with a network best suited to its existing agricultural economy. Canada or Australia. but political problems had prevented the choice of the most direct route to the coast at East London through the Orange Free State and any direct connection with the Natal railways. However. A decade and a half of diamond digging in Kimberley had led to the construction of a railway network in the Cape. the line from Cape Town to Wellington.a practice from which the South .a suburban line linking Cape Town with Wynberg. The explosive growth of Kimberley made a railway to the mining town essential. ultimately responsible for determining the gauges of all the railways in Southern and Central Africa. but the government of the Cape Colony was in Cape Town and in Port Elizabeth there was another lobby seeking the terminus of the line to the interior at the 1820 settler city. Kimberley finally received its railway in 1885.6 Introduction track in the whole country . but at the price of using a narrow gauge that cost less to build.hence the burden fell upon the state. State capitalism under the leadership of the politicians provided Kimberley with three lines to the coast.

capitalist enterprise had led to the efficient organisation of parts of the agricultural sector involving wool growing in the Cape and sugar growing in Natal. Environmental obstacles were overcome and not even the hostility of the South African Republic could do more than impede the inroads of capitalist enterprise in the country. religion and customs the newcomers were very different from the semi-subsistent farmers of the Boer Republic. the gold rush proved to be a permanent affair and not just a short-lived mining forays. Natal and the Transvaal. and in the absence of navigable rivers. as in Johannesburg.while private capitalism revealed itself to be too weak or too timid to attempt the task. met local needs well and led to the production of at least one large trading fortune. the capital of the eighty-one diamond mining companies was £16 million. Eckstein and Barnato. Beit. In language. 1886-1914 The leisurely economic growth of South Africa ended in the 1880s with the development of the gold mines of the Witwatersrand. and in the long run low agricultural productivity undoubtedly retarded the development of the economy. the gold mines of the Witwatersrand exerted an impact upon the Cape. for instance. THE ERA OF GOLD. Unlike the diamond diggings at Kimberley which mainly affected the Cape. Wool growing. On the eve of the gold discoveries. and when. therefore. the impact was shattering. once deep level mining was introduced in the early 1890s. The Transvaal was dragged forcibly into the modern world and almost overnight Johannesburg became a place of importance. the seat of a stock exchange. the gold discoveries attracted a motley crowd of fortune seekers that intruded upon the rural peace of the southern Transvaal. unlike the Kimberley diamond diggings. 10 In a land of vast distance and erratic rainfall. Of course. geography and climate dictated extensive rather than intensive farming. and. but it did not lead to the modernisation of either Boer or Black agriculture. and to a number of significant capital accumulations in Kimberley in the hands of entrepreneurs such as Rhodes. to state sponsored infrastructure developments in the forms of roads and then railways in the Cape and Natal. that of the Mosenthals. the mines needed to import capital.Stuart Jones 7 African tax-payers have suffered in recent years . but gold booms the world over act as a solvent to traditional societies. banks and powerful mining finance houses. In 1881. .

hitherto retarded by both the lack of markets and the lack of transport. The first bank. Mining was revolutionised and agriculture. so that almost from the beginning developments favoured the growth of the mining finance houses that have dominated the industry ever since. 15 The meteoric growth of Johannesburg had a dynamic impact upon all sectors of the economy. Johannesburg burst upon the economic scene. the gold mines needed the resources of large companies.8 Introduction Local resources were inadequate. which in the course of 1894 saw the London market value of quoted South African shares rise from under £20 million in January to over £55 million in December. opened in a tent in 1886 and was followed by an instant stock exchange that had over fifty members at the time of its official opening in November 1887. The survivors tended to be those companies that commanded large financial resources. II By January 1890. Overseas capital markets were involved in this boom. After the initial discovery of gold. forty-four mines were operating with a nominal capital of £6600000 and the value of the gold output had risen to £1300000. . 450 companies had been floated in Johannesburg with a nominal capital of £11000000. the Standard. From the time that deep-level mining began in 1892. and the mining industry learned to live through periodic winnowing-out processes when the weaker and financially vulnerable companies went to the wall. 13 This third boom culminated in the crash of 1895 when French investors panicked and unloaded gold shares on the Paris Bourse. sixty-eight companies with a total nominal capital of £3 063 000 had been floated: within two years of the discovery of gold. In 1888-9. there was a boom. Within a year. another one in 1891 with the introduction of the MacArthur cyanide extraction process. Johannesburg's development was punctuated by successive booms. As day to day control was not always exercised by the owners. In this way the era of gold brought South Africa into immediate and direct contact with the capital markets of the world. the South African gold mining industry began to display some of the characteristics of the multicorporation in the United States that Alfred Chandler has termed managerial capitalism. and a third in 1894-5 when deep-level mining was developing and the mines were becoming very capital intensive. 12 Within two years of the Stock Exchange opening it had 300 members and over 300 companies were officially quoted on the Exchange. 14 In this way capitalist developments in South Africa exerted an almost immediate impact upon the great financial centres of the late nineteenth-century world.

Labour in the South African Gold Mines. Secondary industry began to develop and the tertiary sector was transformed. p. The additional £50 million a year of revenue from the gold mines in the Edwardian era made South Africa overnight an important trading partner for Britain. From next to nothing in 1886. the population of Johannesburg rose to 80000 in 1895 and to 237104 in 1911. Wilson. p. .Stuart Jones 9 was now exposed to the full rigours of market forces. but large though the gold output was on the eve of the Boer War. it was small by comparison with that on the eve of the First World War. Table 1. but then remained stuck on a plateau in the years before 1914. close relationships had been established with City interests as Stanley Chapman shows. 17 The first decade of this century may not have been one of boom for Johannesburg. the value of the town's real estate was put at £27443636 of which approximately three-quarters was for land and one quarter for buildings. The value of the gold output puts it more bluntly.2 indicates. but what had already been achieved was considerable. 1911-1969 (Cambridge: Cambridge University press. too. By then. In 1902. 16 Land values rose rapidly in the nineteenth century. 45. 1885-1981 (£ sterling) 1885 1898 1902 1911 1921 1931 1941 1951 1961 1981 10 000 6 000 000 27 000 000 70 100 000 86 800 000 92 400 000 242 000 000 285 900 000 574 900 000 R8 301 296 000 Source: The City of Johannesburg: Official Guide. Capital to the value of around £50 million had been created in the midst of what had been underdeveloped farm land. though even among the exploration companies the Rand did not dominate and they pursued a deliberate policy of diversification. as Table 1. South Africa very rapidly became the world's major source of gold in the 1890s. 1972). 159. and the Chamber of Mines.2 The annual value of South African gold production. and this was its approximate value in 1911. F.

but in the event it contains little that is new. Its main impact. This situation has continued until the present. Kubicek's book of 1979 gives the impression of being an up to date study of this important topic. Though it claimed the distinction of being the first bank to open in Johannesburg and undoubtedly added to the stability of the infant mining town. after 1886. There are. and his figures of capital investment in the gold mines are taken straight from Frankel's work of 1967. Before 1886 the South African colonies had from time to time relied upon raising capital in Britain. however. but it formed only a small proportion of total British. Nor in this period was it drawn to move its South African headquarters from the Cape to the Transvaal. small by comparison with the volume of funds that flowed into American railways. The Standard Bank. of course. and so on. the first of the imperial banks to make its appearance in South Africa. furthermore. had done so before the discovery of diamonds in Kimberley. the cost of marketing them in Europe. 18 Frankel estimates that between 1886 and 1913 between £116 and £134 million flowed into the South African gold mines. French and German foreign investment and was. As a result. the distribution of special founder shares to favoured persons. The discovery of gold changed all this and. no historian or economist has yet produced fully reliable figures on the investment in South African gold mines in the twenty-eight years prior to 1914.10 Introduction Gold went out of South Africa: foreign investment flowed in. but the four provinces that were to form the Union were not dependent upon inflows of capital for their development. Capital inflows and development on this scale could not have occurred without the aid of financial intermediaries and the emergence of banks of comparable size. The presence of a powerful and conservative bank in the . no precise statistics of the capital investment in the gold mines in the early years. was to make possible the rapid development of the gold mines and that in turn helped to smooth the working of the international gold standard and boost South Africa's imports. it was not overwhelmed by it. first in the Eastern Province and then in Cape Town. The diamond industry had been financed from within the country. It was solidly based in the Cape. This was a large amount of money for South Africa. despite voluminous literature on economic imperialism and capitalism during this period. because of the practice of calling up only a proportion of the nominal value of the shares. South Africa became dependent upon a regular flow of investment capital into the country in order to maintain the pace of development without a reduction in consumption.

this was because non-economic factors impeded the working of market forces. by the rise in the gold price in 1933 and finally by the stimulus of the Second World War. Supposed to free the Boer government from imperial control. helped in the first instance by wartime import substitution. hoping to pick up government business. While restrictions on labour mobility and the beginnings of job reservation may have been in the interests of selfish minorities. What in fact happened was that the Natal Bank moved into the Transvaal. THE EARLY INDUSTRIAL ERA. the new National Bank found itself obliged to rely on British capital. the end result being dependence upon imported capital and foreign control. it is unlikely that they were in the interests of capitalist development. then by deliberate government policy after 1924. did likewise. So great had been the impact of the mineral discoveries that by 1910 the English speaking section of the population was already urban. This made the contrast with the still rural Afrikaans speakers all the more stark. They were supported by a market oriented agriculture in the Eastern Cape and Natal. and Kruger's government authorised a new Transvaal-based bank. therefore. was to reproduce in banking what was happening in mining. Indeed by 1914 South Africa's society was beginning to reveal the inherent tensions and contradictions among its various components. and was in turn taken over by Barclays in 1926. If capitalist development had not made as much progress by 1914 as might have been hoped. the National Bank.Stuart Jones 11 midst of such speculation cannot but have discouraged the emergence of other less secure banks. The immediate result of the gold discoveries. The demands of industry for capital were not as great as those of the gold mines. Elsewhere in the Union agriculture acted as a brake on the process of modernisation. 1914-48 The capitalist enterprise induced by the development of the gold mines overflowed into other sectors of the economy in this period. and in the struggles that ensued the representatives of capitalist enterprise were not always the victors. the Netherlands Bank. Railways. This became absolute when the National Bank bought up the Natal Bank in 1914. South Africa followed the classic route to a modern economy with the first industries producing manufactured goods from local raw materials or . banks and gold mines were the great representatives of capitalist enterprise in South Africa before the First World War.

21 With regard to the South African gold mines both capital and labour may lay claim to have been exploited. new development moved to the West Rand. So too did the rate of taxation. the massive increase in the price of gold acted as a stimulus to sustained economic growth. Yet it was also the time when Ernest Oppenheimer built Anglo-American into the major mining finance house and tied diamonds to gold. market forces were still more powerful than cabinet ministers and the country was forced to follow Britain off the gold standard and to devalue at the end of 1932. 20 In the 1930s. In the 1920s. but with the exception of iron and steel. The age of the assembly line in engineering really grew up in South Africa during the Second World War. remained relatively backward and undercapitalised. capital poured into the industry-£80 million between 1933 and 1940 .12 Introduction concentrating upon relatively simple consumer goods. By 1940 the government was taking 71 per cent of the profits and the gold mining industry provided 40 per cent of the government's revenue. after which output would decline. In the late 1930s the Free . dynamite production was capital intensive. However. In the First World War rising prices and a fixed gold price threatened the economic viability of many of the mines. Consumer industries producing textiles.and output went up accordingly. 19 When the Nationalist government refused to devalue along with Britain in 1931 this very nearly happened. and the government sponsored an iron and steel industry with the foundation of ISCOR in 1928. capital by the government and the non-unionised Black labour by the mining companies and the White mine-workers. Then. clothing and furniture developed. boots and shoes. and this weakened position formed the background to the labour unrest that culminated in the 'Rand Revolt' of 1922. Throughout the 1920s the future of the gold mines was in question and as late as 1930 the government mining engineer estimated that peak production would be reached in 1932. growth of the more capital-intensive producer goods lagged behind. Progress was then rapid and by 1948 South Africa was considered one of the developed economies. The role of gold mining in the economy was uncertain during the first half of this period. Not until the Second World War did assembly line methods feature in the engineering industry which. but on the whole the industrial base remained thin before the Second World War placed unprecedented demands upon the economy. until then. Fortunately for the mining industry. mines on the far East Rand were the leaders in the industry and in 1929 they were responsible for 80 per cent of all profits and 86 per cent of dividends.

Stuart Jones 13 State gold field was discovered.311 98. Between 1914 and 1948 the value of the gold oputput almost trebled with virtually all the growth occurring after 1933.664 39.the same conditions which applied to much of South Africa. the main restrictions on the progress of industrialisation were the low productivity of peasant agriculture and the low incomes of peasant households . This did not happen to any significant extent in South Africa and it inevitably impeded the progress of capitalist enterprise in other sectors of the economy.3 below gives the figures.280 44. The real wages of Blacks between 1914 and 1948 did not rise in either mining or in agriculture.943 103. gold mining.919 Source: Union Statistics for Fifty Years.739 44. while another portion of the primary sector. Table 1. K-4 and reproduced under Government Printer's Copyright Authority 8629 of 18 December 1986.3 The value of gold output. For years they had been sheltered from market forces and this made it difficult for them to . but its development began only after the war and it had not come on stream by 1948. agriculture. All other market economies that have made the crossing from underdeveloped to developed have done so by first developing their agriculture and raising productivity in that sector. provided a powerful stimulus to development and effectively removed constraints on the balance of payments. 1960.149 99. 1914-1948 (£ millions) 1914 1919 1924 1929 1934 1939 1944 1948 35. The paradox of South Africa was that on the one hand a portion of the primary sector. In 1914. Pretoria. remained locked in antiquated methods and low productivity that held back the growth of the market. Even within the gold mining sector the continuance of low wages to Black workers retarded the growth of the market.229 72. South Africa needed to import food because the low productivity of the Afrikaner farms made it impossible for them to feed the rapidly growing urban regions of the country. 22 The picture in the agricultural sector was bleak. 1910-1960 published by the Central Statistical Service. Across the ocean in India. Table 1.

23 Subsidies to farmers became the normal policy in the inter-war years and in the 1930s these amounted to about £15 million a year. which had been filled by the mining sector in the half century before 1914. the 1937 Marketing Act that authorised the setting up of Commodity Control boards was to determine the pattern of post-war development which finally succeeded in raising farm incomes. Non-capitalist policies were adopted. Problems had been building up before the Boer War. The farms were undercapitalised and the farmers undereducated. and the sharecroppers (bywoners) less than £50 per year. the value of output did not rise significantly before 1939.and the agricultural problem was to be solved. Most of this industrial development was the product of market capitalism. Some large industries had emerged. but after that date more intensive use was made of capital and the value of output rose faster than the number of establishments. but the dislocation that resulted from the war and Kitchener's brutal policies. In that year half the owner-occupiers received less than £200 per year. Despite this weak agricultural base the period from 1914 to 1948 was one of rapid industrialisation. An idea of the change under way may be gained from Table 1. but by raising prices through the creation of state marketing monopolies. together with a growing shortage of land for the rapidly increasing population.14 Introduction adapt to the sudden growth in demand. not by raising productivity as in contemporary America. Until around 1924 the number of factories and workshops increased at the same rate as the gross value of output. Even so. was now filled by secondary manufacturing in the years after 1914.4. and it may be argued that the role of leading sector in the South African economy.recognition at least that the land could not support them and in direct contrast to later National Party policies towards surplus Black labour . Monopsony became the policy of the government. Their limited impact upon the process of modernisation was revealed in a 1941 study of farm incomes. In . The gross value of industrial output had risen more than fourteenfold while the value of gold output had barely trebled. but the move towards industrialisation represented a democratisation of capital away from the hands of a few mining finance houses and to a broader section of the community. The 'poor White problem' was to be solved by a positive policy of industrialisation . more than half the tenant farmers less than £100 per year. 24 Nevertheless. created the 'poor White problem' that exacerbated race relations and made some positive policy towards both industry and agriculture imperative.

restrictions on the free movement and use of the factors of production were still limited in their extent and cannot be said to have had more than a marginal effect on the progress of capitalism in South Africa. Recruitment into the bureaucracy followed a similar line.Stuart Jones 15 Table 1. though. The amalgamation movement that swept over England immediately after the First World War had its counterpart in South Africa. this does not mean that individual capitalists were always able to determine policy. Pretoria. In peace time there were no restrictions on capital movements in the White areas. On the contrary. 1961. but the division of the country between the races effectively kept White capital out of the Black homelands. the move away from excessive reliance upon the primary sector reflected the maturing of the South African economy and offered the prospect of more balanced growth in the future. L-3 and reproduced under Government Printer's Copyright Authority 8629 of 18 December 1986. Full factoral freedom was not achieved and was becoming less likely as the state began to place restrictions upon development. 1915-48 (£ thousands) 1915 1920 1924 1925 1929 1933 1938 1943 1948 35699 79750 66295 63766 78425 82448 140582 267839 531 195 (excluding output of government concerns after 1924) Source: Union Statistics for Fifty Years. The apprenticeship laws effectively kept Blacks out of skilled occupations and the 'civilised labour policy' acted as a formidable barrier to labour mobility. In the tertiary sector the banking system stood up well to the depression ofthe 1930s. While this expansion of the secondary sector might be seen as evidence of dynamic capitalist enterprise. In general. economic terms. there were signs that non-economic factors frequently determined state policy.4 Gross value of industrial output. For much of this period there were only two . 1910-1960 published by the Central Statistical Service. Labour mobility was restricted by laws tying Blacks to the land or by laws restricting free movement into the urban areas. where the degree of concentration went much farther than it did in Britain.

. Afrikaner capitalism made its appearance. and began its long rise to a commanding position in the economy.25 and the rate of growth was accelerating. but the inequalities between rich and poor became. it is sometimes difficult to distinguish between the state capitalism of South Africa and that of the centrally planned economies of Eastern Europe. As state capitalism in practice means bureaucratisation. (This had also happened in the USA in the late nineteenth and early twentieth century. The national income. rose from £257 million in 1919 to £801 in 1949. the Standard Bank and the National Bank that was bought up by Barclays in 1925. 1948-80s From 1948. while at the same time . the South African Reserve Bank. The total capital stock increased as did the per capita investment. this transformation of the economy was accompanied by a far-reaching social revolution.a government which elevated poor White attitudes into a political philosophy. as the underprivileged Whites of yesteryear used their newly won political power to advance their economic interests. more pronounced. South African capitalism made steady if unspectacular progress in the years before 1948. At the same time. Looked at from the macroeconomic point of view and the growth of the national income.) Efficient economic organisation within a capitalist framework was at work generating wealth. at 1948 prices. For about twenty years after their original victory the ruling groups of Afrikanerdom were anti-capitalist in their attitudes. accompanied by a plethora of supportive state agencies. but the modernised sector of the economy was still too small to embrace the whole Union. if anything. Recent capitalist enterprise in South Africa consequently has had to contend with an unsympathetic government . South Africa experienced rapid economic growth that in effect amounted to an industrial revolution. but from 1921 there was a central bank. THE ERA OF NATIONALISM AND STATE CAPITALISM. while within the modernised sector there were disquieting signs of increasing state interference with the factors of production in a way that was hostile to the development of free market capitalism.16 Introduction banks of importance. Bank deposits did not significantly rise in the inter-war years and branches were closed. There were no merchant banks and no discount banks. along with much of the world. reflecting the weak agricultural base of the country.

an inefficient transport monopoly. appeals are made to the emotions. The experiences of Ghana. so that today the main threat to capitalist enterprise in South Africa undoubtedly comes from an entrenched anti-capitalist ethic in Black society. Discrimination against English speaking business has been widespread and sustained. Not surprisingly then. It is probably true to say that the Afrikaner leadership has had a genuine conversion to the attractions of a market economy. job reservation. Contemporary with these developments within Afrikanerdom and more serious in the long run is the development of Black socialism. For three decades after 1948 it came up against government policies that interfered with the factors of production. and the idols of the young are no longer the preachers of yesterday but the tycoons of today. after the death ofVerwoerd. Government policy had clearly undergone a complete turn about. As recently as 1973. the first act of the new authority was to transfer . change their ideas. Capitalist enterprise in South Africa in the second half of the twentieth century has not been able to rely on a favourable political environment. capital controls on where one could invest and on movements of capital out of the country. but it was easier to exhort businessmen to reform than it was to effect real reforms. but that not all the rank and file have joined them in this act offaith. the ruling group began to backpedal on its old anti-capitalist rhetoric and by the early 1980s the Prime Minister was openly appealing to businessmen for their support. and in the process. Nationalist government policies since 1948 have tended to convert Blacks to socialism. Financial rewards and the acquisition of wealth have begun to create class divisions within the ranks of Afrikanerdom. It is testimony to the inherent dynamism of the economy and to the vigour of local businessmen that the economy has grown despite these disadvantages. Whether Black entrepreneurs will have as long a period as the Nationalist Afrikaners did in which to move into business and accumulate wealth. Influx controls. Tanzania and Uganda are ignored.Stuart Jones 17 promoting policies conducive to economic growth that led to their own elevation into the ranks of the privileged. decentralisation policies. for two generations of relying on state patronage for handouts and contracts had created an army of clients and a bureaucracy not sympathetic to change. and an inadequate national educational structure all acted to retard economic development. when Soweto was transferred from the authority of Johannesburg to the West Rand Bantu Affairs Board. and economic illiteracy is widespread. remains to be seen.

By comparison the provision of housing and hospitals has lagged behind (not enough capital has been invested in housing). Capitalism. if English speaking White businessmen have experienced discrimination. Apartheid. even though individual capitalists may have supported the ruling group. Verwoerd tried to change its negative image to a positive one by dreaming up separate development and the absurd notion that all the Blacks would one day live in homelands. It was a negative policy of the have-nots. the underprivileged. it is nothing to that which has confronted prospective Black entrepreneurs. cannot be blamed for all that has happened since 1948. while the centres of almost all the cities have fallen victim to 'development' so that sterile boxes now dominate most of them. and with the burst of investment that followed the 1974 rise in the price of gold. it places a well nigh insuperable one on that of South Africa's less developed neighbours. Not surprisingly few took the bait. the spectacular . To achieve this 'grand experiment' in social and political engineering. a host of barriers were erected to stop industry expanding in or near the White areas and to try to force manufacturers to go to remote areas lacking in almost everything essential for a modern competitive factory. was anti-capitalist. with an anti-urban bias. anti-English and anti-Black. gold and electricity generation. The main outlines of development since 1948 have been the continued progress of industrialisation. It is important to have some understanding of this background.18 Introduction all bank accounts from Barclays to Volkskas and in 1986. at least one Black millionaire emerged proclaiming thereby the eventual doom of apartheid. Yet. as conceived by Malan in 1948. therefore. the Botha government appointed an Afrikaner in charge of eduction in that province. because although South Africa has experienced vigorous economic growth. the renewed investment in gold mines with the development of the Free State and the Far East Rand gold mines that came on stream in 1951 and 1958 respectively. though even in the repressive 1960s. In the 1960s. Infrastructure costs have been rising at a faster rate than those of other sectors of the economy and if this imposes a severe burden upon the South African economy. and the colossal investment in the infrastructure. this growth has not necessarily coincided with the best interests of capitalists. and industry with its increasingly Black labour force remained obstinately in the White areas. the Verwoerdian era. on the dissolution of the Provincial Council of Natal. The background to the emergence of sophisticated financial services in modern South Africa has been this massive investment in industry.

the oil from coal programme. p. and formed the background to the emergence of sophisticated financial institutions and services. Coal. iron ore and platinum were of particular importance. though it did retard the restructuring of the pattern of exports. and the emergence of a few very large corporations. 26 This broadening of the base of the economy was reflected in the growth of the secondary sector. The South African Economy. though in the 1970s state enterprise in iron and steel production. p. the gold mining industry has played a major role in the recent expansion of the South African economy. armaments and . Hobart Houghton. Since the mid-1960s this expanding gold output has been accompanied by considerable new investment in gold mining that has been rising faster than the value of output. Mineral exploitation fuelled the growth of the economy. Large though this is. This massive increase in the value of gold output was accompanied by vigorous expansion in other branches of mining.5 19 Gold output. gold mining accounted for only 11 per cent of the national product. growth in the assets of the banks and insurance companies. Gold and South African Gold Mines. after the massive increase in the price of gold.6 gives the figures. 1967. Table 1. Not even the explosive rise in the price of gold in the late 1970s could significantly retard the restructuring of the economy. but the engine of growth was industrialisation. and Chamber of Mines. 41. With the 1984 gold output amounting to a capital inflow into South Africa of R11684 million. it is small by comparison with the annual new investment of ESCOM. gold mining accounted for 13 per cent of the national product: twenty years later. 46. Private enterprise was mainly responsible for this.5 convey some idea of the magnitude of the expansion under way and of the ravages of inflation. In the early 1960s. Johannesburg. and amounted to 14 per cent of the value of output in 1984. 1985.Stuart Jones Table 1. The figures of gold output in Table 1. amounting to almost two billion rands in 1985. 1948-84 (Rand millions) 1948 1954 1964 1974 1984 200 329 730 2565 11 684 Source: D. Cape Town.

Table 1.6

Capital expenditure in the South African gold mines, 1966-85
(Rand millions)




Source: Figures produced by the Chamber of Mines.
*Capital expenditure of Chamber of Mines members 1973-85; of all gold
mines 1966-72.

electricity generation played an increasing role in the economy. From
the late 1940s to the late 1960s private enterprise led the way, despite
the anti-market bias of government policy. Sasol has now passed into
private ownership, but its role in pioneering technological
breakthroughs has been taken over by ARMSCOR, the secrecyshrouded state enterprise devoted to self-sufficiency in armaments
production. From contributing a little over 20 per cent to the national
product in 1948, the secondary sector by 1982 accounted for 33 per
cent. 27 The gross value of output has increased, see Table 1.7.
Gross fixed investment in manufacturing had risen almost sixfold
between 1960 and 1982 at constant prices from R331 million (1975
prices) to 1922 million in 1982 at a compound growth rate of 8.3 per
cent. 28
Infrastructure developments were dominated by the growth of
electricity production. Between 1960 and 1982 electricity, gas and

Stuart Jones


Table 1.7 Gross value of manufacturing output in South Africa, 1948-76
(Rand thousands)

1 062 390
2 013 106
2 650 411
4 044 802
5 983 163
9 136679
20 239 729

Source: N. B. Lumby, 'The Development of Secondary Manufacturing', in F.
L. Coleman (ed.) South African Economic History (Pretoria: HAUM and
the Department of Statistics, 1983), pp. 224, 226, 227.

water's share of gross fixed investment rose from 8 per cent to 13.9 per
cent. 29 Investment in electricity production was expanding at a faster
rate than investment in manufacturing. At 1975 prices this investment
in electricity rose from R201 million in 1960 to R1252 million in
1982. 30 The full impact of state capitalism may be seen in the figures
of the public corporations' share of gross domestic fixed investment,
which rose from 6.2 per cent in 1960 to 19.9 per cent in 1982Y
The ESCOM Annual Report is more revealing. At the end of 1985
there were twenty-six power stations in operation and a further six
were on order. The total value of the corporation's assets was then
R31251 million. This was calculated by using historic cost accounting
practice. The real value, the replacement value of the investment, was
probably close to R60000 million - a sum which makes ESCOM one of
the world's largest corporations and which dwarfs the investment in
the gold mines, whose market value on 11 August 1986 was something
over R51000 million. The cost of modern coal-fired plant today is
probably close to around R4000 million, more than the Koeburg
nuclear station cost, though not as much as it would cost to replace
Koeburg. One authority thinks that ESCOM's capital requirements
may amount to close to 60 per cent of the country's total savings.
Western Deep Levels, the deepest gold mine, by comparison has a
capital value of around R2000 million, about half a coal-fired power
Paralleling this huge growth in the capital requirements of electricity
generation has been the growth of very large corporations in the
country. The Top 100 analysed in Chapter 8 shows the extent of these
changes in the past twenty years. With a blocked rand since 1961,



capital has been locked in the country and this has tended to encourage
the take-over movement; and today the two big mutual insurance
companies, Anglo-American and the Anton Rupert's Rembrandt
Group, own or control about four-fifths of the private sector. Against
this should be set the large state-owned sector with its monopolies and
price-fixing practices. In other words, South African capitalism in
recent years has moved in the direction of monopoly or, at best,
oligopoly, state capitalism and pension fund capitalism.
The financial intermediaries responded to these developments in
the economy by expanding their functions and increasing their size.
Nedbank, a small bank, that had previously been geared to the foreign
trade of South Africa, made a sustained attempt to establish itself in
the domestic market and to use this base to increase its position in
South Africa's foreign trade, while its Netherlands parent took the
opportunity to cut its ties with South Africa. Both banking practices
and monetary policies were changing in these years and the Reserve
Bank followed in the footsteps pioneered by the Bank of England in its
use of bank rate and reserve requirements. Volkskas, the Afrikaans
government-oriented bank, grew rapidly on the strength of its
government business from public bodies and the new Afrikaans
corporations presided over by Saniam, the giant insurance company.
While all the other banks moved their head offices to Johannesburg in
this period, Volkskas remained in Pretoria. Most of the banks are
nominally independent, but with the withdrawal of foreign investment
and the decision by Barclays and Standard/Chartered in England not
to maintain their proportion of shares in their subsidiaries, financial
concentrations has taken another step forward, for in practice the
ultimate owner of Volkskas is Rembrandt and of Trust Bank Sanlam.
Old Mutual owns Nedbank, Barclays, now First National, tied to
Anglo-American and Standard, are curiously intertwined with
another insurance company, Liberty Life. They own shares in each
other and may be joined by the United Building Society, as these
former non-profit making institutions go public. In South Africa,
therefore, the grand institutions of capitalism are in the midst of a
period of vigorous innovation, not so unlike that taking place
elsewhere. This significant growth of Johannesburg as a major
financial centre is one of the achievements of recent years and has been
achieved despite government policies.

) These benefits do exist in South Africa. 1987. .Stuart Jones 23 CONCLUSION Developments within South Africa have led to an enormous increase in the wealth of the country in recent years and this had begun to affect more and more of the people.a remarkable redistribution of the national income within one decade. together with clearly defined property rights. This does not imply that wealth is equitably distributed in South Africa and that selfish minorities will not use their political power to preserve their economic privileges. Efficient economic organisation. have created conditions in which individual enterprise on the periphery has been able to respond to the signals emanating from North Atlantic and Japanese core economies. Indeed the radical leaders of today from Tambo in Lusaka to Tutu and Boesak are the epitome of bourgeois values and attitudes. has not worked. though with foreign investment. but for the economic recession and the political unrest. but it does suggest that sustained economic growth is in the process of bringing about a social revolution. By 1980 the White share had declined to about 60 per cent . It is not possible for a society with an exploding population to have an elaborate structure of social welfare. Until 1970 the Whites' share of total personal incomes amounted to about 75 per cent of the total. the South African economy has been transformed. without foreign aid. has still not reached the stage of free and compulsory education and certainly there is little hope there of pensions and unemployment benefits. (India. 32 The White share of the national income would probably have fallen to 50 per cent by now. four decades after independence. and the economically active population increased to almost 9 million. the low productivity of peasant agriculture overcome. Economic growth is bringing an end to apartheid and a Black bourgeoisie is emerging. as displayed by some of the institutions examined in this book. Personal disposable income has risen from R8610 million in 1970 to R46225 million in 1982. They are not yet adequate. but their very existence is a tribute to the dynamism of the capitalist enterprise which was primarily responsible for the creation of such wealth as has occurred. Already by 1984 Black expenditure accounted for about 50 per cent of the annual increase in consumer demand. In the process. that of the socialist model adopted by the countries to the north. The alternative road to development. Personal savings have risen at a slower rate because an increasing proportion of the national income has been going to Blacks and thereby passing into consumption.

Shorten. Oxford. vol. 180. 1. 11. p. 1870--1913. Rostow. no. W. Notes and References 1. A. H. The Economics of Take-off into Sustained Growth. H. Ibid. 1.. Robert V. The experience of South Africa suggests that it is undergoing a similar process and that.). 1986. E. if this should continue. The Strategy for Economic Development. 1971.C. Growth and Fluctuations. in F. The Johannesburg Saga. Ibid. 1. Arthur Lewis. p. L. p. London. in Monica Wilson and Leonard Thompson (eds). Hobart Houghton. 6. 1967. sustained economic growth in a framework of market capitalism will lead the country into a similar era of affluence. 5-6. 15. John R. 2. The Story of the Johannesbury Stock Exchange. 14. Muller. Alfred D. 'The Liverpool ofthe Cape: Port Elizabeth Trade: 1820-70' in The South African Journal of Economic History. p.. 1963. Durham.249. 49. 1973. 'The State and the Development of the Cape. vol. 1795-1820'. C. South African Economic History. 93.p. 7. and W. The Visible Hand: The Managerial Revolution in American Business. 1970. Douglass. Kubicek. p. 18. V. Pretoria.). 1983. 1983. The Rise of the Western World. 100. Mass. The Johannesburg Saga. 234. 1979. Economic Imperialism in Theory and Practice: The Case of South African Gold Mining Finance 1886--1914. See the article by A. 12. 1887-1965. p. H. in W. D. Shorten. Ibid. 1977. pp. John R. 83. p. 13. 1948. 1958. 3.149. 'Leading Sectors and the Take-off. L. 117. Klein (ed. N. p. 2. . 9. W. 8. Cambridge. Capitalist Investment in Africa. Frankel. 1978.). and S. Coleman (ed. 'Transport'. Shorten. 249. 81. Jr. 5.46. II. 17. W. Johannesburg. Frankel. The Johannesburg Saga. 'Economic Development. Investment and the Return to Equity Capital in the South African Gold Mining Industry. pp. Ibid. 1887-1947. Hirschman.1987. vol.. Chandler. The Oxford History of South Africa. John R. S. North and Robert Paul Thomas. p.. Oxford. The South African Journal of Economic History. p.Johannesburg. pp. lD. 14. See the article by Jon Inggs. 22. Cambridge. 4. Rostow (ed. New Haven. 16.Introduction 24 Efficient economic organisation and clearly defined property rights created the framework of market capitalism that made possible the rise of the West. London. p. 1865-1965'.95. E. Oxford. Solomon.

Ibid.. Ibid. 31. The South African Economy. 190. 1967.. no. pp. p. 76. 46. vol. 22.. 74-5. 57. Ibid. L.. Nedbank Group. Ibid. 20. 28. M. Oppenheimer. 184. p. 26. 1972. . 78. Ibid. p. 74-5. D. 32. 1984. Hobart Houghton. 1983. in F.. C. 30.Stuart Jones 19. Wilson. F. Address to the Chicago Council on Foreign Relations. South African Economic History. 29. 243. Ibid. 42.. 'Mining in South Africa'. Hobart Houghton. 2. p. p. 5. p. 21. 24. p. 25 D. 23. p. 25.. The South African Economy. 31. Supplement to Optima. p. 27. p.101. Cambridge. Webb. Ibid. pp. H. 30 March 1983. p. Labour in the South Africa Gold Mines. Cape Town. 1911-1969. A. 191. Coleman. Ibid. South Africa: An Appraisal..

there was no overall shortage of funds available for speculative investment. and still in the early part of the nineteenth century. The problem was one of effective connections between lenders and borrowers. This sector of the market is now known as the venture capital market. From the I820s to the I850s it was the securities of new states (including the USA) and their railway bonds. Latin America.4 The final point. I Interpreting his quip. we might say that a bank is a financial institution that conventionally avoided taking significant risk. Traditionally. this was mercantile activity in the remoter parts of the world (Africa. the 'high risk' (as distinct to 'safe') sector of investment was what we may call a moving frontier. and it is important to recognise that it has a history of its own. the Orient.2 VentureCapitaland Financial Organisation: London and South Africa in the Nineteenth Century Stanley D. closely related to this one. that of supplying capital for investment where there is recognised to be significant risk. 3 Secondly. is that the policies of the various firms that proved successful in meeting one or other of these 27 . In the second half of the century it became mining and (in Britain. First. and Australasia). at any rate) manufacturing industry.2 But it is equally clear that for generations this caution left a large gap in national and international money markets. the undisputed centre of international finance. historians have traced a long succession of 'lock-ups' of bank capital that have brought the unwary to their knees and generated the conventional wisdom behind bank policy. Drawing on recent historical research. it is useful to make three initial points about venture capital during last century and the first half of this century. Chapman The American comedian Bob Hope once defined a bank as 'a place that will lend you money if you can prove that you don't need it'. of realistic ways of identifying and evaluating enterprises that needed capital for growth. in London.

in different ways. Their identity. and effectiveness form the subject matter of this paper.28 Venture Capital and Financial Organisation needs tended to institutionalise them. characteristics... but proved incapable of adjusting their policies for the benefit of new venture capital situations. This rather abstract point becomes obvious in the specific case of the British merchant banks. the most eminent Dutch finance house of the age. As Sir Francis Baring described it. was not just thrust upon them by the abdication of the senior partners. policies ossified in an established partnership or bureaucratised in a joint-stock company. they all have (or had) relevance to the changing needs of the South African economy. in my opinion .. and Parish (Philadelphia) were evidently satellites to Amsterdam. It will be seen that.. though the precise paths taken by the two centres have not been plotted in any great detail. Steiglitz (Moscow). MERCHANT BANKS It is well known that during the course of the eighteenth century London superseded Amsterdam as the world centre of international trade and finance. so leaving the market open to newcomers. when the French occupation of Amsterdam suspended the city's international activities. nay I will go a step further to a point that the risk has .. it is possible to identify a sequence of types of financial institutions that were invented or evolved to cope with venture capital situations. The rapidly expanding British economy was hungry for capital so the reversal of roles was delayed until the Napoleonic War. 5 Looking at the nineteenth century as a whole. The extensive records of Hope & Co. Down to the Napoleonic War. 6 However. More exactly. which were founded in the early nineteenth century to generate a flow of funds for state loans and mercantile acceptances. he wrote to Henry Hope of his wartime business experience: 'Commerce . Hopes' London correspondents. indicate that they continued to support the premier merchant houses ofthe international economy. eminent international houses like Barings (London). the rise of his house was more to do with his willingness to take risks to finance the rapid wartime growth of British trade. not only increases but produces more profit and furnishes the means of a more beneficial employ for Capital. in a long and carefully considered memorandum titled 'Credits & Circulation'. the size of Barings. In December 1802.

000 more upon them. this is not the whole of the London story.. However. they determined that Merchants of the first class should never exceed £50. it was at that time in the power of the Bank to affect the credit of individuals in a very great degree by refusing their paper. at any rate in his 1802 memorandum. but rather that Barings had learned how to select the sounder merchant houses as clients/ and that the volume of business and profit margins of such firms had risen very considerably during the period that the Continent was embroiled in revolution and warfare. Perhaps the Jewish ones had previously been restrained by the consideration that the Bank of England gave . The other part of it concerns the policy of the Bank of England in this period. or by monetary historians. failed to notice the implications for continental houses with connections in London. The instability produced by revolution and war inevitably compelled continental Bankers to think of the safe haven of London. the overseas trade had generally become less risky. Before the Revolution our Bank [of England] was the centre upon which all credit and circulation depended. whilst commercial profits being larger.Stanley D. our Correspondents gain by their Adventures have of course [become] much safer'. The Bank is still the pivot for circulation but no longer for credit and discount. of course. Chapman 29 diminished in proportion as the profits have increased. 9 Baring was of course primarily concerned with the consequences of the Bank's policy for his own business and. 8 Here again. In the distress of 1793 they committed a fatal error by deciding that all merchants and traders were entitled to their proportion of accommodation as the Bank was a public body and ought not to discriminate between individuals . who appears to have been a principal beneficiary of the rationing of the Bank's resources in the early years of the European turmoil. This is not to suggest. the position is best described in the words of Sir Francis Baring.000 by them and £50.. which has not been adequately covered in the various official histories. I am justified in this opinion by my own experience for I think we have lost less during the whole of the War than we lost in liquidating our peace concerns in the commencement of the War. The reason is obviousCredits it decouvert are much curtailed and seldom expected.

and Goldschmidt. Liverpool.0 m. In particular. soon to move to London. Rothschilds' involvement in the bullion trade was never given up. the old Jewish houses became more conservative. not only on account of the hazards of long-distance mercantile activity. like that of Hopes. came of the tradition of Court Jews.Goldschmitts £0. and Steiglitz in Moscow. or foolish enough to lock up their capital in unrealistic assets . new migrants from the continent followed similar patterns of growth. many of them were involved in the textile trade. firms that understood the very risky business of arranging the finances of the numerous petty monarchies of Central Europe. Rothschild and others were schooled to evaluate and take them. those that were not speculative. but their tradition was sustained in various ways.i.and grow pari passu within a dependable circle. Barings' disposition. there was every incentive to start an operation in England. when their fortunes were made and they became anglicised.1O Moreover.5 m (until their bankruptcy in 1810). when the . II The number of Jewish houses that opened in London was not very large but they were to have an influence out of all proportion to their numbers. In the second and third generations. and could not help noticing the dramatic rise of Manchester.e. This was the product of their long mercantile tradition. though no longer conducted with the boldness of the founder. by contrast.5 m. Ricardo. Leeds. Escape from the ghetto required the taking of risks. In the nineteenth century. Now that the Bank's ethnic prejudice was no longer a significant factor. It was indeed in the Napoleonic period that the foundations of some of the great Jewish banking fortunes were laid ..30 Venture Capital and Financial Organisation preference to Christian houses. Rothchilds £1. and in London they set a high standard of competitiveness for their Christian rivals. The Jewish firms. was to cultivate the safer clients . Glasgow and London in this business. and Heine of Hamburg ('the English city' of Germany) another £0. 12 COMPANY PROMOTERS AND SPECULATORS Shipping and international trade were the traditional areas of high risk in private sector investment. The Jewish houses commonly worked together and the new arrivals were in close contact with various continental connections involved in British trade such as Hambros in Copenhagen. But attracted by the Rothschilds' dramatic success in London. The reason for this is evidently their attitude to risk taking.

barristers and other reputable citizens. In his candid autobiography he described how he invested much time and money investigating every promising proposal put up to him. so he will be the main concern here. Grant both made and lost a great deal of money during the course of his career in the City. Chapman 31 scale of British manufacturing enterprise multiplied. serving domestic industry (mostly. However. America. Barings. and. was quite close to the moderately successful venture promoted by Mathesons. by selling established coal. it was not until after the British joint-stock legislation of 1856-62 made incorporation easy that a new type of organisation to provide venture capital was born. but the best is he who makes but few. and he has had a bad press. 'The financier must be prepared to spend many thousands of pounds in his investigation of concerns which he may have to reject . O'Hagan was probably the most successful of· this more professional group. the company promoter.Stanley D. In the 1860s and 1870s there were still only two important houses operating in Britain. by this period Grant had lost the confidence of the investing public. his clientele apparently gave little thanks for the former and castigated him for the latter. there are some features of his business practice that presage later developments and consequently deserve attention. O. 16 His final venture. by type (municipal. Chadwicks. 14 Only the latter can be regarded as contemplating high-risk business. banking.. and was followed by promoters with more circumspect dispositions. who succeeded Grant as the leading City promoter. and by geographical sector (domestic. Every financier must make mistakes. Several were similar to those later taken up by well-known banks such as the Hong Kong & Shanghai Corporation. Adamson & Collier. in gold mining at Pilgrim's Rest in the Transvaal. 15 His issues covered an enormous range.. Russia. South Africa). Asia. O'Hagan. continental Europe. According to H. \3 Consequently. iron and cotton companies).17 Unfortunately. mining. the cost of marketing often increased even more rapidly than fixed capital requirements as exports reached the corners of the world. industrial. so that the merchant banks continued to cover the largest sector of risks shouldered by European and American entrepreneurs. railways and state). and that is the man who leaves nothing to . Schroders. H. and Albert Gottheimer (Baron Grant) serving the overseas market. Hambros and Morgan Grenfell. Grant said they included a string of aristocratic names as well as 'public writers'. he had 'a very great following of people who wanted to get rich quickly'. O. in a final fling. clergymen. by value (£100000 to £3 m). it seems.


Venture Capital and Financial Organisation

chance, thoroughly investigates every matter, and rejects all where he
finds any reason for doubt' , he wrote. O'Hagan was prepared to pay to
secure options on 'a really good business', a practice which he said
brought him the pick of the firms available for conversion to joint stock
companies', but he carefully rejected anything he regarded as
speculative, induding practically all mining companies. 'In my early
days as a financier I had great objection to mining adventures, and had
gone to the length of resolving that I would not have anything to do
with them,' he recalled. 18 The consequence of this caution was to
enhance the status of the company promoter - or at any rate the
reputable ones - but to restrict the flow of capital to any venture that
looked risky.
However, the gap in the market did not last long. O'Hagan records
that in the course of his career he 'was to see a little group of four or
five promoters, who were my half-hearted rival at the start, widen into
many hundreds of promoters before I left the City, for not only
[merchant] bankers, trust companies, and the stockbrokers entered
the field, but lawyers, accountants, and all the looses ends of the City
were rivalling each other in their struggle to make their fortunes'. 19
This proliferation of promotions was probably at its most frenetic
during the 'Kaffir booms' of the late 1880s, 1893-5 and 1899, so is of
particular interest to the history of the South African economy.
Indeed, there were soon so many promoters in this period that the
whole group became the subject of scathing articles in responsible
journals like The Economist, The Statist, Mining Journal and
Nineteenth Century. 20
Of course, it is one thing to identify promoters and another
investors. How venturesome were British investors? Quite conceivably the welter of small-time promoters in London and Johannesburg
were ignored in favour of promoters in the O'Hagan mould who found
quite enough safe investors without gambling on the unpredictable
reefs of the Rand. Indeed a succession of historians of the Rand have
taken the view that the major part of the capital was contributed by
German and French investors. Professor Kubicek, the most recent
authority, inclines to the view that already 'by 1890 there was probably
more German capital invested in South African gold mining shares
than British', and for the period after the Boer War he presents some
sound statistical evidence to show that most of the stock was sold on
the Continent. However, Kubicek overlooks important evidence of
the role of the investment groups in attracting British investors, but the
groups were a distinct form of organisation that calls for separate
treatment. 21

Stanley D. Chapman


The nineteenth-century manuals of joint-stock and mining companies
do not appear to have defined what an exploration company was or
did, perhaps because the phrase has an easy common-sense meaning.
It is fair to suppose that it was a joint-stock venture or syndicate in
which the various participants pooled a limited part of their capital to
employ qualified personnel to prospect various lands in which
minerals might be found. This definition corresponds to a number of
known enterprises, and will certainly suffice for this paper, except that
there were evidently a number of companies that carried 'Exploration'
in their title but were simply owners of lands bearing minerals.
Historical records are not always complete, or course, so it is often not
clear whether particular enterprises were genuine prospecting companies or simply speculations dignified with the adjective 'exploration'.
It cannot be said categorically that the exploration company found
its first home in southern Africa (though this may be so), but it
certainly took an early and strong hold there. The first company of
which there is a clear record is the South African Goldfields
Exploration Company, which was registered in Britain in 1868 as a
result of a concession to prospect some 50000 square miles of what is
now the Northern Transvaal. The idea may have emanated from the
British Consul at Mozambique who had written that 'On both banks of
the River Sofala, and from that river northwards to the Southern bank
of the Zambesi, the country is one mass of mineral wealth - Gold,
Silver, Copper, and towards Tete, even iron and coal being found in
abundance' while 'precious stones are by no means rare'. The initiative
for exploration came from Natal, and after an expedition encouraged
by the Royal Geographical Society, capital was raised to launch the
South African Goldfields Company in 1870. However, the entrepreneurial spirit of the exploration company and its successors is shown in
a letter from the secretary in 1870. 'We are very unwilling to go to the
Public. The Company has hitherto been in the hands of a few
subscribers. I should be very glad if you would help us to keep it so,' he
wrote. The company was still in existence in the 1890s, though it never
paid a dividend. 22
The South African Goldfields Exploration Company proved to be
of little more than ephemeral interest, but it had successors that were
much more fortunate. The London & South African Exploration Co.
was registered in London in 1870 and became one of the major
landowners in Griqualand West, which was about to become the
world's most important diamond-mining area. The founding members


Venture Capital and Financial Organisation

were a group of Kimberley pioneers, the most prominent of which
were the Mosenthal brothers, who had made their fortune in the 'Cape
trade' but became leading diamond merchants. 23 By 1882 their firm,
Mosenthal, Sons & Co. had a capital of £500 000, which was the equal
of the representative London merchant bank of the day.24 Throughout its history the company paid extraordinary high dividends, until in
1899 it was sold to De Beers for such a large sum that Rothschilds had
to be brought in the help finance the deal. 25 The reputation of the
Mosenthals-who won what was probably the earliest fortune in South
Africa - and the consistently high performance of their exploration
company no doubt recommended the model to others. Among its
early followers was the Transvaal Gold, Exploration & Land Co.
which was founded in 1882 by Matheson & Co. of London, who had
made a fortune out of the Rio Tinto copper mines. Mathesons'
initiative at Barberton is most interesting for the size of capital
invested in the speculation. The two earlier exploration companies
referred to had put in an initial £25000 and £50000, but Mathesons
started with £250000 and soon raised their stake to £300000. 26
However, the major impetus to the foundation of exploration
companies did not occur until 1886, and again the setting was South
Africa. The developments were central to its popularity: the first
phase of rapid development of the Rand gold mining industry and,
more specifically, the success of the American mining engineers,
Hamilton Smith, in inducing Rothschilds to lend their name to the
Exploration Company. In 1886, when the company was established,
only 3.4 per cent of the 237 new mining companies registered in
Britain were formed for the express purpose of exploration but the
dramatic expansion of the following decade brought the total of new
companies to 961, no less than 40 per cent of which called themselves
exploration companies. Rothschilds' stake in the initial capital of the
Exploration Company was a mere £20000, but in 1889 it rose to
£300000, and in 1896 after absorbing two of its subsidiaries it jumped
to £1.2 m. The Rothschilds did not become directors, and their stake
appears to have been modest in relation to their total capital of £6--7 m,
but this characteristically conservative response did not prevent their
interest being widely known and emmulated. Several other leading
City bankers took shares in the exploration Company, including
partners in Barings, Hambros and Mathesons.27 However, from the
perspective of the development of venture capitalism, the most
interesting feature of the company is that, while the lure of the Rand
was still at its strongest, it was already diversifying into Australian,

According to E.1). and with the safer London public utilities. exploration companies were a meteoric phenomenon. in the longer perspective of financial history. ithad fathered an investment of £1. taken as a group. 'was never a success' and in 1930 was finally liquidated as a complete loss. Russia and Africa were not very successful after the turn of the century. Chapman 35 Mexican and Alaskan mining. warrant some attention. a familiar string of merchant banks. in the whirlwind stock inflations of the period.and here is the point for offering this particular example . From the investor's point of view it offered the additional advantage of priority in buying shares in the company's promotions.Stanley D. Investors preferred to commit themselves to a trusted name. . and their early success is spelt out in some useful estimates of Scottish capital invested abroad in 1884 (Table 2. these organisations were prepared to invest in other than safe securities. C. Grenfell of Morgan Grenfell. The Venture Corporation was formed in 1897. The subscribers to the copper company included partners in Morgans. Perhaps its greatest success was in copper mining in the Russian Caucasus where.there is no reason to assume that such financial interests and the eminent consulting engineers they could afford to engage necessarily had the Midas touch. Many were obviously a cover for speculation if not fraud. Its status was no doubt increased when the leading American mining engineer John Hayes Hammond became its consultant. often at prices which. they rose quickly and disappeared almost as fast. 28 The Exploration Company undoubtedly won pre-eminence in the genus but there were rivals which. and so we see the rise of the investment trust and the investment group. However . and. originally a Scottish development.5 m. by 1895 it already had a diversified portfolio. and in the syndicates in which it participated. Investment trusts were. by the Second World War. if any. those located in Australia. from the perspective of this chapter. INVESTMENT TRUSTS There have been several histories of the British and American investment trust movement. the Caucasian Co. so it is not necessary to retell the story here. of course. soon proved to be bargains. Barings and Hambros.29 However. 30 The present purpose is simply to consider to what extent. originally to amalgamate several doubtful Western Australia mining promotions.

1884 Total invested Investment and mortgage companies Foreign and colonial mines Land companies Cattle companies Lumber companies Miscellaneous Private holdings of foreign and colonial securities Yield £20.0 40.3% 5.0 3.0m 4.0 8. 32 Robert Benson had scarcely completed his expensive Eton and Balliol (Oxford) education in 1875 when his father.5 5. Blackwood's Edinburgh Magazine. who had recently established himself in London as an agent for English investors in American securities. 31 We can learn something of the later development of investment trusts from the policies and experience of the two men who were to become to doyens of the movement. a London and Liverpool merchant. Evidently much the best return was offered by investment and mortgage companies. except for cattle companies. As young men both had suffered heavy financial losses. where the good fortune of investors was not likely to last. His Merchants Trust reports offer a revealing insight into the . went bankrupt. while two mines averaged nearly 10 per cent.5 6.1 Distribution of Scottish overseas investment. They came of very different backgrounds. Robert Fleming lost all the savings he had scraped together as a modestly paid Dundee jute mill clerk in the Overend Gurney crisis of 1866.5 0. It is not surprising that both men were very cautious investors. and on the experience of investing in American companies it was only an area for those who could afford to gamble. He was fortunate to be taken into partnership by J. but Benson was one of those rare entrepreneurs willing to expose his ideas and experience to public view.5 2.5 4.0 4. About three-quarters of the capital sunk in Scottish mining ventures returned nothing at all.0 5. Robert Fleming and Robert Benson.0 Source: 'Scottish Capital Abroad'.0 4. p. CXXXV (1884). 477. W. 33 Financiers have been unusually taciturn as a group about their careers. Cross. Mining represented the high-risk area.5 0. policies and results. but their early career experiences had one common element.36 Venture Capital and Financial Organisation Table 2.0 5.

Looking at the Merchants Trust from the wider angle of the development of venture capital institutions. The former involved heavy losses while. and a return greater than any other part of the globe . introducing. 35 In 1919. Chapman 37 problems and practices of one of the more successful vehicles of the movement. who not only visited the USA regularly. The problem was.' he reported in 1899. 'our business is to invest our money wherever we can get the best rate of interest. The pre-war merger movement and wartime prosperity of British industry did nothing to cause Benson to retract his early scepticism. He repudiated all issue and company promotion business: 'We have taken no initiative in the intricate modern business of creating. The most disappointing areas proved to be Australia and 'home industrials'.. he had no facilities . 'They have shown throughout trials a stability. and was altogether regarded as one of the best-informed financiers of his age.Stanley D. home investments scarcely topped 3 per cent while American railroads were returning 5. 'We owe the fortunate position in which we are today entirely to our investments in American Railroads. Nevertheless. to unite good returns with appreciating (or at least steady) stock values. he soon found American railroads his safest and most remunerative outlet. he insisted. was close to some leading political figures of the age. he added that 'South Africa will probably offer more and more opportunities henceforward as Railways are developed.. but also had an early and close association with the pioneer electrical supply industry. 'the investments of the Merchants Trust are pretty much as the usual Trust Company type'.' In 1901. a saleability. but this is not fair to Benson. He was evidently part of the City establishment. They are set out in Table 2. in the mid-Edwardian period.3 per cent. and placing securities'. Benson's closest connections were in the USA and. According to The Statist. 34 As Benson expressed it. without losing any part of the principal'. of course. it might seem that Benson could offer little more than the typical contemporary stockbroker's advice to invest in 'home rails'. The gains from investment in South African mining were evidently more than cancelled out by losses in Australia. and when order is restored there is nothing speculative about the best of its gold mines'. excepting only South Africa. Benson laid the results of thirty years experience of the Merchants Trust before his shareholders. with one interesting exception.2 exactly as he presented them: Clearly the success of the whole exercise depended on the conservative investment in 'American rails'.

He showed little interest in the British Empire or in risky mining shares.3 14.3 12.0 10.8 47. The Times.. and the .1 10.1 Profits and losses Realised profits Home Continental Colonial USA River Plate Other localities Profits Losses £236744 20404 32575 £289723 Realised losses £39769 56676 131 976 £228421 Source: The Merchants Trust AGM Report.7 9. except perhaps through his partner (J. and British Thomson Houston Co.6 6.0 12.7 13.8 3. He did not begin to take a serious interest in British industrials until about 1910. and when he did so it was in major British companies like Lever Bros (Unilever).2 7. nearly forty years after his first trust was launched. After the USA. however eminent.9 12.8 11.7 35.38 Venture Capital and Financial Organisation Table 2. and he worked closely with Jacob Schiff of Kuhn. Fleming's investment programme. Loeb & Co. Much less information is available on any other trust. like that of Benson. and his late entry into industrial shares was through American multinationals like British Westinghouse Co. or capacity to identify and evaluate degrees of risk. then through his brother in Chicago. British Portland Cement.0 5. W.2 Merchants Trust investments and results.5 10.7 50. 1 March 1919. but we do know quite a lot about Robert Fleming.5 19. 1888-1918 Percentage of investments in various sectors 1891 1901 1914 1919 Home Continental Colonial USA River Plate Other localities 7.9 2. focused heavily on 'American rails'. Cross).9 4.3 30. BSA.2 47. and his 'syndicate books' survive from 1900.2 14. his main interests were in Latin America and Cuba. 36 It would be rash to generalise from the experience of one investment trust. New York.

e. and shared a similar cautious view of their shareholders' interest. Buenos . and did not find it difficult to recruit further capital from both its 'extended family' in Britain (retired partners. 37 When 'American rails' collapsed in the 1920s. heirs etc. The London capital market was not much interested in manufacturing investments of any kind until the 1930s. in Latin America. and small dispersed firms in the Empire or British trade area could not hope to attract capital on their own merits. manufacturing. Sam Insull. except perhaps safe domestic conglomerates. or perhaps for diversification away from some high-risk investment such as mining.Stanley D. when London was the financial centre of the world. the successful mercantile group had capital of its own. rising groups found it necessary to maintain an office there. widows. 38 Company promotion was evidently not Fleming's forte. Fleming shifted his interest towards industry. can be identified elsewhere in the Orient. Chapman 39 Anglo-Persian Oil Co.39 The parent group was characteristically a highly reputable mercantile partnership looking for new outlets for its capital as traditional merchanting declined. but the reputation and continuing leadership of the group sprang from its local expertise. Not surprisingly. 40 However. It has been defined as 'an entrepreneurial or family concern whose name and reputation was used to float a variety of subsidiary trading. then in backing the American entrepreneur of public utility companies. outside Britain] and often widely dispersed' . Celanese never made money and Insull went bankrupt in 1929. Australia and Tsarist Russia. but it has recently been identified as a species of economic organisation that. when he became involved with the Whigham family in forming British Celanese and American Celanese.) and from the local business community in Calcutta. sold his famous picture collection. Fleming and Benson were friends and partners in the purchase of many blocks of shares. both Benson and Fleming faced a long struggle for survival. who had spent his income pretty freely. It seems that Robert Benson & Sons only survived because the senior partner. In the second half of the nineteenth century. INVESTMENT GROUPS The investment group has long been familiar to historians of the South African economy. mining or financial enterprises. Hong Kong. invariably overseas [i. stemming from British investment in India.

Ironside of Birds disclosed the structure of the firm's shareholding to the Indian Industrial Commission. Bird merged with an old rival. of Calcutta.40 Venture Capital and Financial Organisation Aires. this preliminary survey already offers more than half that number. scale and capital structure. Sassoon & Co. 43 It was a formula that enabled the Agency Houses to make the transition from trade to finance with minimal risk and maximum profit. speaking generally. The investment group proved to be such a successful institution that it is not too much to suggest that high-risk investments were better serviced overseas than they were in the British domestic economy. but a similar structure can be discerned at E. or wherever. Although the concept of the investment group is nothing new in South Africa. 42 The most characteristic feature is that from a dispersed shareholding of perhaps £2-3 m. and paper mills... Hannah's list of the fifty largest British domestic companies of 1905 includes two dozen firms with a capital of £4. jute mills. The case of Bird & Co. and employed directly or indirectly over 100000 people. W. The largest number were in India and. 41 On present evidence. Wallace Bros. expressing the view that it was fairly typical of Agency Houses at the period (Table 2. so presumably the total shareholding was in excess of £2. may serve to illustrate the structure of such firms at the period.0 m or more. Birds and Heilgers were much bigger than any other houses. The combined organisation. a coke manufacturing plant. and the . An initial survey drew attention to thirty such groups for which some information on capital had survived before 1914. but did not reach its greatest scale there.0m. D. Birds & Heilgers were able to direct an investment of £20 m. and other houses active in the Orient at the period. an annual profit of £3 m. F. Such investors were able to combine the attractions of investment in lucrative 'new frontier' developments with the safety and assurance of familiar names. had a capital investment valued at £20 m. A. that managed seven coal companies. and an electric supply company. then much the largest British industrial enterprise in India. Finlays. The same year. Heilgers & Co. it is something that British economic historians have only just begun to take a serious interest in. the richest in South Africa. W. an energetic former German firm. Johannesburg.3). St Petersburg. a fireclay and silica works. In 1917. Consequently it is difficult to say much about its distribution. The data did not include the firm's interest in a new engineering works. all in manufacturing. and this number can now be added to. the investment group developed first in the Orient.

A.41 Stanley D. of course. But by 1914 the Germans and the French had lost heavily. of W. British interest was supreme. another inquiry established that investors in France and Germany had risen to at least 39 per cent. Harrison. investors to enjoy the early fruits of oriental industrialisation with minimum risk.3 10 coal companies: Europeans Indians Americans Shareholdings in Bird & Co. One Rupee = Is 4d = £0. In the years following the Boer War. . The confidence placed by British investors in Rand investment groups is clearly shown in a private inquiry made by Frederick Eckstein in April 1900 (Table 2. Ironside for financial data. 1919. results were disappointing and British confidence evaporated even with the leading houses. Calculation of exchange rates: 1 lac (lakh) = 100 000 Rupees. after the three great nineteenth-century investment booms had taken place. and Kubicek thought that they and the French bought most of the speculative rubbish that was unsaleable in Britain.0666. Papers. of Calcutta 1864-1964 (Calcutta. Sources: Report of the Indian Industrial Commission 1916--18. p.4).. In a word. became disillusioned and were pulling out. in 1917 Numbers Value (lacs) 1551 97 59 nd* 409 8 105 8 jute companies: Europeans Indians 2471 423 Value (£) £699300 148 25 173 £1 152 180 £1 851480 *assumed to be very small and treated here as negligible for the purpose of calculation. ParI. 144. Wernher Beit and Consolidated Gold Fields. 1964). ev. Albu and Goerz were. Calcutta. when war broke out they held less than a fifth of the capital invested in Rand Mines. Bird & Co. despite all the fears and reports of growing continental control. In 1906. XVIII. The numbers of Birds' jute companies are given in G. Chapman Table 2. p. 881. German houses but otherwise.

while the British were periodically suspicious of many Rand flotations. the investment trust movement was .86 8. 8 August 1900. and their increasing concentration in London.44 81 Source: Barlow Rand Archives. they placed great faith in investment groups.57 £57. Robinson Consolidated Goldfields Barnato Farrer Neumann G.38 11.80 1.43 38.30 8.80 8.30 6. General Managers' Reports. Private Notes on Companies and Syndicates. exploration companies were closely associated with South African developments. It can only be explained by the rapid growth of international financial markets. Goerz Sundries £73.15 14. Eckstein was based on careful examination of the shareholders' registers.35 152. which allowed any competent entrepreneur to find ample scope for growth within his own closely defined area.42 Table 2.47 10. April 1900 Group Market Valuation British Valuation % Wernher Beit J. & L. The survey by F.5 13. 2.64 36.59 18. 45 There was no merit in all firms taking high-risk ventures on board when other new and profitable business beckoned constantly. The specialisation of nineteenth-century British financial institutions is quite remarkable.83 13.53m 13.40 78 83 95 96 77 79 30 30 92 188.4 Venture Capital and Financial Organisation British and continental shareholding in the Rand: mining companies.46 company promotion began with Gottheimer (another German). Johannesburg. A majority of the merchant banks were German by origin. 44 CONCLUSIONS Several tentative conclusions seem possible from this survey of financial institutions last century: 1.75m 16. It is reported with approval in Standard Bank Archives. Most new organisational developments in the venture capital market in London were not English. Albu A. HE 305. B.14 5.

1981. 2. Chapman. 4. International Thesaurus of Quotations (1970). S. McCarty. reputable company promoters and investment trusts soon ossified. The Rise of Merchant Banking. Michie. S. thesis. W. ch. 9. P. while the less successful forms soon disappeared. Business History. J. D. S. Syndicates and the Provision of Venture Capital'. I. 'Diversen Documenen. If we can generalise from the experience of investment on the Randcertainly much the largest location of venture capitalism overseas in the period covered . D. Quoted in R. 1802-08'. Chapman 43 led by Robert Fleming (a Scot) with American collaboration. no.Stanley D. colonials and Scots. ch. Oxford. M. Buist 1128. 8. In the end. 1982. pp. Cambridge. Pressnell. XXXII. . D. The Bank of England. Economic History Review. The Hague. The investment trust.British investors were not timid. 1961. 'Financial Restraints on the Growth of Firms in the Cotton Industry'. 2. J. who were consequently most creative in producing new types of organisation to cope with them. Country Banking in the Industrial Revolution. Amsterdam Municipal Archives. See for example. 68. The Rise of Merchant Banking. Why was this? Did the British lack innovative ability in business organisation? Given this easy success. 1. T. G. 'Options. 'The Discount Policy of the Bank of England During the Suspension of Cash Payments. Buist. Information Books P A 735/Buist 1122-6. 7. London 1984. R. ch. 3. Bank Mees & Hope Mss. but nor were they so naive or gullible as the French or Germans. Chapman. 1974. Economic History Review. after a shaky start. I. The Rise of Merchant Banking. At Spes Non Fracta: Hope & Co. XXXV. 211-15. Ph. 1770-1815. Cambridge. esp.1979. 8. 1797-1821'. it is not surprising that the policies of merchant banks. 1. D. Notes and References 1. and investment groups were closely associated with the Scottish house in the Orient and German Jewish houses in South Africa. Duffy. 3. 263-9. 1944. British Investment in Overseas Mining. the favourite institution was probably the investment group. pp. The more risky areas were often abandoned to foreigners. H. Clapham. 6. Chapman. L. S. 1956. XIII. which united a safe and familiar name with a London home and local (foreign or colonial) experience. presently proved most popular for the rather more secure investment trust. Tripp. 5. C. 1880-1914. H. Chapman. Bank Mees & Hope Mss. Concessions.D. S. ch.

51. 36. Frankel. S. A. p.. F. Selma Stern. 13. Van Helten. R. F. O'Hagan. J. Inspection Reports. 1939. vols 1--4. University of London. Randlords (1935). p. E. H. P. Venture Capital and Financial Organisation Bank Mees & Hope Mss. pp. D. 14.149. A. The Corner House. 1938. Standard Chartered Bank archives. The Rise of Merchant Banking. Some Dreams Come True. p. I. On 'Change thro' the Years: A History of Share Dealing in South Africa. 19. Chapman. P. 'Financial Restraints'. 23. Bank of England C29/23.79. London 1929. p. 1950. 15. 53. Chapman. The Court Jew. pp. B. Carolina. pp. July 1876. O. is more cautious. 32. 17. Cartwright. John Johnson Collection. 27.204. Various papers in De Beers archives. On 'Change thro' the Years. O'Hagan. Dilwyn Porter. H. H. and Mining Finance'. Institute of Commonwealth Studies. Chapman. Emden. A. The Exploration Co. Rosenthal. S. ch. ch. Inspection Reports. 1884-1914' paper read at the City & Empire Seminar. H. esp. South African Mines and Finance. Turrell and J. 11. 1979. 942-3. Capital Investment in Africa. 'The Rothschilds. p. pp. 3. 12. 21. W. S. African Exploration Co. 178--9. Schroders later promoted the Lima railway. A Pioneer Looks Back. pp. 47. 21 June 1900. Standard Bank Archives. O'Hagan. p. London & S. ch. 492-6. forthcoming article. R. Turrell and J. communicated by Dr. 219. V. 1895. 28. O. p. Johannesburg. N. article on Mosenthal. Philadelphia. Cottrell. Oxford. For a case study of a Rand promoter in London see Bodleian Lib. L. the Hong Kong & Shanghai Banking Corporation was a reincarnation of the Imperial Bank of China. Economic Imperialism in Theory and Practice: The Case of South African Gold Mining 1886-1914. 20.101. IX. 126. 6 Dec 1984. Taylor. Rosenthal. P. 1876.. 222. Cf. Kubicek. W. Information Books PA 735/Buist 1. S. 242. Goldman.. 1830-1914. Grant. Prospectus issued by De Beers to provide the funds required for the purchase of . 104. E. 153. Williams. while the Russian Copper Co. H. 18. pp. M. D. 1968. 25. J. Leaves from My Life. letter from E. 1948. C. 26. Johannesburg. The Rothschilds. Johannesburg. 89. Commerce Box 1. p. On 'Change thro' the Years. E. South African Mines and Finance. 16. Buys.. [Albert Gottheimer] Twyford versus Grant and others . Industrial Finance. pp. . Goldman. 5. V. p. Oliver 18 November 1870. Dictionary & Business Biography. Kimberley. Perryman). 51. Dictionary of South African Biography. D.. Bank Mees & Hope Mss. Some Dreams Come True.44 10. S. Cape Town. Cary Mss 16. S. p. C. 'Financial Black List 26 Nov 1892' (re C. 'Aspects of the New Financial Journalism. Cape Town. O. 377. 108--10. Pilgrims Rest. London 1979. 22. J. Buist PA 735/25.. Rhodes University.1984-85. later reappeared as the Caucasian Copper Co. 24. 200-1. list the diversified investments. Pilgrims Rest. H. V. McCarty thesis pp. Williams. Van Helten. Leaves from My Life. ibid. London. Merchant Banking. R. Rosenthal. 1965. J.

1892. Coleman.. XXXVIII.799. pp. Merchant Trust annual reports (printed) esp. 77. 1900-14. Geneva. XIII. 1907. 8 March 1890.. 36. 1896. London. D.. Guildhall Library. 'British-based Investment Groups before 1914' Economic History Review. 45 J. The Economist. 296. p. forthcoming. 41. Lord Wantage A Memoir. Michie. CXXXV. London. 40. S. 1898. Seyd & Co. 43. S. 46.1907. . ch 4 of an unpublished autobiography kindly lent by his widow to S. BaWol College Register 1832-1914. 27. H. XVIII. C. Lindsay. Cassis.' Scottish Bankers Magazine. Blackwood's Edinburgh Magazine. Chapman. Obituary in The Times. Chapman 29. Gilbert. D. 8 April 1929. 35. The Story of Investment Companies. N. R. Michie. McCarty thesis pp. C. Insull. C. Harrison. 1877. Chapman. 190. London Commercial List. Chapman. Rosenthal. 1899. Fitzherbert. S. 31. cit. For the context see Y.1884. Revue International d'Histoire de la Banque. 'Investment Groups'. 2 August 1933. 'Syndicate Books'. 1345. p. Kubicek. C. 'Scottish Capital Approach'. Les Banquiers de la City a l'epoque Edouardienne. 30. 1964). The London and New York Stock Exchanges in the Nineteenth Century. LXXI. 21 June 1911. 45. R. R. Gilbert. p. Fleming & Co. 34. 1979. Merchant Banking. 44. 38. 26. 1983. G. D. Morgan Grenfell Mss 21. 39. 42. H. 32. at R. 9. A History of Investment Trusts in Dundee. A History of Investment Trusts in Dundee. New York. 'The Social Web of Investment in the 19th C'. 1984. 1988. at R. L. p. 1979. 33. London) citing letter of 24 January 1881. The Statist. London. S. 1976. p. 'British-based Investment Groups'. 1939. 'British Celanese' in George Wansborough. 55. E. Chapman. 'Earning a Living'. Economic Imperialism. p. 1901. The Rise of the Corporate Economy.Stanley D. J. Hannah. of Calcutta 1864-1964 (Calcutta. Bird & Co. Stewart. Eton College Register. J. Fleming & Co. Father of the Investment Trust Movement. 'Robert Fleming of Dundee. L. 231. Bullock. 37. 142-50. art. 226. 1984. p. Obituary in The Times. D. ch. p. D. D. On 'Change thro' the Years. 174-9. W. Robert Fleming Holdings: A Work of Research (typescript. S. C. V. 1959.

adding their limited output of pastoral produce to the flow of trade between Table Bay and the interior. dagga and other products. Cape merchant capitalism was not slow in responding to these favourable circumstances. between 1830 and the 1870s. the latter centre having been established as a military outpost in 1814. Already much pioneering work has been done. Korsten also opened branch stores at Uitenhage and Grahamstown. particularly with regard to the impact of capitalism on traditional or pre-industrial societies. linking most of the tribal groups of South Africa in which metals were exchanged for cattle. 1839-73 Arthur Webb The recent rekindling of interest in the historiography of early nineteenth-century South Africa has suggested that the development of capitalist economic relations should receive careful scrutiny. It is against this background that attention has shifted to an inquiry of the individual capitalist and his institutions. In 1811. Frederik Korsten established a permanent trading post in the shadow of Fort Frederick at Algoa Bay and within a year substantial butter exports were being shipped to Mauritius. The reasonably rapid extension of Korsten's commercial activities to the 47 . A barter economy existed. 4 Conflict over land occupancy saw the introduction of a military presence to the region. This chapter attempts to add to this knowledge by using the concept of linkages in economic development to reflect on the periodisation of bank creation and growth within the Eastern Cape. 2 It was possibly such a westward flow of trade and the prospect of ivory hunting that drew the first Europeans to the area. however. 3 The encroachment of White farmers followed from the 1770s.! In many of these studies. Prior to the arrival of the 1820 settlers the region experienced only peripheral contact with the limited market economy of the port of Cape Town. the internal dynamic of the evolution of capitalist economic relations has been at best only partially explained.3 Early Capitalism in the Cape: The Eastern Province Bank. and particularly Grahamstown as the chief town of the region. using the example of the Eastern Province Bank. which introduced the beginnings of a cash economy.

in 1824. The difficulties of poor communications for transporting wool to market and capital shortages for improvement were overcome with the assistance of the merchants. By 1834 there were over 12 000 pure-bred woollen sheep in the Albany district. By 1826 direct trade was established between Algoa Bay and Britain to facilitate these entrepreneurs in their endeavours. Coming from a rapidly industrialising economy. The creation of the primary product export industry of wool resulted in various linkages essential to its own growth. The expansion of wealth was also facilitated by the growth of woo lied sheep farming.l. 5 The value and quantity of imports is unknown but it is clear that a start had been made in the development of a regional economy which would gradually assert its independence from Table Bay. 6 Trade with the frontier peoples. Economic development was given a substantial boost by the arrival of the 1820 settlers. together with the commissariat contracts. 8 The successful development of the wool trade can be gauged from Table 3. the majority of these people were imbued with a strong sense of material progress via the accumulation of wealth. while trade with the Xhosa developed as quickly. Soon the 'Engelse smous' became a regular feature of the interior districts. 7 Woolled sheep farming maximised the financial returns for farmers enjoying relatively easy access to land and suffering the disadvantages of limited labour and capital resources. The increasing demand for wool by the British textile industry was successfully exploited by a group of settlers from the late 1820s onwards. which together with an even greater number of cross-breds. Trade suggested itself as an alternative route to riches. trade between the settlers and the Xhosa was legalised and was soon valued at around £30000 per annum. Prior to this. By 1821 the value of goods shipped from Algoa Bay has been estimated to amount to £1500. The linkage effects of their presence were soon felt in the expansion of trade and the emergence of a more intensely capitalist-oriented agriculture. Failure in the initial agricultural experiment threw most of them back on to their traditional skills.48 Early Capitalism and Financial Organisation interior is a good indication of the trading opportunities available. supplied nearly 36500 kg of wool worth over £4000. From the outset these farmers were quickly drawn into the wider capitalist matrix of credit relations. Amongst the most direct of these was the development of the wool washing industry at . ensured the prosperity of Grahamstown and determined it as the commercial centre of the frontier districts.

were destroyed. this immediately meant that the smallest bill a merchant could issue was for the equivalent of £315s. government promissory notes to the value of £174933 were issued.1 Wool exports through Port Elizabeth. Uitenhage and the development of communications . which prohibited the issue of promissory notes. The problem was further exacerbated when. in the belief that such notes were a cause of currency instability .the attempts to improve the harbour facilities at Port Elizabeth. as opposed to the Rixdollar notes which ranged in value to as low as one-eighth of a Rixdollar. The minimum value of the new issue was £1. It proved difficult to keep this coin in . This step was taken to bring the local currency in line with that in Britain where notes of less than £1 were made illegal in 1829. In lieu of this. the colonial administration set about the withdrawal of the paper Rixdollar notes from circulation. in 1832. Between May 1832 and the end of 1835 notes valued at £176289. for which purpose an additional £60 000 of silver and copper money was imported.49 Arthur Webb Table 3. The main financial problem besetting the eastern frontier community was the lack of an adequate medium of exchange. 183G--70 Year Export (kg) Value (£) 1830 1835 1840 1845 1850 1855 1860 1865 1870 (36 packs) 36218 182127 945762 1 961 175 4395423 8817185 13 066 559 14493049 223 4261 21023 114153 212166 508283 1213 410 1 453 189 1430773 Source: Compiled from the relevant Cape of Good Hope Blue Books. out of a circulation of £200 097. \0 When the exchange rate between the Rixdollar and Sterling was fixed at Is 6d in 1825. The difficulty was compounded by the issue of a proclamation of 22 May 1822. the development of roads and subsequently the first railwaysY Much of the wealth generated by the mercantile community and the resultant development of a banking structure can be linked to the growth of the wool and 'kaffir'trades. drafts and bills of exchange for any sum less than 50 Rixdollars. It was anticipated that smaller transactions would be conducted in coin.

All the members of the Cape of Good Hope Bank's local board of management were now involved in the new venture. II of which £100000 was held in the military chest. although the situation was considerably relieved by the increased military presence during the Sixth Frontier War (1834-5). for not only was the discount rate higher in the east. which may materially balk its anticipations of ultimate success. head of a local mercantile firm.14 and it became clear that it had no intention of doing so. farmer. Under these circumstances. a contractor for provisions for the commissariat. 15 These men were: Charles Maynard. but local bills would only be discounted for promissory notes payable twenty-one days after sight in Cape Town. This shortage of currency led to higher discount rates in the Eastern Cape than at Cape Town. and entrepreneur behind the development of the Kowie river mouth as a port. Already in 1836. Cape Town merchants had refused accommodation to Grahamstown. It was against this background that the local bank was established. As The Graham's Town Journal hinted. this provoked a response by local businessmen that led to the formation of the Eastern Province Bank. as discount rates on bills on Britain were set high. opened a branch in Grahamstown in 1838. 'The Bank should be aware that this narrow policy has created a spirit of opposition. due to the unfavourable balance of trade. THE FOUNDATION OF THE EASTERN PROVINCE BANK IN 1838 The background to the foundation of the Eastern Province Bank was the considerable local resentment caused by the higher interest charges imposed upon the district by the Cape Town mercantile establishment. and given the comparative isolation of the frontier. It was variously estimated that the amount of coin in circulation between 1837 and 1838 was around £225000 to £300000. a trader who had established himself in Grahamstown in 1819. and it was considered less expensive to conduct overseas transactions in coin. 12 When the Cape of Good Hope Bank. William Rowland Thompson. at the time of the Sixth Frontier War. the first private bank in the Cape. John .50 Early Capitalism and Financial Organisation the colony.'13 By the end of September 1838 the Cape of Good Hope Bank had made no effort to alter its Grahamstown rates. the shortage of coin in this region was even more pressing. William Cock.

again both prominent local merchants. 17 No shareholders were permitted to own more than seventy-five shares. The London and Westminster Bank was appointed to act as agent. Grahamstown. to pre-empt the Cape of Good Hope Bank and to keep that institution out of the Eastern Province. the institution was to operate as a partnership with unlimited liability for its shareholders. as in contemporary England. cashing remittances and granting letters of credit on the Eastern Province Bank to persons proceeding to the Cape. As there was no official charter. and the full realisation that the trade of the port warranted such a move. All became directors of the new bank.. 16 As early as October an amount of £27250 of the capital had been subscribed. In addition. The capital of the bank was set at £40 000 in 1600 shares of £25 each. 1839-50 The growth of the bank during its first decade of existence can be gauged from Table 3.Arthur Webb 51 Norton and James Black. Paid up capital amounted to £6 at the opening but was raised to £1613s 4d per share by March 1839. issuing its own bank notes. of whom 1700 were involved in commerce and a further 1100 in 'manufacturing.18 Under these circumstances there was a consider- . The population of the area was estimated at roughly 16000 people.2. in 1840. In 1831. The Eastern Province Bank opened its doors on Church Square. and. THE EARLY YEARS. while 150 were set aside for English traders connected to the Eastern Province and a further 200 for persons living in Cape Town. and accepting deposits. on 1 January 1839. there was a military contingent of some 830 men stationed in these districts. The reservation of only 200 shares for the Cape merchants can be seen as a direct snub and attempt to distance the new institution from Cape dominance. namely. Government expenditure was important. auguring well for the new institution. a London agency was opened with a view to facilitating immigration. The bank was soon undertaking the functions of discounting. the civil establishment of the districts of Albany and Somerset approached 150 salaried officials whose annual incomes ranged from £400 for the civil commissioner to £18 for the various postmasters. holding securities of the bank. The bank was also quick to open a branch in Port Elizabeth. Two motives suggest themselves for this step.

21 The increased military presence on the frontier during the wars provided a welcome boost to consumer expenditure. 20 The period between 1841-2 and 1846-7 was one of revival and prosperity for the colony as a whole and five new banks were opened -an echo of the joint stock bank mania in England. A clear indication of this is to be found in the rapid rise in the discounting business. Jan. Commissariat contracts were the foundation of several frontier fortunes. and a further seventy shopkeepers. 1841-9 1841 1843 1844 1846 1848 1849 £22614 18283 17454 22873 102632 38581 £62365 68936 77839 110 370 114990 94640 Liabilities Deposits Note Circulation £23837 30265 32003 47223 106341 76289 £25257 23284 27950 48070 60652 19874 Source: Compiled from various tables published in The Graham's Town Journal.Early Capitalism and Financial Organisation 52 Table 3. Securities (Discounts) Treasury bills Date July Jan. Similarly. Farm incomes were rising. 22 The publication in the local press of balance sheets and profit and . In turn. so that an unsaleable surplus became a recurrent problem and further hastened the transition to woo lied sheep farming. grocers or chandlers. population had grown and by 1849 was probably in the vicinity of 40 000.2 Assets Coin. Jan. The frontier districts also showed a remarkable increase in the output of cereals. Grahamstown was a prosperous community. with the exception of the period of the Sixth Frontier War. storekeepers. Assets and liabilities of the Eastern Province Bank. Jan. increasing numbers of the Xhosa had become familiar with the usage of money during the 1830s. able cash-flow and circulation of wealth in the area. note circulation and deposits of the bank during the War of 1846-7 and in its immediate aftermath. The expansion of wool production in this period was rapid. a directory of the town listed thirty-two merchant establishments or traders dealing with the Xhosa. In 1849.1 9 Both agriculture and pastoral farming generally flourished in the 1830s. and again during the 1840s down to the outbreak of the Seventh Frontier War in 1846. The 'Kaffir' trade was estimated to be worth £25000 per annum in the late 1830s and certainly did not diminish in the 1840s. Jan.

2 5 Dividend payments of £117s 6d in 1843. With no losses recorded on transactions confidence in the institution grew to the extent that forty-five unsold shares were made available at a premium of £310s. after the substantial deduction of £800 for formation expenses and management costs. Nevertheless.Arthur Webb 53 loss statements was irregular during the years of the bank's existence. clearly reflected in the above table. however. As one source commented. During the first year some 2295 bills were discounted valued at £170466. the specie paid to these farmers 'is locked up in their wagon chests and is for the time as much lost to the Colony as though sunk in the ocean'!26 Under these circumstances the bank placed restrictions on its cash outflow and encouraged the extension of its note circulation. adequate provision was made against the time when such notes would be returned for payment. who now insisted on payment in hard money. 24 Furthermore. This situation indicates the unnatural state of the economy of the region caused by the additional military presence and was soon dissipated. In response to the large demand for these shares it was subsequently decided to hold out for an even higher price. and £3775 in 1842 yielded a dividend of £15s. £31Os in 1846. The reduced scale of operations and widespread commercial embarrassment of 1849 did not detract from the bank being able to show a profit but no mention is made of the declaration of a dividend. it would seem that the bank enjoyed early prosperity. Ever cautious. The bank chose to act with caution throughout the boom. a substantial appreciation on the paid up value of £1613s4d. and £415s in 1847 reflect the continuing prosperity of the bank. Reserves at the end of 1842 amounted to £5159. 23 The price of bank shares continued to rise and in May 1842 a small number were sold for £35. reflecting a surplus of over £1300 in its first year of trading. £3 in 1845. profits of £3531 in 1841 allowed the declaration of a dividend of £1 per share. The effect of the Seventh Frontier War of 1846-7 on the affairs of the bank are best reflected in the disproportionate growth of business. 27 . The specie supply of the frontier was slowly augmented by imports from Britain throughout the year 1847. On the basis of this result it was decided to declare a dividend of 6 per cent on the paid up capital. An automatic drain of coin ensued as the military required cash to pay for supplies from frontier farmers. The increase in note issue was forced upon the bank by the abnormal circumstances surrounding the outbreak of hostilities. so that an imperfect picture exists of the financial growth of the organisation.

but neither was it willing to see its resources channelled to the public in preference to its own shareholders. A special general meeting of shareholders was called in April to discuss the frustration of certain shareholders. an amount which closely corresponded to the note issue in circulation. 29 This restriction of 'outside' discounting to the approximate amount of the note issue in circulation was viewed as a legitimate balance between liability to the public and the reciprocal provision of service. however. then the non-shareholders employed bank resources to the value of approximately £18000. to trade beyond its capital. shareholders transactions amounted to £244380. rising . which also reveals confusion between banking functions and money lending: 28 No prudent person would recommend the Eastern Province Bank or any other company. and hence it seems inevitable that if it do (sic) not increase its capital by additional shares. its discounting business appears to have been conducted on cautious lines. as well as of the public. that another institution of the same character will be absolutely necessary. or endorsed by the directors. The wants of this rapidly growing community and the due facility of business imperatively demand that either the one or the other of these measures should be promptly adopted. if conservative.54 Early Capitalism and Financial Organisation The sound financial position of the bank in these years can be attributed to a stable. the bank was not in a position to force its note issue upon the general public. policy in the acceptance of business. at the policy of restricting the amount of paper discounted and of giving preference in that discounting to those bills submitted by shareholders. An incident which occurred in 1843 serves to highlight the principles on which the bank operated and which seem to have applied generally to banking in the Eastern Province during the next twenty years. Public frustration with this policy and the hope that the bank would serve as the generator of development funds is borne out in the following quotation. Undoubtedly. It was argued that if the average life of a bill was around three months. With the passage of time. Likewise. In the early years of the bank no doubt many of the most notable merchants of Grahamstown were shareholders of the bank. as against the £73133 for the general public. At no time did the directors see for themselves a public role in attempting to push note circulation and encouraging demand deposits. This approach was readily acknowledged by the board and figures were given to indicate that of the total value of discount business in 1842 of £317 513.

be incorrect to suggest that this was an accurate reflection of the developing banking sector. This bank had a nominal capital of £75000 in 1500 shares of £50 each of which £25 was paid up. This lack of competition eventually paved the way for the entry of the 'imperial banks' in the 1860s. the bank's deposit base remained weak. as well as by the restrictive nature of that bank's discounting practices that was almost monopolised by its own shareholders. of course. They seem to have been influenced by the lack of suitable investment opportunities in Eastern Province Bank shares. It led to demands for a locally controlled bank. In practice. where the value of exports increased from £70 337 in 1840 to £193794 in 1849. in 1847. It would. The general rise in prosperity of the Eastern Province was reflected in Port Elizabeth. They were no doubt also attracted by the increasing profitability of banking and the premiums on the shares of the Eastern Province Bank. Trade and commercial links between the various regional centres were still too limited to encourage serious competition between the banking institutions which had sprung up to service such communities.Arthur Webb 55 share prices and a restricted share holding acted to exclude second generation merchants and traders from the inner sanctum. The Eastern Province Bank attempted to meet this demand by expanding its Port Elizabeth branch but could not come to an agreement on the creation of local directors and. It was in this light that the call for an increase in the capital of the bank was made. A new Port Elizabeth Bank was founded in January 184630 that led to the closing of the branch of the Eastern Province Bank in that town at the end of 1846. In the event. Thus the growth of branch banking only . The prosperity of the mid-1840s also led to the formation of another bank in Grahamstown. the Frontier Commercial and Agricultural Bank. however. there was sufficient business for the shareholders of the two banks and competition between them was never severe. as a result. found the Port Elizabeth merchants doing to them what they had done to Cape Town merchants a decade earlier. THE 1850s: THE HEYDAY OF INDEPENDENCE AND THE UNITARY BANK The Cape in the 1850s and 1860s was possibly the closest South Africa had ever been to a 'free enterprise' economy. 31 Most of the provisional committee were merchants and none was associated with the Eastern Province Bank.

32 The value of property in Grahamstown and the Albany district was to rise significantly in the period from £530535 in 1844 to £865404 in 1859. This upswing was followed by a setback in keeping with the general recession which affected the rest of the Cape economy. both within the community itself. 33 Likewise. Once more the beneficial influence of war on the business of the bank is evident. The directory for Grahamstown listed 1218 entries in 1861. The period of the 1850s opened with the outbreak of yet another frontier war which persisted down to 1853. a striking correlation between the fluctuations in the business of the bank and the revenue account of the municipality. Of the twenty-six people recorded. An interesting feature of this list is that it recorded only twenty-seven names as merchants and traders and forty-one in the category of shopkeepers. the civil establishment of the town alone now represented some 125 people whose salaries ranged from £1150 for the Lt Governor to £250 for the Postmaster.56 Early Capitalism and Financial Organisation developed in the 1860s with the arrival of the imperial banks and improved communications. The linkages between the success of the Eastern Province Bank and the expansion of Grahamstown's prosperity as the hub of the Eastern Province in this period are strong.34 There was a 40. the majority were involved in wagon and cart building. and from the rival commercial sectors of Port Elizabeth and the other expanding centres of the Eastern Province. for example.3. although this figure also included the names of the inhabitants of the 'Hottentot Village' who had been excluded from the directory of 1849. particularly the telegraph. The reduction in the numbers of merchants and shopkeepers can be attributed to the increase in the size and scale of undertakings and the influence of competition. which reveals long-term growth interrupted by wartime fluctuations. such as Cradock and Graaff Reinet.75 per cent . Even the Grahamstown press offers very little beyond the bald annual statements of assets and liabilities. There was also a substantial group who could be listed as manufacturers. Trends at least may be gathered from Table 3. storekeepers and chandlers. There is. suggesting their employment by the merchants of either Grahamstown or Port Elizabeth for the purpose of travelling around the countryside for the procurement of wool and other commodities. Under these circumstances a bank's growth was limited by the size of the community it served. Information pertaining to the bank in the 1850s is remarkably scarce. An interesting corollary to this development was the rise in the number of persons who gave their occupation as 'agent'.

while the loan of such funds contributed significantly to the growing profitability of the institution. As such. 1850--60 Coin. which saw an increase in exports from the Eastern Province from 1961175 kg worth £212166 in 1850 to 8817185 kg worth £1213410 in 1860. the bank's role in fostering economic expansion was considerably enhanced. Post bills. decline in deposits. also brought growing prosperity to such regional centres as Cradock. Graaff Reinet and Fort Beaufort. It was not before 1857 that the bank was to regain a situation comparable to that held at the end of the war.57 Arthur Webb Table 3.09 per cent fall in liquid assets. all of which saw the successful establishment of their own merchant communities and . a 51. however. liquid assets £32213 30510 60974 70285 59685 34379 41695 49803 40181 46803 59300 Assets Securities £79267 80195 105860 137230 108625 94267 98393 121590 217915 212905 214204 Liabilities Deposits Note in circulation.3 Date 1850 1851 1852 1853 1854 1855 1856 1857 1858 1859 1860 Assets and liabilities of the Eastern Province Bank. Reports indicate that by then the two Grahamstown banks were once more in a healthy condition. and a 31. 35 If there is a trend to be noted in the affairs of the bank in this period. The 1850s were. mobilising the savings of more than simply a select group of merchants. it is the extent to which deposits had grown over the decade. to witness a shift in the position of the Eastern Province Bank relative to its competitors.31 per cent drop in the value of securities held between 1853 and 1855. Drafts £58331 57874 81475 127773 105017 75704 80664 89740 138132 149949 158990 £18219 18251 49611 43228 27929 13 302 17409 27870 44 445 31858 36202 Source: Compiled from various numbers of The Graham's Town Journal and The Cape Frontier Times. The wool boom of the 1850s. It is fair to state that by the 1850s the Eastern Province Bank had successfully emerged as a bank of deposit.

BAD DEBTS AND ABSORPTION INTO THE ORIENTAL BANK The decade of the 1860s witnessed the first major setback to the wool industry on which so much of the prosperity of the previous two decades . Table 3.58 Early Capitalism and Financial Organisation banks during the 1840s and 1850s. THE 1860s: INCREASED COMPETITION. The high profitability of the two Grahamstown banks. The extent of the bank's investment in such institutions is not known but it is not likely to have been large. Some local funds were directed into organisations such as the Eastern Province Guardian Loan and Investment Company. the competition which drew away trade similarly diminished the potential discount business and note circulation of the Bank. given the illiquidity of such investment in times of economic downturn. A. established by Grahamstown merchants under the chairmanship of George Wood. as reflected in Table 3. the Grahamstown banks were now evolving into deposit banks. Thus while Grahamstown continued to prosper and enjoyed a considerable share of the total trade of the region. specifically to cater for longer-term mortgage investment.4 Assets. E. Once more it is possible to emphasise the linkage effect between the successful establishment of a banking sector in the economy and the further expansion of commercial and agricultural prosperity. Commercial Cradock Union British Kaffrarian Graaff Reinet S. this development itself then encouraging further extension of the banking industry. a director of the bank. in 1861. liabilities and profits of Eastern Cape Banks in 1860 Bank Eastern Province Frontier C & A Port Elizabeth P. suggests that while they lost ground to the new banks in total turnover.4. 10 January 1860. Central Liabilities Assets Profits £265 192 234619 237689 170469 53611 43110 82831 61 764 £273504 242119 246573 175585 54165 46312 85394 65018 £12038 11250 8887 5116 533 3201 3563 3254 £1 149285 £1 189674 £47862 Source: The Graham's Town Journal.

7 -3.3 30. 36 The severe drought of 1861-2 also played its part. Prices fell from over Is to 7d per lb for greased wool on the London market within the space of seven months in 1860. but this fact itself rested heavily on the inability of local merchants to encourage the production of a better quality product.2 27. The evidence of both the Eastern Province and Cradock Union Banks suggests that these institutions now also indirectly financed speculative land . This speculation collapsed when prices failed to rise causing considerable losses to the eastern merchants.0 0.8 13. The financial crisis of the 1860s had its origins in the years of prosperity of the previous decade.3 -12.Arthur Webb 59 had been built. Anticipating that wool would stand to gain from the disruption to the British cotton textile industry by the Civil War.7 2.5 Wool exports from Port Elizabeth. the market for Cape wool was unstable in the early years of the decade owing to the outbreak of the American Civil War.5 indicates the trend of wool production and values in the critical years of the 1860s. credit transactions and speculative wool buying increased.4 21.1 5. 1860-9 Year Weight (Change) Value (Change) 1860 1861 1862 1863 1864 1865 1866 1867 1868 1869 8817 185 kg 9407869 9615031 12252253 14823581 13 066 559 13 144537 12784872 12387821 13 045 205 % 6. this was attributable to the greater competition experienced in the British market from Australian wools.7 10. Table 3. In Britain.4 -11.2 -7.8 Source: Compiled from the Cape of Good Hope Blue Books. The same cause closed the American market for Cape greased wools.6 -2. In part.3 18. Cape merchants bought up large quantities of wool at inflated prices. The wool boom and consequent general need for cash and capital encouraged the creation of ten new local banks in the Eastern Province between 1857 and 1862. Table 3.1 -7. 37 With the increased funds made available by these institutions.3 £1 213 410 1218474 1080729 1278286 1665835 1453189 1643074 1524796 1407927 1255945 % 0. not only in decimating flocks but in raising the costs of transporting wool to regional centres and the ports.0 -11.

38 The Cape economy seemed ripe for fresh capital infusion but it was unfortunate that the incursion of the imperial banks coincided with the slump in the Cape economy. Most of the local banks had been influenced by the recession but the . agent or storekeeper. The position of the Eastern Province Bank in relation to some of these banks is indicated in the Table 3. The Eastern Province Bank entered the 1860s in a healthy condition. Given the close ties between merchants and the banks. the paid up capital of the bank was increased to £100000 during the course of 1860. The boom of the late 1850s and early 1860s also generated an expanding demand for capital and liquidity. relying themselves on accommodation from the merchants and brokers. was not conducive to security in times of crisis. The chain of credit linking farmer. the capital of the colonial banks was estimated at £1572 815. This was attributable to the influence of the recession and the growing competition of the smaller inland banks which suffered no scruples in curtailing their note issue. Their larger capital resources and an aggressive bid to capture local banking business drove the majority of the local banks out of business within the next two decades. and the rise in interest in the area by British capital. both by telegraph and more rapid and regular sea links.60 Early Capitalism and Financial Organisation purchases. Once again it is possible to identify the linkages between the steady growth of the Cape economy. While high wool and land prices prevailed agents and storekeepers offered extended credit to farmers. 39 By 1862 it was still possible to pay a dividend of £41Os per share but the management of the bank was troubled by the steady decline in note circulation. of which £924021 was paid up.6 below. The circulation of these twenty-seven institutions again only amounted to £348318. while a dividend of 20 per cent was paid in 1860. merchant and woolbroker. The greatest challenge in the longer term to be faced by the local banks of the Eastern Province in the 1860s was to come from the establishment of the imperial banks. it was inevitable that the speculative losses incurred on their wool dealings would ultimately spill over into the discounting and other business of the banks. Influenced by the boom conditions. Loans were advanced directly to farmers for improvements and additional land purchases against the revenue of future wool clips calculated on stable or rising prices. The profitability of the bank is indicated by the fact that its £25 shares enjoyed a market value of £45. the improved communications of the period between the metropole and the colony. In 1861.

which immediately set about the opening of a branch in Grahamstown and offering terms for incorporation as branches to many of the smaller local banks.Arthur Webb 61 Table 3. Likewise. 1862 £20637 30240 13 638 19615 35727 38427 16367 12674 15395 8122 £14525 17077 10 332 15106 35208 13 809 6464 8805 14849 11710 9117 18629 Paid up capital and Reserves Dec. E. Cradock Union Queenstown S. A. The intrusion of the imperial banks into the Eastern Province from 1863 onwards also encouraged a change of attitude on the part of the bank's directorate. the changing nature of much of the financial business of the region. P. Central G. suggested the need for the development of branch banking to supercede the old unit banks. 40 Institutions with large capital resources to meet the growing financial needs of expanding commerce and agriculture were needed. but at another level it can be interpreted as evidence of the decline of Grahamstown as a commercial centre. this reflected the greater strength of these institutions as deposit banks. the aggressiveness of the Standard Bank. Camm. E. In part. With the increasing . which was now directed through fewer hands and which was concentrated on Port Elizabeth. Trade with the interior and particularly that of wool increasingly was being channelled directly to Port Elizabeth. 1862 £104497 80600 15000 79157 67500 17952 15 614 23000 24000 22475 16687 12307 17500 Source: Graham's Town Journal 27 January 1863. with the general public playing a minor ancilliary role. No longer could the bank survive essentially on the business of its shareholders. Bank Br. This step naturally curtailed the circulation in the interior of the Grahamstown banks' notes. R. Bank Frontier C & A Fort Beaufort P. In particular. 1861 and 1862 Bank E. Kaffrarian Somerset Albert Colesberg Note circulation June 1861 Dec. Bank P. effects on the two Grahamstown banks' circulation was particularly severe.6 Liabilities of the Eastern Cape Banks. suggested an active response.

In this regard The Graham's Town Journal proved a useful ally at least down to October 1863. The collapse of amalgamation negotiations between the Standard Bank and the Cradock Union Bank. Godlonton. R. was appointed to the local Grahamstown board of the Standard Bank. Bedford and Somerset East threatened to cut off the Grahamstown banks from any prospect of widening their area of note circulation. banking would have to become 'more customer conscious rather than being seen as good institutions for capital investment'. where a branch was opened in July 1863. It possessed two assets keenly needed by the bank: a large circulation and a geographical position which straddled what was already becoming the main trade route into the wool growing regions of the Eastern Cape and the interior. in May 1863. The Frontier Commercial and Agricultural Bank faced very similar problems to those of the Eastern Province Bank in declining profitability and circulation. 44 By November of that year negotiations between the two banks were in progress. It was anticipated that the new venture. would enjoy an increased capital of £500000 with power to increase it to £1000000. once amalgamation in Grahamstown had been concluded.42 The Eastern Province Bank moved to meet the challenge of the imperial banks by attempting to establish its own branches and by amalgamating with other banks. the Cradock Union Bank was equally keen to find an ally to thwart the inevitable step of the Standard opening its own branch in Cradock once negotiations had broken down. 41 In order to survive the local banks would have to generate a wider regional share holding and a more competitive approach to business. The . Negotiations were entered into and by September 1863 the Cradock Bank had been amalgamated and reopened as a branch ofthe Eastern Province Bank.43 The next logical step was to effect an amalgamation between the two Grahamstown banks. when the editor. It was clear that a small institution like the Cradock Bank would not survive independently for very long. to be called the Eastern Province Alliance Bank. There were also suggestions that overtures be made to the Port Elizabeth Bank. The Frontier Bank's response to the Standard challenge was to despatch its manager to Aliwal North. presented a cue for the bank. in order to rival the Standard. The proposed establishment of branches of the Standard Bank in Fort Beaufort. Progress in the negotiations was swift and within weeks a package was worked out for presentation to the shareholders of the banks.62 Early Capitalism and Financial Organisation competition engendered by the imperial banks. For its part. the only remaining colonial bank at that place.

particularly after 1863. The difficulties facing the amalgamation stemmed from the actions of one man. By then the fate of the majority of the local banks had been sealed. and to avoid a continuance of the unpleasant and irritating correspondence. in what was still predominantly a pastoral economy ravaged by drought. this Board will be prepared to entertain any reasonable proposal that may be made for re-establishing the Branch Bank on its former footing as an independent institutionY . Banking practice was to be tightened up and the local directors were to clear their debt with the bank as rapidly as possible. Furthermore. resulted in what was termed 'overtrading'. four of the directors virtually monopolised the discounting business of the branch. but in March 1864 the 'Grand Alliance' began to fall apart. He was. Heartily sickened by the business the Grahamstown board eventually decided That the existing relations between the Head Office and Branch Bank are so unsatisfactory and of so different a character to those contemplated at the time of amalgamation. much of the paper was suspect. The Honourable George Wood. its more immediate problems were generated by the newly acquired Cradock branch that was allowed to retain its own board of directors. legitimately opposed to any step which could increase his liability in an unlimited banking partnership at such a time. That he also served on the local board of the Standard Bank may cast some light on his motives.45 Wood was a past chairman of the bank and was currently a director. lacking two good signatures and sufficient security. The Cradock branch was quick to react to the loss of its independence and a long and acrimonious correspondence ensued. Disturbing reports were soon made from inspectors sent to the branch. In keeping with the tradition of the local banks. Provision for the creation of limited liability for the shareholders of banks in the Cape Colony was only achieved in terms of Act 11 of 1879. however.Arthur Webb 63 respective annual general meetings of shareholders of the two banks were equally quick to ratify the alliance. Increased competition between the banks. For the bank. 46 The most important of the recommendations was that the branch should be subordinate to the Grahamstown board. Against this background a major restructuring of the branch was recommended. subject to general directives from head office. Sr applied for an interdict opposing the move on the grounds that it was in contravention of certain clauses of the trust deed of the Eastern Province Bank. which made no provision for such a step.

The offer was accepted with alacrity but was subsequently overturned by Cradock-based shareholders who recognised the advantages of the Grahamstown connection. as well as the successful intrusion of. an eminent Grahamstown firm and major customer of the bank. In the same year the merchant house of W.49 The inseparable links between the bank and the merchant community were to prove all but fatal as individuals closely related to the bank were driven into liquidation. R. one of the ex-directors of the Cradock branch. and competition from. Not much time was allowed to elapse before it was unanimously resolved in Grahamstown 'that it is expedient for the interests of the Bank that the Branch Board at Cradock be abolished'. Wood Brothers made over various bonds to the bank against further accommodation . 48 If the actions of the Cradock local board of directors represented a blatant breach of sound banking principles. Thompson was a director and trustee of the bank and his firm a major customer. reflecting the straitened position in which the Grahamstown business community found itself. Under these circumstances the bank often found itself entertaining business it would not previously have considered. Jr. Between 1867 and 1869 the risks inherent in providing a service to customers dependent upon a volatile primary product were revealed. George Wood. At least part of the security offered by him consisted of paper endorsed by Wood Brothers. This approach was deemed preferable to the latter as such a step 'would be seriously felt by those who may have invested in Shares with a view to an annual income'. and because of its close ties to the stricken merchant community.64 Early Capitalism and Financial Organisation The Cradock directors were quick to respond with an offer of £20 000 worth of 'unexceptional security' bearing interest at 8 to 10 per cent for the severance of the branch. In 1867. The Frontier Commercial and Agricultural Bank was to be less fortunate and collapsed in 1869. Thompson & Co. His resignation was only the first of several caused by insolvency. In 1868. could not meet his repayments and was granted extra cover to prevent his imminent insolvency. the competitive environment in which the Grahamstown board found itself operating in the 1860s was soon to test its abilities to the full. it was decided to persist with the policy of paying a regular dividend to shareholders rather than adding to reserves or writing off bad debt. Tucker. The years between 1865 and 1869 witnessed a steady decline in the annual profits of the Eastern Province Bank. when a chain of insolvencies led eventually to the insolvency of their own chairman and largest customer. collapsed. Despite falling profitability. the Standard Bank.

who had borrowed heavily from the Frontier Bank against the security of Wood's name.. so that when he was declared insolvent in July. Discounting released mechant capital for fixed investment. 53 The beginning of the 'great depression' in 1873 made a bad situation worse and when further competition appeared in the form of the Oriental Banking Company. while the growth of deposits further facilitated loan capital and mobilised resources which would otherwise have lain dormant. Gooch's failure left Wood responsible for a further £31113 of debt and contributed heavily to the collapse of the Frontier Bank. of which a considerable sum was unsecured. Bad debts at the beginning of the decade amounted to £96733 more than the bank's reserve funds. prudence led the shareholders to accept a generous offer of amalgamation with that bank. was placed in an invidious position. More important to the bank was that this firm was their largest customer. 52 The end of independence for the Eastern Province Bank came quickly in the 1870s.Arthur Webb 65 for the purpose of buying wool on speculation. 54 and on 1 January 1874 the Oriental Banking took over the business of the Eastern Province Bank. Most of these transactions involved Tucker in Cradock. for he was also a sleeping partner in the speculations of A. By April 1869 Wood Brothers was in liquidation. . CONCLUSION The example of the Eastern Province Bank suggests that economic expansion induced in its wake the requisite financial institutions. only about half of which was secured. Poor communications and the comparative isolation of the regional centres of the Eastern Cape in the decades before the arrival of the telegraph in the 1860s ensured the fostering of a unitary banking structure. the account of Wood Brothers was immediately called into question. Liabilities of the firm to the bank amounted to £58733. as senior partner of the firm and chairman of the bank. 51 Attempts to prop up that institution cost the bank another £21958. R. Gooch & Co. and it was necessary to call a special shareholders meeting in 1872 to approve the reduction in the capital of the bank that writing off the whole amount would entail. J r. 50 George Wood. These organisations were to playa vital role in the provision of credit for economic development. Various attempts were made to keep the firm solvent but the massive speculations in the British wool market associated with Tucker and Gooch proved fatal.


Early Capitalism and Financial Organisation

Thus banking emerged as a vital adjunct to the successful expansion
of merchant and agricultural capital in the region during the 1840s and
1850s. Undoubtedly, there was an infusion of capital from Britain
directly into wool farming in this period55 and a relocation of certain
Western Cape merchant capital by firms like Mosenthals and others.
These developments should not however, be allowed to detract from
the far more significant role played by the local banks in credit creation
for their respective communities. The belief that the expansion of
capital in this region represented an inflow of foreign funds stands in
need of major revision. 56 Trade and speculation, whether in the form
of wool, land, or other commodities relied predominantly on the credit
and capital generated within the region, and in the creation of which
the local unit banks had a major role to play.
The burgeoning success of local capital by the late 1850s, together
with the institutional constraints of an unlimited liability partnership
structure, proved to be the downfall of the local unitary bank. High
profitability kindled a keen interest on the part of Metropole capital
which soon evinced itself in the challenge of the Imperial banks.
Unwillingness to increase capital liability substantially or to unite in
the face of the threat left the unit banks vulnerable, particularly in the
face of the economic downturn of the 1860s which served to highlight

managerial indiscretions and incompetence. Few of the local unitary
banks were to survive the 1870s.

Notes and References



See for example, S. Marks and A. Atmore, Economy and Society in Pre
industrial South Africa, London, 1980.
P. Maylam, A History of the African People of South Africa: From the
Early Iron Age to the 1970s, Cape Town, 1986, pp. 34-5.
J. B. Peires, The House of Phalo, Johannesburg, 1981, pp. 95ff.
S. D. Neumark, Economic Influences on the South African Frontier
1652-1836, Stanford, 1956.
E. J. Inggs, Liverpool of the Cape: Port Elizabeth Harbour Development 1820-70. Unpublished M.A., Rhodes University, 1986, p. 25.
R. Godlonton, A Narrative of the Irruption of the Kaffir Hordes,
reprint, Cape Town, 1965, p. 140.
B. A. Le Cordeur, The Politics of Eastern Cape Separatism 1820-1854,
Cape Town, 1981, p. 37.
T. Kirk, The Cape Economy and the Expropriation of the Kat River
Settlement, 1846-53', in S. Marks and A. Atmore, Economy and
Society in Pre-industrial South Africa, pp. 230-1.

Arthur Webb




See for example, the theses of A. S. Mabin, The Making of Colonial
Capitalism. Intensification and Expansion in the Economic Geography
of the Cape Colony, South Africa, 1854-99. Unpublished Ph.D., Simon
Fraser University, 1984, and E. J. Inggs, Liverpool of the Cape.
E. H. D. Arndt, Banking and Currency Development in South Africa,
1652-1927, Cape Town, 1928, p. 31.
Ibid., pp. 220ff.
Graham's Town Journal (GTJ), 14 January 1836.
GTJ, 6 September 1838.
GTJ, 27 September 1838.
GTJ, 25 October 1838 and 30 August 1838.
GTJ, 6 December 1838.
GTJ, 23 October 1838.
Greig's South African Directory and Advertiser, 1831.
D. Williams, 'Social and Economic Aspects of Christian Mission
Stations in Caffraria 1816-54', Part I, Historia, vol. 31, no. 2,
September 1985, p. 42.
A. C. M. Webb, The Agricultural Development of the 1820 Settlement
Down to 1842. Unpublished M.A., Rhodes University, 1975, pp.
R. Godlonton, The Eastern Province Annual Directory and Almanac,
An estimation based on the figures presented in Godlonton, allowing
for a tendency on his part to inflate figures!
GTJ, 23 January 1840.
GTJ, 12 May 1842.
GTJ, 3 February 1842 and 2 February 1843.
GTJ, 2 January 1847.
GTJ, 13 January 1849.
GTJ, 17 June 1841.
GTJ, 6 April 1843.
GTJ, 24 January 1846.
GTJ, 23 January 1847.
K. S. Hunt, 'The Development of Municipal Government in the
Eastern Province of the Cape of Good Hope, With Special Reference
to Grahamstown 1827-1862', in Archives Year Book for South
African History, 1962, pp. 277ff.
Eastern Province Year Book, 1861.
C. G. W. Schumann, Structural Changes and Business Cycles in South
Africa 1806-1936, London, 1938, pp. 76-7.
GTJ, 31 January 1857.
S. Dubow, Land, Labour and Merchant Capital in the Pre-industrial
Rural Economy of the Cape: The Experience of the Graaff Reinet
District 1852-72, Cape Town, 1982, pp. 20ff.
These banks were Cradock Union Bank (1857), British Kaffrarian
Bank, King William's Town, (1858), Uitenhage Bank (1858), Queenstown Bank (1859), Somerset East Bank (1860), Fort Beaufort and
Victoria Bank (1860), Albert Bank, Burghersdorp, (1861), Colesberg
Bank (1861), Kaffrarian Colonial Bank, King William's Town, (1862),
Agricultural Bank of Queenstown (1862).





Early Capitalism and Financial Organisation
E. H. D. Arndt, Banking and Currency Development in South Africa,
1652-1927, p. 254.
Ibid., p. 253.
J. A. Henry, The First Hundred Years of the Standard Bank, London,
1963, pp. 5ff.
GTJ, 20 February 1863.
GTJ, 5 June 1863 and 16 October 1863.
GTJ, 24 July 1863.
GTJ, 21 July 1863.
GTJ, 11 March 1864.
GTJ, 13 April 1866.
Cory Library for Historical Research, Rhodes University, MS 16938(1)
31 May 1866.
Ibid., 29 October 1866.
Ibid., MS 16938(2),25 May 1869.
Ibid., 28 July 1868.
GTJ, 16 September 1860 and 19 February 1869.
Cory Library MS 16 938(3)i, 29 June 1869.
Ibid., MS 16938(2),5 March 1873; and MS 16 938(3)iii, 22 August
Ibid., MS 16938(2),29 November 1873.
T. Kirk, 'The Cape Economy and the Expropriation of the Kat River
Settlement, 1846-53', pp. 230-1.
See for example, S. Dubow, Land, Labour and Merchant Capital, T.
Kirk, 'The Cape Economy' and B. A. Le Cordeur, The Politics of
Eastern Cape Separatism.

g.Bosman INTRODUCTION In 1888. e. 'One of its objectives was to effect banking and credit operations in and with South Africa and for this purpose a Chief Agency was opened in Pretoria which started to operate in August. the Nederlandsche Bank en Credietvereeniging voor Zuid-Afrika was founded in Amsterdam. could be confusing because it is the officially used English translation of 'De Nederlandsche Bank NV'. which has the meaning of English 'Limited') were added in accordance with Dutch law. but its chief agency was in Johannesburg. London and Cape Town.4 The Separation of Nedbank. South Africa. THE SECOND WORLD WAR AND POST-WAR YEARS The occupation of the Netherlands by Germany. I shall call the bank in South Africa 'Nedbank'. the name of the bank was changed to Nederlandsche Bank voor Zuid-Afrika. from the Parent Institution in the Netherlands 1 H. the letters 'N. This bank also had a head office in Amsterdam. the bank merged with the Transvaalsche Handelsbank. Offices were situated in Hamburg. .2 In 1903. This will indicate more clearly which institution is meant. In 1925. Later.' (Naamloze Vennootschap. Reference to the name 'Netherlands Bank'. In this description I shall refer to the bank in Amsterdam either as the parent institution or the Dutch bank.V. Nederlandse Overzee Bank (NOB). the central bank ofthe Netherlands. These are the main facts which must be known in order to understand the history of the post -war years. or I shall use its name. W. in May 1940.J. naturally led to a disruption of relations between the Netherlands and 69 . though often used in South Africa. although this name only became official in 1971 (Nedbank Limited). 1888.

4 The idea was not new: it had arisen in 1929 when the management in Amsterdam together with the local management in South Africa were thinking particularly of financially powerful groups and persons in the Cape Province. The possibility of cooperation with Volkskas had been envisaged for some time but was later abandoned. P. Thereafter there was rethinking of the proposition. Naturally some difference of opinion arose as to the remaining control by the Dutch bank should a separate SA bank be founded. was of the opinion that the 'Netherlands majority interest had to be maintained in such a way that on all vital questions Amsterdam's influence could be exercised in a decisive manner. in 1947. but . However. with only Union nationals on their directorates' . who had joined the management in SA. Kakebeeke. Keuning. Half of this capital would.5 Dr B. Mr J. be provided by the Dutch parent institution. 'whilst agreeing that the majority principle favoured by the Netherlands connection was indicated. and they were able to do so because the total of assets in London and South Africa were more than sufficient to cover the liabilities (the assets amounted to more than £4 million and the surplus of assets over liabilities was almost £1 million. it took some years before this separation could be effected. dollars and gold. still drew the attention to the fact that a new Nationalist government had just assumed power and in its economic program it was specifically mentioned that banking institutions must have their head offices in the Union. together with J. H. After the Second World War there was agreement between the management in Amsterdam and Pretoria that the business of the bank in South Africa and London had to be continued by a separate company with its head office in South Africa. who could possibly provide the South African contribution to the capital of a new South African bank. who after the war had become general manager of the bank in Amsterdam (after he had formed.70 Separation of Nedbank from the Netherlands South Africa. the management team in Pretoria during the war). These and similar ideas had to wait due to the intervention of the Second World War. The branches of the Nederlandsche Bank voor Zuid-Afrika in South Africa continued offering their services under the leadership of the local head office. one of the leading Dutch banks. however. were discussed. Holsboer. 6 For some time possible relations with the Nederlandsche Handel Maatschappij..)3 Before 10 May large guilder balances had been transferred into sterling. although provisionally the pre-war situation was restored.

1 million (against Dfl. 264. Arndt gave in. preferred a maximum of 50 per cent.9 million as of 30 September 1950). According to the annual report. . 46. The issued capital would amount to SA £2000000 of which 75 per cent would be held by the Dutch bank and 25 per cent would be placed in South Africa. have Amsterdam as its head office and retain the Hamburg branch. The balance sheet total of the Dutch bank as of 30 September 1951 amounted to Dfl. The Dutch bank would. On 20 December 1950. that of the new SA bank £22. . PARENT BANK AND AFFILIATED BANK In the annual report 1949-50 of the Dutch bank it was reported that as an implementation of this agreement the South African part of the bank.5 million.2 million and the consolidated balance sheet total of both institutions was Dfl. the relevant resolutions were passed at an extraordinary meeting of the general assembly of shareholders of the Dutch bank. D.7 There would be no provision for special powers exercised by Amsterdam. Manschot (successor to Mr Pruissen as a general manager of the Dutch bank) became members of the Board of Directors of the Netherlands Bank of South Africa Limited (Nederlandsche Bank van Suid-Afrika Beperk). The definite constitution of the new bank was the outcome of various discussions and amendments between the Amsterdam and Pretoria bank managers and the Registrar. together with the London branch.213. As to the percentage interest which the parent bank would have in the SA affilitation. The SA bank commenced its operations on 15 January 1951. W. J. there would be close cooperation between both institutions. would indeed form a new South African corporation with its head office in Pretoria. J. J. Messrs J. while Amsterdam had 75 per cent in mind. the Registrar of Banks.H. 'But he would like to have a kind of token understanding that with future capital issues an increase of the South African shareholding would be seriously contemplated. Pruissen (until 30 September 1951 a general manager and thereafter a member of the Board of Directors of the Dutch bank). apart from the powers deriving from the (majority) shareholding. as was previously the case. D. Dr Arndt. Bosman 71 this idea was discarded because the main centre of decision-making would then still remain in Amsterdam. Keuning and (a few months later) H.

undoubtedly in connection with the events in Sharpeville. during his long association with South Africa.5 million. As an example. As from 1 October 1954 a merger became effective. always had an open mind for possible future developments. Developments in a particular part of the world cannot be seen apart from what happens elsewhere. 8 Other interesting take-overs by NOB were Mesdag en Groeneveld's Bank NY in Groningen and Theodoor Gilissen NY in Amsterdam. the report continued. And efforts to reach reasonable solutions are less successful the longer one waits. In this way the shares of the NY De Haagsche Commissiebank in The Hague and of the Societe Hollandaise de Banque SA in Brussels were taken over. NOB subscribed for 75 per cent of the issue. as they were 'convinced of the desirability to maintain our participation in the capital of Nedbank at 75 per cent of issued capital'. in March 1960Y The report pointed out that situations in which different races in varying stages of development are living on one territory do not lend themselves to radical simplistic solutions. In these years there was surely a great interest by the mother bank in what happened in South Africa. A continuing revision and adjustment of the spiritual attitude of a people is required in order to find the right answer to the problems which they face. For the first time in the 1959-60 report considerable attention was paid to the political situation.72 Separation of Nedbank from the Netherlands The basis of the remaining Dutch part of the old bank was a rather narrow one and that is why a broadening of the activities was looked for. it can be noted that up to and including the year 1960-1 the balance sheet of Nedbank was published in the annual reports of NOB. it is not possible to apply a policy. whereby the Nederlandsche Bank voor Zuid-Afrika NY and the Amsterdamsche Goederen-Bank NY (specialising in the financing of international trade in commodities) together formed the N ederlandse Overzee Bank NY with a balance sheet total of Oft.5 million. During these years the annual reports of NOB paid much attention to the affiliation in South Africa and the economic conditions in both South Africa and the Federation of Rhodesia and Nyassaland. to a position which had been reached after a certain historical growth. Even when in 1957 Nedbank increased its issued capital from £2 million to £2. On the other hand. Undoubtedly this part of the annual report was written by Keuning who. 155. which would be fixed for all times. This bank retained 75 per cent of Nedbank in the following years. After that .

as will be explained in the next section. The proceeds of the issue were mainly used by Nedbank to obtain by way of private placement a share of 12 per cent in the capital of NOB which had been increased at the same time. and thereafter J. even three of them) were members of the Board of Directors of Nedbank (first J. Holsboer. Carter and Dr F. the 1961-2 annual report points out that the relative importance of NOB's South African interests was not more than the value of the participation in Nedbank. Keuning and H. H. Cronje were appointed members of the Board of Directors of NOB.Ph. Nedbank issued new capital to the amount of R1 million. which led to a temporary holding of its own shares. as from 26 January 1967). The growing importance of other interests on the side of NOB also played a role. the opposite was the case only as from 25 January 1962 when E. 395 million. was now placed on the South African capital market so that NOB's share decreased to 49 per cent. These appointments were the outcome of a reshuffling in relations between both banks on the basis of the idea that the parent-subsidiary relationship should be replaced by a relationship based on equal positions. The 75 per cent which was usually taken by NOB (in this case R750 000) plus an amount of R800oo0 JO from the existing holding of shares by NOB. managing director of Nedbank. TWO AFFILIATED BANKS . 12 .H. J. The notion itself was seen as the consequence of the important economic development in South Africa and the related growth in banking in this country. W. making a total amount of R1550000. amounting to Oft. The former was a member. C. 1. Bosman 73 year the position of NOB as the parent company was discontinued. 16 million on a balance sheet total of Oft. Manschot. II Regarding the speculation in NOB shares. In December 1961. This was effected by a mutual participation in each other's capital and by the appointments mentioned above. the latter chairman (and the first South African born chairman) of the Board of Directors of Nedbank (Carter was replaced by Dr B. The South African side saw this investment as placing the bank 'in a position where it would be able to participate in the development of its affiliated company within the European Economic Community and elsewhere in Europe as well as on the American continent'. Korthals Altes).A MUTUAL RELATIONSHIP Whereas from the beginning two persons from the parent company (before Mr Pruissen retired in 1952. J.

74 Separation of Nedbankfrom the Netherlands A further reduction of NOB's share in Nedbank to 25 per cent took place on 1 July 1964. Nedbank and Continental Illinois National Bank and Trust Company of Chicago each participated for one-third in the capital. NOB. The title of the new combination became first: Bank en Assurantie Associate NV. in such a way that the South African investment could no longer play the dominant role of previous years. The importance of the merger is shown by a comparison of the balance sheet totals: Dfl. it was decided that Morgan Guaranty Trust Company of New York would remain and that Continental Illinois would withdraw from the relationship. In South Africa the tendency to introduce a predominantly national element in the Nedbank institutions played an increasing role.13 and R. 677 million for NOB at the end of 1967 and Dfl. events in Southern Africa pointed in the direction of separate banks in separate countries. as from 1 August 1967. This new African bank took over the former Northern Rhodesian business of Ned bank. As from 31 December 1971 an official Zambian institution took over 60 per cent of the capital. This was effected by a private placement of R1 595 000 of Ned bank shares by NOB to South African investors. the investment bank business of Mees en Hope Investeringen NV. NOB participated for 25 per cent in an issue of new shares by N edbank in April 1967. the balance remaining in the hands of the three foreign parties (Continental Illinois had some years previously obtained a 10 per cent share in the capital of NOB). . 1854 million for both merging banks at the end of 1968. and the banking and securities business of Bank Mees en Hope NV. In the meantime. The argument was again the development ofN 0 B in Europe and elsewhere. As both banks had a US partner. so that the participation remained at an unchanged percentage. a 100 per cent affiliation of Nedbank. TWO AFFILIATED BANKS: A ONE-SIDED RELATIONSHIP In 1968. Thus in April 1965 the Commercial Bank of Zambia Ltd was established. an important event occurred in the history of NOB: the merger between that bank and the Bankierscompagnie NV (which held the capital of the firms Mees en Hope. The Rhodesian business of Nedbank was taken over by the Netherlands Bank of Rhodesia Ltd. This group was a holding company with three operating companies: the assurance business of Assurantie Beheersmaatschappij NV. Mees en Zoonen Assurantien). and from 1971 onwards: Mees en Hope Groep NV.

and also of Nedbank shares. as well as the fact that the South African participation did not deliver a proportional contribution to the commercial banking business of Bank Mees en Hope. in connection with a possible cooperation with the Dutch savings banks. became the focus of the attention of management and board of directors. Bosman 75 It was further decided in 1968 that the Dutch group would not participate in a new issue of capital then floated by Nedbank. but the underlying reasons were that the development of European banking had forced Bank Mees en Hope to use a greater part of its resources in that area. furthermore. related to Nedbank. the problems of Mees en Hope in the years following. (This bank was a merger of the Nederlandsche Handel Maatschappij and the Twentsche Bank. agreement was reached concerning the sale of the remaining 20 per cent participation in Nedbank to South African interests.'14 The uninterrupted high prices of shares on the Johannesburg Stock Exchange.) Nedbank had (via Nedeurope in Luxembourg) until then held its part of the capital of the Dutch bank. to a take-over of the group by Algemene Bank Nederland. in 1975. From the point of view of the Mees en Hope Group the investment had thus come to an end. This final withdrawal by Mees en Hope from South Africa was initiated by the Dutch and was unexpected by the South African side. in 1974 Mees en Hope faced a management crisis which finally led. domestic as well as foreign. In July 1969.5 million in institutions. one of the leading banks in the Netherlands. determined the moment of the sale. 1. i.e.H. in 1964. Instead of reflections on South Africa the annual reports now contained considerations on other points of interest. END OF THE RELATIONSHIP Moreover. The details of the transaction included monthly payments between 1 August 1969 and 1 June 1970 in an overall sum of Dfl. Apart from that. the acquisition of a nominal RlO million of SA treasury bills with a currency of five years (the amount of which would be transferable after that period) and a participation of R1.55 million. The high stock exchange quotations of shares and thus also of the claims were mentioned as one of the reasons for the non-participation. Consequently the Dutch group's stake in Nedbank declined to 20 per cent. W. 'It seemed that the time had come to implement the policy that had already been favoured by the two banks in regard to this shareholding. which .

Certainly it was useful for Nedbank to retain a stake in the growing European Common Market. This relationship lasted longer than the former (although from 1968 the percentage was reduced by half as a result of the merger of NOB with Bank Mees en Hope). was maintained for ten years: from 1951. the relationship was strengthened by Nedbank taking a 12 per cent (later on 14 per cent) share in the capital of the Dutch bank in 1962. In 1968. then declined to 25 and 20 respectively. the relationship. Some insiders. to 7 per cent of the latter's capital. until 1961. It was said in the annual reports that the proceeds could be profitably used to expand the European business of NOB and Mees en Hope. and in this way both the managing board and the board of directors came to include many persons for whom the ties with South Africa meant less than for those who had experienced the stronger relations of former days. SUMMARY AND CONCLUSIONS The relationship based on the Dutch bank holding an important majority position of 75 per cent in the South African connection. but it must surely have played a certain role and strengthened other considerations. with Bank Mees en Hope. as we have seen. Has there been any influence by political events in South Africa in connection with the apartheid system? Not much was said about this political background in the meetings of the Board of Directors. As from 1961 the percentage remained for a few years at 49. In the beginning of 1976 both Cronje and Holsboer resigned from the Board of Directors of the Mees en Hope Group and thus the final link between the original parent bank in the Netherlands and the affiliation in South Africa had been broken.76 Separation of Nedbank from the Netherlands amounted. working in NOB in the sixties. when the South African part of the bank became an independent entity. then based on holding a minority position. On the other hand. NOB had merged. This relationship was felt to be an important one in that period. Both Nedbank and Morgan Guaranty accepted the official take-over bid of Algemene Bank Nederland which was effected in the course of 1975. In 1969. after the formation of the Mees en Hope Group. was terminated. That same European development led the Dutch connection to diminish and later abandon its South African investment. are of the opinion that .

such shareholding should be reduced to 50 per cent within a period of ten years. 15 The Commission of Enquiry into fiscal and monetary policy in South Africa (Franszen Commission) recommended in its thrid report 'that if the combined shareholding of foreigners in a South African registered bank or bank holding company at present exceeds 50 per cent. Volkskas and Trust Bank had always been South African. Bosman 77 it had always been in Keuning's mind to diminish the participation gradually. but Barclays National Bank and Standard Bank. the tendency in South African official circles to favour a development towards banks that would be predominantly South African in their shareholdership. The Government endorsed the view of the Commission that. only complied with the requirement in 1985. pointed in the same direction. Nedbank had already diminished its foreign shareholding to below 50 per cent. 18 It can thus be said that Nedbank and its Dutch connection had already decided to take that route which was later to be prescribed by the South African government.H. but other insiders think that decisions in those days were taken on an ad hoc basis. since the deposits of a locally registered bank are supplied mainly by local residents. W. and stipulated that if the combined shareholding of foreigners in a South African registered bank or bank holding company exceeded 50 per cent. to favour a more national SA bank. the two largest banks in the group of the 'big five' commercial banks. The ever uncertain political situation in South Africa. . 1. 16 The government agreed to this recommendation and the Bank Act was consequently amended. That did not mean that no foreign participation was allowed. that the need for the Dutch bank to use the resources locked up in the SA investment as well as the tendency on the part of the authorities being charged with the control of the SA banking system. such banks and holding companies should take systematic and positive steps to reduce the combined foreign shareholding to 50 per cent within a reasonable period'. And there was another factor. The conclusion is. 17 At the time of the Franszen Report. therefore. Even during the negotiations before 1951 this attitude of the authorities had already become clear. local investors should have a substantial equity in the bank. but rather that a majority foreign participation was not looked on favourably.

9. Mees en Zoonen in Rotterdam and Hope en Co. Statement by the Chairman. where 1 SA pound was R2. Annual Report. p. and in pages 48-64 of the unpublished manuscript by J. was caused by the rather sudden take-over of the Mees en Hope Group by Algemene Bank Nederland. 394. J. L. 368. A. Reports and Records of the Nederlandsche Bank. Pfundt. p. 10. 12. Cf. 16. p. 1963--4. November 1970. Pfundt. 370. May and September 1985. I would like to thank Mr J. C. J. L. Bank Mees en Hope NY. Schotel. p. Annual Report NOB 1961-2.. Annual Report NOB 1959-60. p.en Credietvereeniging voor Zuid-Afrika 1888. p. 13. Pfundt. Annual Report. F. 8.. C. 15. A. 18. also in checking the manuscript. Pfundt. The rest of this chapter gives a few details. Cronje. J. 13. I am also grateful to my niece. 14. par. 16. Official Yearbook of the Republic of South Africa. Report. p. Johannesburg 1974. Reports and Records of the Nederlandsche Bank . Pfundt. p. 367. 'Vit de geschiedenis van de Nederlandsche Bank voor Zuid-Afrika' . for their assistance.. 1969. Mrs Jeannie Burdzik-Stribos for the suggestions on English usage. 833. Cf. p. Fiscal and Monetary Policy in South Africa. however. A. 3. ibid. A. Netherlands Bank of South Africa Limited. South Africa 1985. 15. 7. taken from the very extensive and interesting surveys of these years in chapter XLII 'Conversion into South African Company and Bank' of the unpublished manuscript by J. Economisch Oberzicht. both having worked in high administrative positions in the Dutch bank and Nedbank respectively. 7. the second section of this chapter. p. L. C. Pfundt. 2. The old banking firms of R. C. p. L. 1961-2. 4. On 14 February 1961 the SA monetary unit changed from the SA pound to the Rand. 5. 6 (English text). 1961-2. F. 6. J. 9. . A. 17. in Amsterdam had merged in 1962. was a factor that supported the dominating tendency. ibid. 10. 11th edn. F. L. L. 14. Cronje. Statement by the Chairman. J. Annual Report Nedbank. Schotel and Mr J. The final abandonment of the Dutch investment of Nedbank. 11. A. F. J. Annual Report NOB 1956-7.78 Separation of Nedbank from the Netherlands sometimes calm and then in turmoil. p. monthly Zuid-Afrika. Notes and References 1.

1 Nedbank 1 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 R Issued share capital % held by Dutch bank 4000000 4000000 4000 000 4 000 000 4 000 000 4 000 000 5000000 5000 000 5000000 5000 000 5000 000 6000000 6000000 6000000 8000000 8000 000 10 000 000 75 75 75 75 75 75 75 75 75 75 49 49 49 25 25 25 25 10 044 000 12555000 12555000 12555000 12601000 14516000 14533000 14533000 14532000 20 Dutch ban!! % held by Nedbank 30-9-1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 30-9-1967 31-12-1967 1968 1969 1970 1971 1972 1973 1974 1975 9396000 10 000 000 10 000 000 20000000 20000000 22000 000 26400 000 26400000 26400000 26400000 26400000 30000000 30000000 30000000 30000000 33000000 33000000 33000000 62602000 62602000 62602000 62602000 62602000 62602000 62602000 62211 500 12 15 14 14 14 14 14 7 7 7 7 7 7 7 IFor reasons of clarity the amounts are given in Rand from the beginning. Nederlandsche Overzee Bank for 1954--67 and Bank en Assurantie Associatie.79 Appendix Table A4. 2By Dutch bank is meant Nederlandsche Bank voor Zuid-Afrika for 1951-3. The years refer to the situation on 30 September. The amounts are in Dutch guilders. . See note 9 of the chapter. later called Mees en Hope Groep as from 31 December 1968.

3 The growth of the bank's capital and reserves is reflected in Table 5.1. In 1945 the bank's capital amounted to R1124000. From these figures it is clear that the bank showed substantial growth only from 1961 onwards. The South African branches (agencies) and the bank's London office formed the core of the bank's activities.2 but those activities remained limited in accordance with the limited scope of the NBvZA as a commercial bank amongst other commercial banks in South Africa. The period directly after the war was a period of consolidation of the bank's activities. but was called a chief agency and the manager in South Africa was the chief agent. Dommisse. I due to the suspension of the bank's activities in the Netherlands as a result of the German occupation. Mr J. The relative position of the Netherlands Bank amongst the other commercial banks is perhaps more clearly expressed in the ratio of its 81 . its reserves to R1 005 000. The so-called head office of the NBvZA in South Africa was Pretoria. During the Second World War the banking activities of the NBvZA was managed by the South African government appointed controller. After the war it was clear that the banking activities in South Africa had acheived a certain degree of independence from the mother institution. The real growth of the bank only came well after 1945. also in South Africa. The growth in reserves between 1969 and 1973 indicates the higher profitability which banking business achieved in those years and not that the bank grew substantially at the expense of other banks. The Netherlands Bank's capital and reserves remained between 11 and 15 per cent of that of all the commercial banks.5 Aspects of Nedbank's International Activities 1945-73 Grietjie Verhoef INTRODUCTION The 'Nederlandsche Bank voor Zuid-Afrika' (NBvZA) was still a small bank in 1945. the total amount being R2129000. The head office was in Amsterdam and had just been revived after the cessation of the German occupation of the Netherlands.

9 12.Nedbank from October 1 1971 and SA Reserve Bank Quarterly Statistical Bulletin.03 11.82 Aspects of Nedbank's International Activities Table 5. assets and liabilities to those of the other commercial banks.1 Capital and reserves of the Netherlands Bank as a percentage of the capital and reserves of all the commercial banks.3 the banks deposit funds increased from 2 per cent of the total deposit funds of all the commercial banks to 9 per cent of that of all the commercial banks. Barclays Bank. The bank gradually improved its position as far as total assets and liabilities were concerned. from a 3 per cent to a 10 per cent share of the total assets and liabilities of all the commercial banks (Table 5. Standard Bank and Volkskas. i. A somewhat weaker position is reflected in the growth of the total deposit funds of the bank.e.2). As reflected in Table 5.42 15. 1945-73 Year Capital Reserves Capital and reserves 1945 1947 1949 1951 1953 1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 1 124 1800 1800 4000 4000 4000 5000 5000 5000 6600 8000 10 000 12555 12555 14516 1005 1302 1504 900 1 190 1560 2258 2860 3362 4282 6987 9656 18874 20496 37197 2129 3102 3304 4900 5190 5560 7258 7860 8362 10 882 14987 19656 31429 33051 51 713 Capital and reserves as a percentage of the capital and reserves of all the commercial banks 10.7 11.2 Source: Published Annual Reports of the NBvZA and the Netherlands Bank of South Africa (NBSA) . even in 1973.9 9.79 12. The period of the most pronounced growth was. as reflected in the bank's capital and reserves position. December 1954-December 1973. from 1961 to 1973. but its market share . It was one of the four big commercial banks.72 9. although the increase was only 2 per cent between 1967 and 1971 and almost nothing between 1971 and 1973. still a small commercial bank amongst the other commercial banks in South Africa. The figures above show that the Netherlands Bank was.

62 4.65 6.2 Assets and liabilities of the Netherlands Bank and its ratio to other commercial banks.55 6.81 5. After the world war the South African economy was still largely dependent on mining and agriculture.87 7.88 5.79 7. The Netherlands Bank was most committed to foreign trade of all the commercial banks and had far less interest in local agricultural developments.01 8. in 1973. In 1945 the bank had only twenty-two branches throughout South Africa6 (and one in London).13 5. 1945-73 and SA Reserve Bank Quarterly Statistical Bul/etin. 1945-73 (Rand thousands) Year Total NBSA assets % of total assets of all the commercial banks 1945 1947 1949 1951 1953 1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 24964 31470 34525 43013 52789 64 608 80461 89496 101399 135201 167361 193725 311 604 400 223 599029 3. 7 The bank regarded itself as a businessman's bank.51 7. December 1954--December 1973.15 8.23 7.81 10.38 9.6 4.82 4.96 7.06 10.47 Source: Published NBSA Annual Reports.43 7.54 3.12 6.83 Grietjie Verhoef Table 5. 8 The expansion of the activities of the Netherlands Bank up to 1973 stands in the context of the expansion of the South African economy as a whole.25 7. the bank expanded its branch network to eighty-three branches with forty-eight agencies managed by full branches.73 3. but when the terms of trade turned against South Africa in the fifties and early sixties.85 6.34 10. a wholesale bank rather than a retail bank and therefore had less interest in expanded branch representation than in representation at the point of commercial and industrial activity.79 7. ranged only from 2-3 per cent in 1945 to 10-15 per cent in 1973 . because of its dependence on imports of manufactured and capital .24 6. but when industrialisation and the accompanying trade boomed in the country.38 average of about a 12 per cent increase.43 Total NBSA % of total liabilities liabilities of all the commercial banks 22835 28368 31221 38113 47599 59048 73203 81636 93137 124319 152374 174069 280175 367172 544 316 3.

29 per cent of the total exports of South Africa still went to the United Kingdom and 22. It had a weak base in South Africa.02 6.42 5. the local industrialisation programme was speeded Up.85 6. 1945-73 (Rand thousands) Year NBSA total deposits Total deposits of all the commercial banks NBSA deposits as a % of all the commercial banks 1945 1947 1949 1951 1953 1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 18887 23242 24825 30616 38911 49841 63220 71 789 81419 101 960 119696 155743 250706 322159 469868 642924 784272 670800 774700 836600 958600 1 139200 1191400 1240000 1588000 2045300 2428100 3243500 3464 000 4895000 2.41 7.96 3. submitted to the Registrar of Banks.19 5. goods. In 1973. 1945-73. because of the . limited capital at its disposal and. 1954-73 and the BA-9 forms reflecting the quarterly asset and liability position of the Netherlands Bank.65 5.54 6.3 per cent of South Africa's total imports originated from the United Kingdom. II The Netherlands Bank tried to capitalise on the specific circumstances of the South African economy outlined above.95 4.7 3. 1945-73 (using the September quarterly submission of every year)5. Rapid growth depended on the external sector.59 Source: SA Reserve Bank Quarterly Statistical Bulletin.56 6.72 9.9 South Africa has experienced a period of rapid economic growth since the end of the war. This was the result of the very open character of the South African economy.39 2.3 9. but this has been accompanied by an almost continuous current account deficit between 1946 and 1977.84 Aspects of Nedbank's International Activities Table 5.3 Total deposit funds of the Netherlands Bank in relation to deposit funds of all the commercial banks. 10 The United Kingdom remained the major foreign trade partner of South Africa throughout the period. because of the payment aspect and the need to secure advanced technology. South Africa relied heavily on world trade and this position only gradually changed towards the eighties.

the bank opened a representative office in Paris. Van Aggelen. but promoted services rendered by the bank. 14 These London offices of the bank played a vital role when the EEC developed and London became the entre to the financial centres of Europe. 15 Other representative offices were opened in 1967 and 1969. P. The Netherlands Bank also had access to the offices of its mother institution in Amsterdam. These offices gave the bank direct access to the EEC markets. which was the centre of trading activity with Europe and the British Commonwealth. in Johannesburg. by arranging overseas loans for a variety of local purposes. The bank had to make use of the assets at its disposal. He was succeeded after five years by H. The bank also made use of its own foreign offices to expand its foreign business. former vice-president of the Irving Trust Company.Grietjie Verhoef 85 weak base. and their links with other international banks. 16 but the undertaking was not very successful and it was closed . but also assisted the Netherlands Overseas Bank (successor of NBvZA) with Dutch and continental business. Brugger. i. trade with South Africa and distributed information on the country and the NBSA scope of activities. a second branch was opened in the Haymarket.13 In April 1970. The bank's increasing international activities needed to be centralised and all the promotions and financing of foreign trade was centralised there. Nedbank International. but even those were eventually channelled through Nedbank International. in the seventies. On 1 October 1973 the bank opened its own international branch. was not in a favourable position to attract sufficient resources in the country to expand locally. The London branch mainly dealt with foreign trade between the UK and South Africa. The branches still did a limited amount of foreign transactions. by financing foreign trade and later. Belgium and Hamburg. The New York office did no proper banking business. The bank was represented by C. 12 The bank also had an office in London which remained the branch of the new South African bank when it was established in 1951.e. existing expertise in handling international trade and the existence of an international branch in London. The bank therefore involved itself in the overseas operations of South Africa by supporting organisations promoting trade (especially export trade). In 1958. In January 1967. the bank opened a representative office in New York. Rotterdam (major trading and port city). the established international links with its Amsterdam mother institution and her successors.

and it . in 1951 and in 1967 the separate banking company. its own hire purchase company (Scotrho . When Zambia became independent in 1964 the Commercial Bank of Zambia was formed (CBZ) in which the NBSA had an equal third share in the capital with the NOB and the Continental-Illinois Bank. not by bankers. An office of the bank was opened in Rhodesia. After the Second World War the SA market was flooded by imported consumer products and luxuries. the Zambian government took 60 per cent (nationalised) of the CBZ share capital. the bank's support for organisations promoting foreign trade will not be dealt with in great length. This bank received its own board. the general manager. Holsboer. when the first NBSA branch was opened. 21 This then was the base from which the bank approached the trade market. It was essential for the bank to interest the public in its main function. The bank was mostly represented. i. the bank hoped to regain its share of trade financing. who promoted foreign trade with South Africa and the NBSA's facilities in that respect. but by business men. The bank approached foreigh business leaders overseas and offered to introduce them to the SA market in order to promote exports to South Africa.Scottish Rhodesian Finance) and its own finance and investment company (Neficrho). financing import and export trade.20 The bank also moved into Zambia in January 1955. the Netherlands Bank of Rhodesia was established. The reaction of the monetary authorities to the weakening balance of payments position of the country was the imposition of strict import and exchange controls in 1948. but by encouraging manufacturers to produce for an export market. 17 On this occasion a representative office was opened in Zurich.e. In July 1971. Salisbury. This took lucrative business away from the bank (as it mainly financed import trade). Dr B. H. 18 These two European offices were not much more than listening posts in Europe. urged the bank to explore the potential of inter-African trade 19 and it did expand its representation in Africa during the sixties. Industries were encouraged to manufacture goods for the local market and to replace imported goods.86 Aspects of Nedbank's International Activities in 1969. SUPPORTING ORGANISATIONS PROMOTING TRADE As the aim of this article is to throw light on the bank's foreign activities as far as overseas trade is concerned.

This meant that the exporter from South Africa had to carry the credit risk until goods were delivered to the buyer. Economic Bulletin and 'Economic Opinion' . as the NBSA had an office in London) or when the NBSA had such arrangements with the buyer's bankY The bank also had numerous shippers as clients and substantial advances were made to them in London (e. the bank joined the International Chamber of Commerce. The bank made advances available to London where exporters to South Africa were paid or where importers of goods from South Africa could pay for the goods received (if it was in the terms of the contract that the buyer would pay on receiving the goods). the United Kingdom. and Walker Bros (London) in establishing IMEX. IMEX was short-lived and faded away in 1968 due to a lack of profitability and therefore of funds to remain in business. 26 THE NBSA ROLE IN OVERSEAS TRADE The NBSA financed both imports and exports.25 and it cooperated with the Anglo-American Corporation. or came from.g. the Industrial Development Corporation. These arrangements depended solely on the terms of the contract between buyer and seller.22 The bank also participated in the share capital of the newly established Credit Guarantee Insurance Corporation in 1957. The CGIC aimed at promoting trade by providing exporter's credit risk insurance covers and arranged coverage by the government for political risks often needed in trade with countries behind the Iron Curtain. the bank introduced ISCOR to the export market for iron). 24 The bank also participated in establishing the South African Foreign Trade Organisation (SAFTO) and became its bankers. The bank did the majority of its trade financing via its London office. The bank published information in their 'Business Guide to South Africa' . the General Mining Corporation. Advances were made in South Africa to exporters in advance of their receipt of payments for goods delivered.Grietjie Verhoef 87 approached local industrialists to introduce them to the export markets open to them (e.23 In 1962. Union Acceptances Ltd. . an organisation designed to promote South African exports and to bring continuity and stability to that market.g. Advances were often made to UK buyers in London when the buyers were also clients of the bank (and this could well be. because most of the trade it financed was destined for. Combined Shipping. M. the Fortrade Group.

The NBSA itself only decided to grant acceptance facilities as a general service of the bank to its clients after 1964.). The NBSA thus made acceptance facilities available to clients of high standing and initially this was mostly applied to foreign transactions. The London office did the same for clients in the UK. those advances were in pounds sterling. A vast amount of foreign trade financing was done in this way by the bank. Anglo African Shipping Co. The NBSA . under which the bank and its client negotiated bills payable either to the bank in South Africa or to its London office. The bank also discounted bills received from overseas buyers as payment for goods from South Africa. the bank made foreign currency advances to its London branch. The bank's substantial advances to these shippers and confirming houses were in fact facilities to finance trade. so it was with acceptances. and then lent a higher percentage of that security to those clients. In the early days before decimalisation in South Africa.. As banking trends from overseas gradually became absorbed in the local banking system. The SA Reserve Bank only gives figures for the acceptance business of commercial banks from 1970 onwards. these shippers were also confirming houses. which placed it in a position to make further advances for different purposes?O The use of acceptance facilities as a means of financing foreign trade only gained momentum in South Africa in the seventies. the South African business only started on a local scale in 1964. When the South African money market developed after 1948 the bank often discounted bills with discount houses. which often made advances to clients all over the world enabling them to import from South Africa or to wait for payment of goods exported to South Africa. In some cases. but when the South African currency changed to Rand. more expensive service. The reason was that the practice of acceptances was well established in England and elsewhere. the bank made facilities available to the London office. 28 Furthermore. This was a way to finance trade with South Africa?9 Apart from advance facilities the bank also issued Letters of Credit to importers. but not yet in South Africa. Goldschmidt & Co. In South Africa the banks did not regard the standing of many clients to be so outstanding that they were prepared to offer this higher risk. which sought out additional security for clients in need thereof in order to enable them to lend more money. The quality of clients to whom these facilities were made available was high.88 Aspects of Nedbank's International Activities H. Although acceptance facilities were granted by the London office of the bank from a much earlier date. but at a higher cost.

it established its own merchant bank. when the Netherlands Bank reorganised the structure of NEFIC. but again only from the sixties onwards. Between 1947 and 1973 the GDP showed a 9. The bank insisted that it was aimed at providing service for businessmen. 60. 90. but it was on a limited scale compared to its bill business and advances. NEFIC Acceptances Ltd (NAL) and from that date the majority of NBSA clients dealt with NAL regarding acceptances. established in 1948 to do medium. to negotiating bills (of 30. NEFIC (Netherlands Finance and Investment Corporation. but clients often simply made use of the normal overdraft facilities provided either in South Africa or London.Grietjie Verhoef 89 then carried out acceptance business in foreign trade. It gave preference in the period under discussion. Fixed loans were also used by local South African companies to finance imports. In 1968.8 per cent annual . It must also be kept in mind that since the development of the South African money market and the accompanying growth of merchant banks. Furthermore. The NBSA made the best possible use of its international connections and experience to promote foreign trade and to have a stake in it.4 shows the growth in the gross domestic product of South Africa between 1947 and 1973. Nevertheless. 180 days) under Letters of Credit. the NBSA mostly handled its acceptance business via its finance and investment corporation. 32 The bank thus provided different forms of financing to prospective foreign traders abroad and in South Africa. It was a limited share. 120 and. 31 In dealing with clients or banks outside the UK. was only established in 1955. Union Acceptances. Table 5. it was quite an achievement. the bank also made foreign currency advances available and issued Letters of Credit and rediscounted bills with its correspondent banks in favour of exporters or importers applying for financing. much of the acceptance business was done there. less frequently. as the first merchant bank.and long-term financing to NBSA and non-NBSA clients). This could be explained by comparing the bank's activities to the growth of the country as a whole and to the position of other commercial banks. The bank also made available fixed loans (fixed for a certain period) in various currencies and these were often used by foreign companies to finance imports from South Africa or to facilitate their costs in awaiting payment for goods exported. the bank's share in financing foreign trade33 remained almost unchanged during the period discussed here. but in the light of the size of the bank compared to the other three big commercial banks.

9 per cent annual compound growth rate.1 per cent when total exports of the country rose by a 10. compound growth rate and between 1967 and 1973 it was an increase of 13 per cent annual compound growth rate alone. 1947-73. (Rand millions) Year GDP 1947 1949 1951 1953 1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 1572 191 2404 3207 3692 4275 4690 5233 6246 7127 8586 10 113 12743 17923 Source: SA Reserve Bank Quarterly Statistical Bulletin. The bank's share in import and export financing is shown in Table 5.5 per cent of total SA imports and in 1964 it was 12. the bank's share in import financing was 8.3 per cent respectively) (Table 5. Over the same period South Africa's goods imports and exports increased by a 7 per cent annual compound growth rate and 10 per cent annual compound growth rate respectively (and for the period 1967-73 it was 10.6 per cent and 11. December 1954December 1974.5 per cent and in 1964. gross domestic product.4 per cent.7 per cent. the representative . and its share in export financing in 1947 was 14.6 per cent annual compound growth rates respectively. and the bank's share in export financing dropped by 3.90 Aspects of Nedbank's International Activities Table 5. According to these figures for the period 1947--64 the bank's import and export financing increased by 6 per cent and 8.6.2 per cent when total imports of the country rose by a 5. 11. 35 This means that the bank's share in import financing increased by 4.5). This can be explained by the fact that the bank had a weak home (SA) base compared to other commercial banks and that the bank was very active through its foreign office in London.1 per cent annual compound growth rate.4 South Africa. In 1947.

7 100.9 137.6 79.1 75.6 54 66.5 123. 1954-74 Table 5.4 104. 1947-64.3 130. 1947--64 (Rand millions) Year Imports Exports 1947 1949 1951 1953 1955 1957 1959 1961 1963 1964 51.4 68. South Africa.5 Imports and exports.9 76 89.2 51.6 84.8 30.6 72. office in New York. The achievement of the NBSA in the field of foreign trade financing can furthermore be explained by comparing assets and liabilities of all the commercial banks to that of the NBSA and its share in foreign trade . 1947-73 (Rand millions) Year Imports Exports 1947 1949 1951 1953 1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 601 630 934 849 962 1100 977 1006 1283 1799 1942 2148 2923 3550 210 214 577 593 738 903 867 951 1024 1067 1323 1486 1551 2517 Source: SA Reserve Bank Quarterly Statistical Bulletin.6 NBSA total import and export financing. and its offices in Rhodesia and Zambia.91 Grietjie Verhoef Table 5.4 Source: JV/4-JV/2. Confidential Annual Reports of NBSA to Amsterdam.6 116.9 84.5 36.

7 per cent share in imports and exports respectively. 5.05 19.7 . The NBSA's 8.6 per cent to that of all the commercial banks.7.48 14.82 32.92 Aspects of Nedbank's International Activities financing. as advances locally could also be used to accommodate foreign trade) does not exclusively explain foreign trade activity (Table 5. as far as bill and acceptance business is concerned. the ratio of the NBSA's assets in 1947 was only 3. As stated in note 33.25 per cent. shows that from 1964. 5. According to Tables 5. according to their position amongst commercial banks. (Compare Tables 5.9 and 5.1 per cent and 12. compared to an asset liability position of about 3.) Table 5. The ratio of the bank's liabilities in 1947 was 3.75 NBSA total bills 21254 20747 15996 50117 64 065 Commercial NBSA % of banks total bills total 132400 106500 107900 153000 295000 16. including trade activities.7. The same situation as far as imports and exports are concerned existed in 1963: the NBSA had an asset/liability position of 7. advances and acceptances (and local advances.79 per cent as compared to a 9. It does give an indication of foreign activities in general.10).7 Source: SA Reserve Bank Quarterly Statistical Bulletin.5 per cent and 14.6 per cent. banks' figures on foreign bills.3. This type of comparison cannot be made for the period 1964--73 due to a lack of statistics.8. 1965-73.5 per cent share in import and export financing respectively in 1947. the NBSA clearly took the lead amongst the commercial banks.7/3.10. more foreign business was performed by means of acceptances than by means of bills.23 per cent. 36 Table 5. 5.5 7. and in 1965 it was 7.7 Total bills discounted or bought.9.2 and 5. when it started its acceptance business as a normal business practice.82 per cent to that of all the commercial banks and in 1965 it was 7. 1965-73 (Rand thousands) Year NBSA foreign 1965 1967 1969 1971 1973 7 91 335 284 620 Commercial NBSA % banks of foreign total 3100 3000 2900 4000 8000 0.1 7.03 11. 5. The bank's position.22 3. and in the acceptance business. shows that the bank took business in this respect from other banks where the latter should have entertained it. NBSA BA-9 forms submitted to Registrar of Banks in South Africa.75 21.8717.

Grietjie Verhoef Table 5.52 0.10 Year 1947 1949 1951 1953 1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 NBSA acceptance facilities. 1971 and 1973 (Rand thousands)37 Year NBSA All commercial banks NBSA as % of total 1971 1973 59518 102276 89000 129000 66.04 8.87 79. Foreign acceptances Total 26 208 289 488 1301 1989 573 873 1232 26 208 289 488 1301 1989 573 873 1236 3048 6770 35450 59518 102276 6141 .23 5.28 Table 5. 1965-73.8 Year NBSA foreign 1965 1967 1969 1971 1973 81 12 155 12 2626 93 Advances. 1965-73 (Rand thousands) Commercial NBSA % banks of foreign total 2200 2100 4400 4000 4000 3.63 6. 1947-73 (Rand thousands)38 Local acceptances 4 3048 6770 35450 59518 96135 Source: BA-9 forms of NBSA.68 0.28 5.3 65.57 3.65 Total NBSA advances 71972 54481 80696 94773 224081 Total NBSA% commercial of banks total advances 1145900 1116300 1432100 1569000 2689000 6. Table 5. NBSA BA-9 forms submitted to Registrar of Banks. 1947-73.9 Acceptances.33 Source: SA Reserve Bank Quarterly Statistical Bulletin.

11 NBSA bills bought or discounted.10 the NBSA London office had already carried out a significant amount of acceptance buisness before 1963. Nevertheless. as advances to London also fell under the credit ceilings imposed on the banks. as compared to that of the other commercial banks. The Reserve Bank has not published similar figures for all the commercial banks before 1965. in the light of the strict import and exchange control measures and credit ceilings imposed on commercial banks after 1964.11). as its main credit activities were foreign directed. the NBSA bill statistics indicate high activity by the bank (Table 5. though bills remained the main trade financing mechanism. Nedbank increased its share of the total bill business between 1965 and 1973 from 16 per cent to 32 per cent after its share in import financing had already risen by 4. 194~3 (Rand thousands) Year Local bills Foreign bills Total bills 1945 1947 1949 1951 1953 1955 1957 1959 1961 1963 664 4408 7548 14352 10721 12302 17482 12565 14214 16736 5 229 540 1125 2675 2919 5105 2927 2819 3513 670 4636 8088 15477 13 396 15221 22588 15492 17033 20249 Source: NBSA BA-9 forms submitted to Registrar of Banks 1945-65. how many were used to finance foreign trade.2 per cent between 1947 and 1964. This was a remarkable achievement for such a small commercial bank like the NBSA. The bank's foreign financing via London was especially hard hit. which hit the bank hard. it is not possible to infer from the statistics on local bills bought and discounted by the NBSA. According to Table 4. especially in the import trade. Table 5. bills discounted and advances. Unfortunately.94 Aspects of Nedbank's International Activities demonstrates how active NBSA was in foreign trade. is that the bank's foreign business grew steadily between 1965 and 1973. Clearly NBSA had increased its share in foreign trade finance by 1973. Even in 1960 the Reserve Bank suspected that the advances made to the bank's . The general inference that may be drawn from the bank's figures of acceptances.

In the Netherlands. Those advances were used to finance trade activities by clients of the bank in London. The tremendous concentration on three export commodities up to 1957 led the bank to consider gradual. Henri Wattine. and diamond exports together made up the biggest component in the total export facilities granted by the bank. 41 The bank's biggest export activity was wool exports.13) for its export of cut diamonds. compared to those of other commercial banks especially in 1962 and 1963. Masurel Fils. hides and skins. Smaller quantities went to the USA. France. as too great a concentration on a few export commodities made it vulnerable to risks if any crisis struck any of these commodities. may be explained as the result of its programme of diversification in export finance. en H.43 and in Germany to J.Grietjie Verhoef 95 London office were attempts to bypass statutory bank requirements in South Africa. Spain.12 provides the position of NBSA export commodity financing between 1952 and 1964. agricultural products related to its Tiger Oats account. Thereafter no such figures. 39 COMMODITIES AND MARKETS The main export commodities financed by the NBSA were wool. have been released in any form. carbide. 40 The bank gave more attention to canned fruit and canned fish. The NBSA's major clients were in the Netherlands. Table 5. and cut diamonds. Switzerland and Japan.42 in France it went to Anselme Dewavrin Fils. Germany and the Netherlands. . if they were compiled. Belgium.14). asbestos. Germany and Italy. From 1959 the bank gave separate figures (Table 5. The downward trend in the bank's total export finance figures. Wolmaatschappij and L. hides and skins (Table 5. The South African wool mainly went to the United Kingdom. but the bank assured the central bank that it maintained the required covered position in respect of the London office. Portugal. V. but definite diversification in export financing. This was a matter of great concern to the bank. and fishmeal. Vandeputte Fils and Compagnie d'Importation de Laine. the bank's main wool clients were N. Henry Schroder. Hart. the type of diamonds it exported its share in the export of cut diamonds and uncut diamonds. Figures on the volume of the bank's finance towards specific export commodities were only compiled by the bank as an internal function from 1952 until 1964. France. Wool. Italy.

5 SA total diamond exports5 46 54.4 1952 1954 1956 1958 1960 1962 1964 18.9 13 NBSA hides and skins exports 4 53. NBSA Board Minutes.2 40 40.9 122.3 107.4 38.12 NBSA commodity export financing.9 15.5 12.4 129.3 19 21.7 34.8 121. 1952-64 (NV).2 8.8 27.3 4as % of 3 Source: JV/7-JV/10: NBSA Confidential Annual Reports to Amsterdam.7 25.3 26.1 64.2 9.8 112.4 30.4 23.1 40 43.3 35.7 107.29. NBSA wool exports} SA total Year NBSA diamond exports 6 6 7 11.1 23.2 30. 1950-64.5 Table 5.3 6 as % of 5 ~ .2 41.2 26 I expor~ SA total hides and skins 2as % of 10.9 14.3 9.2 24.6 62.2 100.9 18.1 9.3 28.8 30 26.2 15.9 24 24.1 23.7 16.3 31.4 64.6 41. 1952-64 13 12.5 9 9.2 73.3 31.

1952--64 Year 1952 1954 1956 1958 1960 1962 1964 % 72 73.2 48.8 71.24 1. 1960-4 Year Cut % Uncut % 1960 1961 1962 1963 1964 74. hides and skins as a percentage of NBSA total export facilities.5 0.5 2. it made use of its London office to provide further finance for wool clients in Europe .6 .Record level of 74.1 % in 1957 56 48.13. B.13 NBSA proportion of export finance of diamonds.2 Source: As for Table 5. Poppe-Schunhoff and Stiicken. 44 Vast quantities of wool also reached countries behind the Iron Curtain and the Soviet Union.9 63.97 Grietjie Verhoef Table 5.2 73. 45 Wool exports by these companies were financed only for the pre-shipment phase by the NBSA.9 3.) and Germany (Kreglinger und Fernau) and occasionally via Compagnie d'Importation de Laine when it went to Czechoslovakia. but went via wool buyers in London (c.7 61.2 66. The finance for the next phase of cloth manufacturing had to be undertaken by banks in Europe.1 2.12. Reid & Co.5 66. Table 5. The NBvZA in Amsterdam often financed the second phase of wool exports and that contributed greatly to the tremendous increase in the bank's share in the South African wool trade. Before 1951 the NBvZA in Amsterdam insisted that the bank in South Africa should only finance wool until it reached its port of destination.5 Source: As for Table 5. After the NBSA was established.14 Total export facilities by NBSA for wool.

98 Aspects of Nedbank's International Activities and behind the Iron Curtain.53 per cent respectively. it agreed to extend credit facilities to its correspondent banks.94 per cent of South African exports to the UK. Barclays and Standard Banks. 51 The bank financed a very large portion of the total South African exports to West Germany until about 1958. the presence of the NBSA London office (and in the Haymarket since April 1971) was vital for the share of the bank in the foreign trade between the two countries. were granted. It must be remembered that the two big commercial banks in South Africa. In 1964. but when other English banks started doing transactions on a credit basis. through which its clients could be helped.2 per cent of the total imports of South Africa from the UK and 14. 48 The markets to which the bank financed most exports were the United Kingdom. The NBSA also financed a relatively small share of South Africa's total foreign trade with the USA. the NBSA financed 6. West Germany. when the import restrictions from dollar countries were lifted and the bank opened a representative office in New York. These banks were all taken over in 1956 by the Statni Banka. bills discountable. This was done on a basis of credit cover by the client at the bank in London. on which ground advances. 49 In 1952. When the bank stood to lose this lucrative business. The NBSA was not very interested in this proposition. the bank financed 35. as trade with those countries normally carried credit risks. in 1958. 50 Because the UK was South Africa's main trading partner throughout the period 1945-73.3 per cent of total SA imports from the USA and 15. 46 Wool transactions with countries behind the Iron Curtain were done on a bill basis under Letters of Credit. still had their head offices in England and handled the lion's share of the trade themselves. In 1952. Slovenska Tatra Banka and Zivnostenska Banka.52 per cent of South Africa's imports from the UK and 18. This relationship became increasingly important when the USA replaced the UK as South Africa's principal foreign trade partner after 1974. the same facilities were demanded from the bank's London branch. the position was 7 .23 per cent and 12.5 per cent of South Africa's exports to the USA.4 per cent of the total SA exports to West Germany and in 1958 this . In 1952. the USA and the Netherlands. The share of the bank in South Africa's foreign trade with the USA gradually improved after January 1954. the bank financed 6.6 per cent of South Africa's total exports to the UK. The bank did its foreign trade business with Czechoslovakia through Nardoni Banka Ceskolslovenska. In 1964. and later on acceptances. 47 In Poland. it financed 9. the bank's business went through Bank Handlowy.

machines. Although the bank developed new products and services aimed at assisting businessmen and their prospective foreign needs. Out of the total South African exports to the Netherlands the bank financed 13.Grietjie Verhoef 99 was 38 per cent. the Hamburg office of the old Amsterdam bank remained part of the Netherlands business and became more inclined to European than South African related business. products which received little financial assistance from the NBSA. 52 The NBSA achieved its strongest position in financing trade between the Netherlands and South Africa. That meant that the Dutch preference for trade rather than for agriculture or mining strongly influenced the bank management's decision to rely on foreign trade and foreign business.3 per cent of South Africa's total imports and in 1964 the figure stood at 36. The bank had a strong international heritage and its management remained chiefly Dutch until 1971.and therefore could not rely on local resources to supply the working capital.8 per cent. but this improved to 23. very seldom to the country . the bank only financed 18. The main reason for this decline was the change in the composition of West Germany's imports away from wool.5 per cent in 1952. 53 CONCLUSION The NBSA played a characteristic role amongst the other commercial banks in the country. Furthermore. by 1973 it had not yet succeeded in achieving local acceptability as a full South African bank. After 1973. jewels and musical instruments. hides and skins to more foodstuffs. metal products. It very reluctantly expanded its branch networkand then only to business centres. This was the result of its emphasis on being an international . In 1952. Dutch business often went via the two big English banks. with NBSA increasing its share of total SA imports from West Germany from 9 per cent in 1952 to 16. metals. The pattern of imports moved in an opposite direction from that of exports.03 per cent in 1964. The bank was weaker in exports to the Netherlands than in imports from the Netherlands because it had difficulty in obtaining Dutch business in South Africa. Further expansion of the bank relied heavily on its foreign activities and up to 1973 very little change had come about in this position.3 per cent in 1964. the bank relied on foreign capital borrowings to strengthen its local capital base.2 per cent of the total SA exports to West Germany. the bank financed 22. In 1964. vehicles.

NBSA. NBvZA. NBSA. 1979. File 1927-1954. Annual Reports. 2nd edition. Annual Report. 2. Minutes of Board Meeting. p. Oud-Archief Disconto. is confidential and banks may refuse access to them. 9. 18 March 1958. 22. foreign branches.g. 37. Bone. 7. 5.. NBSA. Minutes of Board Meeting. 8. 16. However. 13. 12 December 1961. Annual Report. From 1965 onwards banks were instructed to exclude the position of any foreign branches or head offices from the figures on the BA-9 forms. 1969-70. Exchange Control as an Instrument to Regulate South Africa's External Equilibrium. Minutes of Board Meeting. it seems likely that NBSA was more dependent on it than the other banks reflecting its relative weakness within South Africa. Discussions with General Management. 4. H. NV/2:58. Y. Nedbank: South Africa: An Appraisal. 15. p. The bank's financial year runs from 1 October to 30 September of the following year. 14 June 1966.Aspects of Nedbank's International Activities 100 bank. pp. 17 June 1966. The information submitted on the BA-9 forms by commercial banks to the Registrar of Banks includes the position of all the branches of each bank. Published Annual Reports. 1950-1. but any information on e. 115. HKfS. 10. pp. R. M. pp. 47.V. 26 February 1952. 35-6. Letter NBSA-NBvZA (Amsterdam). Ibid. 19 September 1967. 65/68. p. Notes and References 1. 6. The position of the UK as South Africa's principal foreign trade partner was only overtaken by the USA by about 1979-80: See Nedbank: South Africa: An Appraisal. when the South African banking company was formed and started its own capital and reserve sources. An important change in the figures is clear in 1951. . including foreign branches. 3. 79. Special Survey on Nedbank. The Reserve Bank published figures on the total capital and reserves of the commercial banks only from 1959 onwards. NV/2:71. 1939-45. Minutes of Board Meeting. 1972-3. This development culminated in the formation of a South African based company for the bank in SA in 1951. but did not mean that the NBSA did more international business than the other commercial banks. Nedbank Annual Report.. 17-18. pp. 12. Com. 2 June 1949. 11. 120-9. 4l. pp. 13 April 1973. HKfS. 0U3:4. 9. 1945-59. only up to 1964. 14. See Financial Mail. Confidential no. N. Haverkamp: Nota voor de Directie inzake Nederlandsche Bank voor Zuid-Afrika. p. The BA-9's are public documents and may therefore be consulted. 4.

Memorandum by I. 101 HKlS. HKlS. Confidential Annual Report. Discussions with General Management. May 1962. Discussions with General Management. 1947-8. Confidential Annual Report. 1952-3. 1971. pp. 22 April 1969. 19 April and 21 May 1962. p. Minutes of Board Meeting. Discussions with the General Management. 18. 29. pp. no. Minutes of Board Meeting. Minutes of Board Meeting. 01111:22. Discussions with General Management. 10 April. 28. 43-51. 27. Minutes of Board Meeting. 01111:36. 28 January 1986. 1 November 1962. HK/S. NV/4:143. HK/S. Interview with K. NV1/15. 64/382. 5. Minutes of Board Meeting. Discussions with General Management. 26 October 1965. 15 June 1965. 1 and 8 March 1963. The anticipatory advances were normally made in London and were for anticipated needs of clients. 24 April and 11 August 1961. 30. 2 December 1960. van Kan re business between the NBSA and Japanese banks. 17 April 1951. Discussions of General Management. 1953-4. Discussions with General Management. 1 February 1972. 1946-7. B.g. Letter NBSA-NOB. 14 July 1967. HV/9:1. Minutes of Board Meeting. pp. Discussions with General Management. 5. 3 September 1968. Confidential Annual Report to Amsterdam. 14 March 1967. JV17:1. J. HKlS. Confidential Annual Report 1947-8. See JV/8:1. Minutes of Board Meetings. 22. Here the bank distinguishes between anticipatory advances and other advances on which cover by means of goods had been granted. HKlS. Minutes of Board Meeting. 23. Letter NBSA-NBvZA (Amsterdam). Holsboer: 'The Role of the Banker in Export Trade Promotion'. 1944-5. 28 July 1971. 21. C. 16 November 1963. 64/120. 2 . HKlS. Financial Mail. HKlS Discussions with General Management. Minutes of Board Meeting. Minutes of Board Meeting. 26. 24. Minutes of Board Meeting. 1 October 1962. HKlS. HKlS. NBSA. 68/104. as far as exports were concerned they were covered and sometimes uncovered. 14 December 1956. but they could also be covered by different forms of securities. pp. See e. Confidential no. Minutes of Board Meeting. Memorandum by W. 6 December 1966. Confidential no. Memorandum on NBSA share in import and export financing. 16 August 1966. HK/S. RKl114:129. 25. 11 September 1951. 20. JV/6:7. Discussions with General Management. 1957-8. Discussions with General Management. JVI7:3. 20 June 1967. 12. Koster re Acceptance business of the NBSA. JVI7:3. NB/4:65. HKlS. no. 1953-4. pp. Letter NBSA-NBvZA (Amsterdam). 9-11. 16 September 1969. 1 January 1962 and 23 August 1963. HKlS. 9. Discussions with General Management. van der Molen. NV/1:107. 19 June 1951. 6. 6 December 1966. pp.Grietjie Verhoef 17. Annual Report. 19. 46-7. 28-30. H. Confidential Annual Report. 5 and 6 January 1961. pp. 90/71. 70/133. 25 April and 2 May 1962. 31. vol. 42-53. 47-8. Confidential Annual Report.

37. Long before the NBSA offered acceptance facilities on a wide scale. Letter Amsterdam-NBSA. Furthermore. Figures of this kind for all the other commercial banks are not published by the SA Reserve Bank and not obtainable from them. 36. foreign advances. These figures originate from the BA-9 forms of the NBSA. RKlI4:26. according to the reasoning above. South Africa's total exports were RI083 million and total imports R1595 million . 34. 10 September 1948. Aspects of Nedbank's International Activities July 1964. as it included transfers of non-residents to and from South Africa. which . RK/14:150. Nedbank International Treasury. Letter NBSA-Amsterdam. no. Several General Managers of Nedbank have assured the researcher that those figures available were compiled privately by the bank. The Reserve Bank gives no breakdown between local and foreign acceptances. 1801. statistics on bills bought or discounted (local and foreign) and on local and foreign advances separately are only published by the SA Reserve Bank from 1965. 26 October 1954. the bank provided these facilities to its wool clients in London. Discussions with General Management. 14 November 1963. Only figures for these years are obtainable. but when the mechanisms for financing foreign trade became more numerous and complicated. Letter NBSA-NOB. because acceptance facilities were given to other wool buyers by other banks. the prospects of inaccuracy were too high. if it is calculated. because it is either regarded as confidential. 19 May 1986. and foreign acceptances stated in the official BA-9 forms. Figures to show the extent of the bank's share in financing foreign trade are not available from 1966 onwards. Discussions with General Management. The General Management of the bank now do not regard these figures as fully reliable. Interview with Mr Lewis. the indications of foreign bills. 70/120. and transfers of assets and liabilities by companies operating aboard and in South Africa. 611316. 31 March 1964. Letter Chief Agency-Amsterdam.) and even if the time had been available. Figures on acceptances (local and foreign) were only published from 1970. The bank therefore had to allow that practice in London in the wool market in order to retain its share in financing the wool trade. could not simply be added up to show the extent of the bank's foreign trade financing.SA Reserve Bank Quarterly Statistical Bulletin. Discussions with General Management. 68/8. As a result of changes in the South African Banks Act. 33. For the benefit of this article the period of comparison of the NBSA's position to that of all the commercial banks is therefore only nine years. or it is not calculated at all. 1969. etc. no. 38. no. 1 April 1964.102 32. In 1964. requirements as to what figures banks were expected to submit to the SA Reserve Bank. RKlI4:117. no. the bank was no longer able to make up those figures (as most of the calculations ended up in double counting and many transactions were not clearly identifiable as foreign or local. 18 February 1953. 21 November 1957. RKlI4:83. 35.

1-5. RK14/98. 68/41. Amsterdam-Chief Agent. NV/l:73 Minutes of Board Meeting. 67/83. Amsterdam-ChiefIAgent. 1951-65. 1951-65.13 May 1971. 45. RKl14:89. 7 December 1951. RK/14:8. 69/71. Letter NBSA-NOB. 66/503. Information on the activities of foreign branches is confidential and Nedbank has until the time of writing not given permission that it may be consulted by the author. no.g. 41. no. 47. Confidential Annual Report. Letter NBSA-NOB. 4/142. 40. 2 February 1954. are also not available (see note 33). 42. Letter NBvZA. NBSA Confidential Annual Reports. Memorandum on N BSA Share in Import and Export Financing. NBSA Confidential Annual Reports. Letter NBvZA. no. Confidential. no. 1963-4. 22 December 1953. no. Minutes of Board Meeting.Grietjie Verhoef 39. Discussions with General Management. 6 June 1953. 8 February 1958. Coherent complete figures of the banks share in imports and exports according to markets. Amsterdam-Chief Agent. RK/14:83. 2 February 1954. Letter NBvZA. Discussions with General Management. Confidential 1269. 10 March 1947. RKl20:335. Confidential. no. 67/83. 60/86. Memorandum by W. 53. NV/4:72. Letter NOB-NBSA. 1 April 1964. 1801. Koster on the NBSA share in imports and exports. 5 December 1954. 46. Discussions with General Management. OIl3:19. OIl3:255. Amsterdam-Chief Agent. JV/10/3. RK/14:39. HK/S Discussions with General Management. Memorandum on NBSA Import and Export Financing. 1962-3. Amsterdam-Chief Agent. 349. 50. 15 February 1955. . See e. 1 September 1960. Letter NBvZA. 6 October 1949. Confidential. 48. NB/l:107. 792. 18 February 1953. Amsterdam-Chief Agent. Confidential. OIl3:19. Confidential. NB/4:157. Letter NBvZA. no. 1958-9. 103 excludes all foreign branch activities of the bank from 1965 onwards and thus reflect only the activities of the bank in South Africa. NB/4:157. 51. 25 October 1960 and 21 February 1962. 5 April 1946. 5 June 1953. 44. 1963-4. Discussions with General Management. RK/14:6. no. 3 July 1956. Letter NOB-NBSA. HKlS. no. strictly confidential. The figures quoted are from the Confidential Annual Reports and are no longer regarded as reliable by the current bank management. Letter NBvZA-NBSA Confidential. 66/501. RKl14:118. RKl14:76. 52. 43. Better NBSA-NOB. pp. Letter NBvZA. 10 June 1971. 57171. 49.

the Bank's active part in the establishment of the National Finance Corporation in September 1949. At such times the Bank is most clearly visible as an agent in our economic history. A clear need had arisen by that time for a central bank to regulate the note issue following the wartime inflation and to conserve the country's stock of monetary gold. The adoption of market-oriented methods of monetary management since early 1980 was another policy turn of great significance for the course of the South African economy. urged on the government by the Bank. comprises a range of traditional central banking functions performed continuously. profoundly altered the channels of credit and the methods of financial intermediation during the next fifteen years. I propose instead to illustrate the Reserve Bank's role in the economy by showing how its current market-oriented methods were applied in dealing with the unfortunate conjuncture in 1984 of a plummeting gold price. W. together with attendant control measures. to maintain the gold standard in South Africa when the United Kingdom suspended it in September 1931. but punctuated by decisive intervention at critical junctures. which pioneered South Africa's money market. past and present.6 The South African Reserve Bank and the Course of the Economy D. The establishment of the Bank itself in 1920 may be taken as an obvious first example. 105 . Goedhuys The role of the South African Reserve Bank in the country's economy. It consisted of a series of interrelated measures to liberate and develop the financial markets. are the momentous decision. runaway government spending and a devastating drought. Other examples. The steps taken to that end are described in detail in the de Kock Report? Rather than repeat these here. and the imposition of deposit rate control in March 1965 which. from among many.

the dollar price of gold. in 1980. exchange control over non-residents was lifted in February 1983. On the strength of the rising gold price since the middle of 1982 and a higher level of interest rates than that prevailing overseas. having reached $511 per ounce in February 1983. in the course of that lengthy downswing. The average price for 1983 was $424 and in 1984 $359.106 The South African Reserve Bank THE RUN-UP TO AUGUST 1984 The severe drought. as already mentioned. The previous fixed link between the Reserve Bank's rediscount rate and the commercial banks' prime overdraft rate had been cut in February 1982. Since gold accounts for about half export earnings. On the monetary policy front. Yet. Nor did other exports fare much better. The result was a . Sharply increased spending on drought relief. which was to decimate agricultural output during three successive seasons. reaching an annual growth rate of 22 per cent (for M3) in June 1983. Because imports were contracting at that time. the Reserve Bank began to influence interest rates upwards from the second quarter of 1983. Its policy of managing aggregate demand in the economy with the aid of flexible interests rates was by that time well established. The immediate cause of the uptown of the economy was the temporary recovery of the gold price from mid-1982 which peakedin February 1983. The South African economy as well had been in the downward phase of the business cycle since August 1981. and as from 1983 took the specific form of varying the cost to the banks of the cash reserves they are required to hold. Only three years earlier. and helped to create the excess demand which later was to require strong corrective measures. owing to the world-wide depression of the early 1980s. food subsidies and defence compelled the government to rely heavily on bank credit in financing the exchequer deficit. Consumer spending reacted upwards from the first quarter of 1983 and went on increasing for more than a year. Coincidentally. The stock of money expanded rapidly. the depressive effect which this price decline had on the country's welfare can be readily appreciated. a short-lived 'mini-boom' occurred between March 1983 and the middle of 1984. the average price for the year had been $613. from then on followed a declining trend for the next three years. The stimulation of the economy resulting from the brief gold price recovery was magnified by fiscal developments. began when the rains failed in the summer rainfall area in the 1982-3 season. the current account of the balance of payments registered a surplus in the second quarter of 1983.

for Land Bank bills from 19 per .real and financial. consumer spending was rising. at an annual rate of 12 per cent. defence. It transformed maize exports into maize imports. An increase in the General Sales Tax in February and again in July 1984 failed to stem the government deficit. the government's finances in 1984 aggravated the effects of the external accounts. What had started a year earlier as a gold-led economic recovery turned into a consumption-driven upswing on the back of a rapid expansion of bank credit. and this in turn helped to fuel the demand for assets . remaining buoyant. Inflation advanced from an annual rate of 10 per cent in February to 12. particularly as from the second quarter of 1984. Commerce and Tourism. The Reserve Bank raised its discount rate for Treasury bills from 18314 per cent to 21314 per cent. it became clear that the rising trend of government and personal spending had to be arrested firmly. With domestic demand. a joint annoucement was made by the Ministers of Finance and of Industries. As in 1983.D. The worrisome tendencies that took shape in 1983 worsened as the year 1984 progressed. W. unforeseen and heavy outlays on drought relief. and the Governor of the Reserve Bank. the current account of the balance of payments swung into deficit during the third quarter of 1983 and recorded continuing deficits throughout the first three-quarters of 1984. in the second quarter of 1984. THE RESTRICTIVE 'PACKAGE' OF 2 AUGUST 1984 In an unusual procedure. It comprised the following remedial measures: 1. despite the sharp fall of the gold price since February. The gold price continued its slide throughout 1984. stimulated by the higher gold price. the effective rate was 27 per cent below the level of September 1983. In view of the country's much reduced export earnings. In spite of the correctly designed Budget of March 1984. By July 1984. including the demand for imports. Goedhuys 107 net inflow of capital. The Rand's exchange value fell back rapidly. sharply increased salaries and other items swelled government spending at a high rate. but then entered upon an almost continuous descent. The Rand's exchange rate appreciated until July 1983.4 per cent in July 1984. The drought intensified and became more damaging to the economy. Undeterred by the drought and the declining gold price.

and for bankers' acceptances from 19 1/2 per cent to 221f4 per cent. In a seeming paradox. The ensuing disruption of business and sharp increase in interest rates would have done much more harm and little good to the economy. There was debate at the time whether the seriousness of the situation did not warrant the Reserve Bank's closing the discount window entirely. however.108 The South African Reserve Bank cent to 22 per cent. yet powerful effect was achieved by raising the official discount rates by a record 3 percentage points. A more even. that is. in the case of most goods. having already reached peak levels of between 18 and 18314 per cent at the end of July. the clearing banks would have had to cut back abruptly the growth of their balance sheets by not undertaking any new net lending or by selling off financial assets. Hire purchase conditions were tightened in the sense that the maximum allowable finance charges were raised by 5 percentage points to levels of between 30 per cent and 32 per cent. to decline to meet the clearing banks' need for additional cash reserves accordingly as their balance sheets expanded in line with the growth of bank credit and of the liabilities reflecting that growth. the minimum deposit on delivery of the merchandise was raised by varying amounts. THE RESULTS The immediate effect of the higher official discount rates was to raise the banks' prime overdraft rate from 22 per cent to 25 per cent. call money. from twenty-four months to twelve months. Because the August action was . but for most goods from 10 per cent to 25 per cent of the purchase price. and the maximum repayment period shortened. (The General Sales Tax had meanwhile been increased from 10 per cent to 12 per cent in July 1984). in response to the strong demand for credit in the inflationary and overstrained conditions of the proceeding months. Though it was not part of the statement. 3. The Minister of Finance promised renewed efforts to curb public sector spending. it was understood to be impracticable to adopt an adequately restrictive stance before the March 1985 Budget. money market rates (for interbank loans. bankers' acceptances and negotiable certificates of deposit) entered on a slow downward trend. 2. Had the Bank done so. according to the amount involved.

The amount of the current account surplus. The balance of payments on current account showed an even more dramatic improvement: a surplus reappeared soon after August 1984 and mounted throughout 1985.the two main objects of the intervention. both in volume and particularly in Rand value. stated at an annual rate. the governor was able to state that overspending had been eliminated. It consisted mainly of shifts in the placing of trade credit from overseas to local sources. Measured against the currencies of our trading partners. and of substantial repayments of other short-term foreign debt. Gross Domestic Expenditure registered a sharp decline as from the last quarter of 1984 and remained at a low level right through 1985. was RO. W. respectively. and that the growth rate of the money supply (M3) had been brought down from an annual rate of 18 per cent in the first half of 1984 to 13 per cent in the first half of 1985. the demand for credit.6 billion in the fourth quarter of 1984. but then gained 5 per cent in the following quarter. followed by R4. The factors contributing to this remarkable turnaround were the falling-off in imports as domestic demand contracted and growing exports. The results of the policy were most clearly observable in the marked turnaround of the trends in aggregate spending and the current account of the balance of payments . the Rand depreciated by 13 per cent in the fourth quarter of 1984. but thanks to effective public debt management it was financed without resort to bank credit. By the time of the Reserve Bank's annual report of August 1985. In the Budget Speech of March 1985. These depressive effects were exacerbated by the capital outflow as from September 1984. with it.D. that personal savings had recovered from the earlier dissaving. As an unhappy. employment also contracted from late 1984. The government deficit remained high at approximately 4 per cent of GDP during the rest of the 1984/5 fiscal year. Given the long lag in the monetary transmission mechanism. in spite of the gold price averaging only $311 in the first half of 1985.3 billion and R5. the depreciation of the Rand. but unavoidable corollary. Goedhuys 109 rightly expected to depress business activity and. as the Rand depreciated. The policy actions did succeed in checking. as the Rand was expected to depreciate further. albeit temporarily. the rate of inflation inevitably continued rising during the remainder of . the government provided for a reduced growth of public sector spending and a lower deficit. money market rates eased off from then onwards.4 billion in the two succeeding quarters.

the central bank is at times called upon to loosen the reins and stimulate. Depressive the action needs had to be. but more often in practice an adverse fiscal trend is one additional problem for monetary policy. even though consumer credit is the minor part of total credit outstanding in the economy . and in other circumstances to depress economic activity temporarily in order to prevent runaway inflation and economic breakdown. The adaptation of policy from mid-1983 onwards. in the . therefore. which is unattainable . for less than a year later certain socio-political developments severely shook confidence in the South African economy. The cost in unemployment and lost output must be judged against the ultimately much greater loss if the economic trend in evidence since mid-1983 had been allowed to continue unchecked. In the interest of optimal economic growth . It came none too soon. Particularly to be noted is that the policy succeeded in its aims by operating with and through market forces. instead of by suppressing or thwarting them. but disruptive of the economic system it was not. No recourse was had to import control. REFLECTIONS The successful intervention by the Reserve Bank in August 1984. and varying the terms can be a useful assistant to general credit policy. averted the threatening onset of hyperinflation and the total collapse of the Rand when the current account deficit mounted and capital inflow dried up and then reversed from mid-1984. The tightening of hire purchase conditions is in a different category. culminating in the August 1984 statement..110 The South African Reserve Bank 1984 and the first half of 1985. Without the earlier corrective action. nor did the accelerated repayment of foreign banking debt. can indeed be regarded as a classic instance of central bank intervention to alter the course of the economy. before it responded to the throttling of aggregate spending and began to moderate as from June 1985. The policy achieved what was required and what it set out to do. the economy would not have been able to weather the storm well enough to have a chance of revival in 1986. consumer credit sales are regulated for the protection of the poor. ceilings on bank credit or other interference with the working of the economy. followed later (as from May 1985) by a gradual easing of the pressure applied. The concurrence of fiscal policy is a great help. The appropriateness or otherwise of monetary action must always be seen.not to be confused with stable growth.

helps to determine all other short-term rates of interest. both through the interest cost of purchasing power derived from credit and through the opportunity cost of spending cash holdings on goods rather than on interest-bearing financial assets. Not in dispute. as the August 1984 intervention illustrates. but well short of the 'overkill' that some critics charged it was.D. the centrepiece of central bank action is its rate of discount for eligible bills. principally the raising by 3 percentage points at once of the Reserve Bank's discount rates. postulate a direct impact of the rate of interest on spending decisions. W. 4 The measures applied in August 1984 demonstrate the influence on the course of the economy of steps taken in the performance of that task. Some see the connection as operating through the cost and availability of bank credit and the money it creates. Others. 3 The effectiveness of this instrument for regulating aggregate spending in the economy was strikingly demonstrated by the August 1984 initiative. jointly with market forces. The action then taken. . and from there to spending decisions based on money holdings. This approach lacks the statistical guidance of a monetary target and must rely on a broad perception of spending trends in the economy. Goedhuys 111 context of fiscal and all other economic developments at the time. Governor Clegg declared that the Bank's duty is 'to see that the creation of credit or purchasing power does not outstrip the creation of commodities.. is the requirement for monetary stability of keeping aggregate spending aligned with current output. The Reserve Bank has always regarded that as its special responsibility. also known as Bank rate. which. On that view. targets for the money supply become an important directive or guideline for the central bank. As early as 1923. among them the present writer. Precisely how interest rates affect spending decisions is a recurring subject of debate. Flanked by transactions in government stock and foreign exchange market intervention. and the crucial significance of the conditions of credit to such alignment. was certainly severe. when considered together with the strong stimuli emanating from a large and at first unsoundly financed government deficit and the booming export revenue arising from the depreciation of the Rand. at least among those who have some experience of the matter.

these being designed to affect bank liquidity first of all. . 2. References DE KOCK. 148-50. are principally determined by supply and demand in the market for (longer-term) loanable funds. Final Report of the Commission of Inquiry into the Monetary System and Monetary Policy in Soth Africa. Long-term interest rates. 1971. say. 1985. SOUTH AFRICAN RESERVE BANK. Annual Economic Reports and Quarterly Bulletins. Pretoria.e. Pretoria. 1984. 1983. 4. Pretoria. p. A History of the South African Reserve Bank. 1920-1952. A History of the South African Reserve Bank. Paper read before the Banking and Business History Conference at Randse Afrikaanse Universiteit on 9 April 1986. on which the central bank has only a marginal influence through its operations in that market . Governor's Addresses. 'A Short Historical Review' issued in commemoration ofthe bank's fiftieth anniversary.. i. SOUTH AFRICAN RESERVE BANK. G. de Kock. three-year and longer maturity. 3. RSA (1985). RP 70711984. 1954. the yields on fixed-interest obligations of. 63. Final Report of the Commission of Inquiry into the Monetary System and Monetary Policy in South Africa. pp.The South African Reserve Bank 112 Notes 1. G. 1985.

Discussion has focused on whether the principal target of monetary policy should be the quantity or the cost of money. 113 . who is responsible for monetary creation. and now considers that policy changes are more likely to succeed when attempted through and via the market. economic and political conditions. during 1985 it became apparent that a 'normal' economy cannot operate in conditions of political turbulence and when events exposed the economic vulnerability of the financial sector it became necessary to reimpose direct controls in the form of the foreign debt standstill and more stringent foreign exchange controls. Instead monetary policy distorted market forces significantly because monetary policy over the period considered was not politically neutral. Commercial Banking and the Political Imperative. but these changes have not been solely the result of market forces. In recent years. how the supply of money can be controlled and at an even more basic level. 1965-85 1 Katherine Munro INTRODUCTION This paper focuses on the relationship between monetary policy. However. Over the years. official thinking has shown a greater awareness of the importance of the market. Frequently the consequences of an active interventionist monetary policy have been undesirable and unforeseen. Thus the shape of commercial banking was a response to and a reaction against monetary policy and distortions in market forces.7 Monetary Policy. the difficulties arising from interference in the market place for money have been perceived by the bankers and monetary authorities and the debate on the role of monetary policy has been vigorous. and commercial banking functions and practices in South Africa over the period 1965 to 1985. if market conditions are normal. Changes in banking functions have been numerous and have occurred at a rapid rate.

All these banks do business on a nation-wide scale via an extensive branch banking network. The commercial banking structure is highly concentrated. Barclays and Standard. The South African economy is a dual one. based upon a British model. Old Mutual. Bankorp and Volkskas (listed in order of the size of total assets). but the modern diversified financial system has been shaped by the demands of the mining. but the financial system caters for the First World components. In the nineteenth century. As late as June 1970 the Franszen Commission reported that foreign controlled commercial banks were entrusted with 73. in both banks.114 Monetary Policy and Commercial Banking BACKGROUND ON COMMERCIAL BANKING AND THE FINANCIAL SYSTEM South Africa has an extremely sophisticated financial system geared to the modern sector of the economy. the insurance giant. At the end of 1981 there were eleven registered commercial banks. thus possessing a total of 2938 branches and agencies in 1983. Sanlam and Rembrandt have traditionally held large shareholdings in one of the five banking groups and have recently expanded their holdings. and until very recently the majority of the share holdings of Standard and Barclays was held by the British parent company. is a major shareholder in Standard and Nedbank and Liberty Life. Until recently there has been little discussion about whether the financial structure and change within that structure is appropriate to the country's current level of economic development of the entire economy and best serves the optimal allocation of resources for all.4 per cent of all South African commercial bank deposits.1 A further consequence of the imperial origins of the two largest commercial banks. The financial system continues to provide facilities required by the modern sector of the economy. has acquired a sizeable stake in StandardBank. the Standard Bank of South Africa. another insurance company. the banking sector grew out of the needs of the agricultural sector. but in effect the structure is oligopolistic. . is the strong direct link with overseas banks. Nedbank. exhibiting both First and Third World characteristics. albeit minority shareholder. for the commercial banking scene is dominated by Barclays National Bank. the latter continuing to be the largest. commercial and manufacturing sectors. These five groups control 97 per cent of the total assets of commercial banks and hold 98 per cent of commercial bank deposits. Old Mutual. 3 All groups have at least one major local shareholder: Anglo-American.

For it is the job of the latter to coordinate economic growth and economic stability. THE RESERVE BANK AND THE COMMERCIAL BANKS The credit creating ability of the commercial banking sector has been a source of strength and profitability to the individual banking institutions. For these reasons a symbiotic relationship has developed between the commercial banks and the Reserve Bank. Recently. 4 Credit creation by the banking sector can influence money supply and can and has on occasion disrupted government monetary policy. This is part of the broader goal of a consistent and coherent macroeconomic policy enunciated by the State. in part the consequence of the revolution in technology and in part the response to increased competition from other types offinancial institutions.Katherine Munro 115 The 1965 Banks Act defines a commercial bank as 'a person who carries of a business on which a substantial part consists of the acceptance of deposits of money withdrawable by cheque'. but at the same time a reason for concern on the part of the monetary authorities at the Reserve Bank in Pretoria. term and savings deposits. there has been a revived interest in retail banking. In addition to current account deposits. the official Registrar of . In addition. the commercial bank also accepts notice. Income is also derived from fees earned on a variety of services and commissions. and providing an efficient and fast clearing system. Monetary policy is the total complex of measures applied by the monetary authorities. facilitating the provision and transfer of money fron sources of savings into channels for investment. automatic teller machines (ATMs) and networked computers are radically changing consumer banking. aimed at influencing the money stock and its rate of growth and/or the cost and availability of credit in the economy. The commercial bank creates credit and augments the money supply of the economy by making advances to clients. and in the process derives a profit from these loan activities. Traditionally the commercial bank concentrated on the provision of retail services for the individual client. The credit card. During the 1970s emphasis switched to the corporate sector with the provision of specialist wholesale services. At the same time. the existence of a branch banking network and the highly concentrated structure of the banking sector makes it crucial for the five major banking groups to retain the confidence of the public. A commercial bank is thus a financial intermediary.

5 ROCO was only abolished in February 1983. For instance. particularly in times of crisis. and has the authority to inspect bank books and requires the banks to submit highly detailed monthly and quarterly returns on their business. However. low-interest loan repayable by the end of 1984) and further assisted other small banks with liquidity problems by setting up a loan fund at the National Finance Corporation. For example. It is beyond the scope of this chapter to explain why the banking cartel survived until that date and was abandoned at this point. which was an effective cartel-type arrangement that started life as a 'gentleman's agreement' between the major banks in the 1920s. transfers. ROCO determined minimum charges for various bank services such as ledger fees. whilst the banks are regulated and controlled by the state authorities they are given a wide margin of latitude and even protection by those authorities. The Reserve Bank never objected to the existence of ROCO (the Register of Cooperation). the commercial banks are substantially exempt from the disclosure requirements laid down by the Companies Act and this has been a mixed blessing. cheque collections. such information does not have to be published by the banks and is not strictly necessary to prove the more. for while shareholders may wish to have all information available to them on earnings. Thus the shared responsibility for creating stable monetary conditions has resulted in a mutually supportive relationship. with coercion being . in 1977 when Trust Bank (part of Bankorp) had overinvested in property. One of the declared functions of the Reserve Bank is to act as 'lender of last resort' . advances and some foreign exchange commissions. and this in effect means that it will provide accommodation for a commercial bank in a crisis situation. but what is worth noting is that the monetary authorities in Pretoria accepted the principle of oligopolistic collusion between the banks for a very long time. the Reserve Bank provided the extraordinary finance (thought to be a large. subscribed by the five biggest banks in the same year. or even less efficient functioning of a particular commercial bank. debt provisions and the valuations of investments. a casualty of intensifying competition between the commercial banks. there are close communication channels between Pretoria and Johannesburg.116 Monetary Policy and Commercial Banking Banks acts as an extra watchdog on banking activities for he is responsible for policing compliance with the Banks Act. New ideas are frequently sounded out when still on the drawing board. In addition. No major commercial bank is likely to go out of business because of the 'safety net' and support guaranteed by the Reserve Bank.

The monetary authorities found the Act inadequate in containing the excess liquidity in the system.6 Thus the Act extended the concept of the banking sector to incorporate other banking institutions with monetary significance.e: deposits or other financial assets which served as close substitutes for money and which could be converted into money readily and rapidly. Monetary and fiscal policy did not coincide. hire purchase and general banks could and did create money and near-money. Furthermore. i. The 1965 Act was regarded as a model piece of banking legislation for it embodied the recommendations of the Technical Committee on Banking and Building Society Legislation published in 1964. for it stipulated that all banking institutions had to comply with certain variable liquid asset and cash reserve requirements. such as merchant banks. The second half of the 1960s was a period that ushered in a rising level of inflation. In addition. In effect the Act created a network of direct controls over a total 'monetary banking system'. The massive programme of government spending embarked upon in this decade added to the bankers' liquidity. Unfortunately. The Reserve Bank was empowered to vary the percentage of liquid assets to be held by all classes of banking institutions and not only commercial banks. 'medium-'. Open-market operations and other forms of active market intervention were not used by the Reserve Bank to contain the situation. BANKING REGULA nONS AND ITS PROBLEMS The legal framework regulating the commercial banks during the last twenty years has been the 1965 Banks Act (and amendments). the Act also recognised that other kinds of deposit-taking institutions in South Africa. the consequence of an exceptional increase in the supply of liquid assets. the 'model' Act was defeated by the timing and circumstances in its application and loopholes were soon obvious. Banks continued to hold excess liquid assets and were thus able to expand their lending. and 'long-term' liabilities. discount houses.Katherine Munro 117 muted by cooperation and supervision underpinned by a support network in a crisis situation. Thus the near-banks were brought within the network of controls of the Reserve Bank and the definition of 'liquid assets' for banking institutions was narrowed. there were still financial institutions that fell . differentiated only with respect to the banks' 'short-'. The Act recognised the existence not only of 'money' but also 'near-money'.

credit ceilings were reintroduced to curb credit. In February 1976. but once again entreprepeurial banking skills appear to have been applied to exploiting loopholes in the rules and regulations. strategic monetary planning was lacking and instead the authorities relied on a series of ad hoc reactions in response to situations as they arose. During the last two decades the banking system has chafed against the tightening chains of these restrictive. and deposit interest rates rose. The reaction was a further growth in non-monetary bank financial activities. Cash reserve requirements were extended to all banks and the Reserve Bank's power to raise cash reserve and liquid asset requirements in a variety of ways was significantly increased.7 Direct controls could never be comprehensive and so distorted the working of the financial system. In April 1973. the monetary authorities tightened deposit rate controls. Further controls were then necessary in the form of Proclamation R184 of 1967. Careful. But the 1972 amending legislation to the Bank Act reinforced the direct control or non-market oriented method of the monetary authorities. In 1970. The banks played a cat and mouse game with the monetary authorities. The banks circumvented the ceilings by increasing their investments with the private sector. The bankers argued that under a system of direct controls their ability to lend was determined arbitrarily. The new legislation also limited the use of private sector securities for liquid asset purposes. the Limitation and Disclosure of Finance Charges Act of 1968 (the Usury Act or referred to by the acronym LADOFCA) prescribed maximum interest rates which could be charged by financial institutions for loans to the public. Admittedly their ability to cope was limited by . By October 1965 the monetary authorities had introduced 'the ultimate' direct control by imposing ceilings on the extension of credit by monetary banking institutions. The unsatisfactory nature of direct controls by quantitative limitations or 'ceilings' on bank credit was evident and in November 1972 the restrictive credit ceilings were abolished. as opposed to lending. direct controls went even further when the credit ceilings were extended to all banks.118 Monetary Policy and Commercial Banking outside the strict definitions and these escaped the network of controls. In addition. specific and direct controls. Deposit rate controls were also reimposed in March 1972. The response of the commercial banking sector to these new forms of control was to compete against one another and against other financial institutions more aggressively and intensively for deposits.

its first report on exchange rates in South Africa set the stage for the . and in particular provided the financial underpinning for such sacred 'White cows' as the Land Bank and the parastatal institutions. In the event the Commission sat for eight years. when it cautiously appointed the Commission of Inquiry into the Monetary System and Monetary Policy in South Africa under the chairmanship of Dr G. H. it was not until 1978 that the government initiated moves to dismantle the 1965 banking framework. Dr M. argued that the principal objectives of monetary policy should not be confined to the maintenance of long-term price stability and a relatively stable standard of value. easy and cheap means of finance for the burgeoning public sector. but should extend to 'general economic stability in the sense of orderly and balanced economic progress'. The ideological divide between government and business remained a chasm. But it was not until the middle of 1985 that the third and final report of the de Kock Commission was published. with its objective being the attainment of overall financial stability and a coherent monetary policy and direct controls were only a means to this end. 9 The Commission ranged widely in its investigations. thus continuing profitability and the healthy glow of the balance sheet at the end of each financial year does help to explain why the banks sought escape mechanisms through the maze of regulations. The primary responsibility of the banks was to their shareholders. the monetary authorities had few alternatives to direct control networks. But at the same time. C. in a paper to the Economics Society of South Africa. On the other hand. as long ago as 1957. it can be arged that these very controls provided a ready.Katherine Munro 119 the pressures of fiscal needs and the onset of an inflationary era. But the Reserve Bank saw itself as a neutral body. producing a first interim report in 1979 and a second interim report in 1982. Cash and liquid asset reserve requirements adversely affected the cost structure of the banks. THE DE KOCK COMMISSION AND MONETARY REFORM However. de Kock. then Deputy Governor of the Reserve Bank. in view of Treasury dominance and comparatively underdeveloped financial markets in South Africa. de Kock. 8 This was a fine objective in an ideal world. P. But South Africa in the 1960s and 1970s was not an ideal world and clearly there was something fundamentally wrong with banking legislation. and the philosophy underpinning that legislation was flawed.

120 Monetary Policy and Commercial Banking anticipated freeing of South Africa's foreign exchange markets. particularly the working of the spot market. this legislation is the most significant statute on banking in twenty years. prices and the balance of payments. The question is why? Can we answer in simple terms and reply that we are all 'monetarists' these days. thus having a crucial impact on income. The twin aims of the new monetary policy are to create a more competitive financial system. including money. The second report concentrated on building societies. 11 KEY QUESTIONS What had changed between 1965 and 1985? The goal of a rational monetary policy remained. the financing of the State budget and total spending. The recommendations of the report mark a fundamental change in policy (albeit a change that has been in the offing for some time now) and signify a complete break with the philosophy underpinning the 1965 Banks Act. although under the leadership of Gerhard de Kock the emphasis had broadened from the control of credit extended by the banking sector to the private sector. to a global approach to money management in the economy. 10 The Act gives expression to the Commission's espousal of the ideal of untrammelled free enterprise capitalism. responsive to market forces. and to increase the effectiveness of monetary policy by enabling the Reserve Bank itself to use mainly market-related or market-oriented instruments of monetary policy to influence the prices of various financial services and the amount and allocation of money in the banking system. The third and final report spelt out the shape of a future monetary policy for South Africa within a consistent market-related financial framework. far more conscious of the importance and role of money and that the need for flexible and market-related interest and . that is. output. What has clearly altered has been both the definition of the appropriate focus of monetary policy and the methods and techniques that ought to be used in creating a rational monetary policy. the financial markets and monetary policy. despite the title. Stable price levels and balanced economic growth remain the ultimate goals. which gives the market paramountcy in determining the price of any commodity. The report led to the promulgation of the Financial Institutions Amendment Act at the end of July 1985 and. By the 1980s monetary policy was seen to extend not only to money supply and interest rates but also to exchange rates.

Or were there deeper influences at work. By the end of 1985 the focus of the government economic policy altered from an attack on inflation to the politically expedient objective of restimulating the economy and the creation of jobs. 2. so too the 1985 Amending Act is of historic interest because of the political developments of 1985. Secondly. and finally to an inflationary environment that has both created opportunities for greater profitability and. and makes its implementations in the long run extremely problematic. to the competitive response of institutionalised entrepreneurship. three broad interrelated developments have shaped commercial banking: 1. In the remainder of this chapter I wish to argue that endogenous and exogenous forces operated upon the financial system to change not only its own function but also the perception of the monetary authorities of that financial system and how best it could control it. the sharp reduction in non-interest bearing demand deposits relative to interest bearing savings and time deposits.Katherine Munro 121 exchange rates is self-evident. 3. Since the Second World War. I would like to discuss each development in turn. factors that grew out of the events and developments of the last two decades. led to a reassessment of the financial needs and financial services. 12 These developments point to the growing sophistication of the financial system in South Africa. the consequent attempt on the part of the commercial banks to diversify their activities. and indeed the crisis that developed during the latter part of 1985 completely aborted and overshadowed the significance of the new Act. ENDOGENOUS FACTORS AND CHANGE IN COMMERCIAL BANKING Let us deal with internal endogenous factors first. . I wish to argue that in as much as the 1965 Act became instantly obsolete the moment it was on the statute books. a relative (though obviously not absolute) decline in the dominance by the commercial banking sector of the financial system. to the distorting influence of legislation. at the same time.

but by the very nature of such specific regulations. Thus the total assets of commercial banks. from 11 per cent of total deposits to 50 per cent by 1973. expressed as a percentage of the assets of all financial private deposit-taking intermediaries fell from 69 per cent to 41 per cent between 1946 and 1981. for example. the original 1942 Banking Act did little to retard these developments and indeed accelerated the trend by labelling the commercial banks as the main intermediaries in the financial system and thus subject to the most strenuous monetary controls. the discounting of bank endorsed trade bills outside the banks was another form of disintermediation. All these newer institutions responded more energetically and actively to the growing demand for new financial services in a buoyant economic environment. by Meier that the commercial banks took a traditional view of their function and continued to prefer to make short-term loans and provide working capital. discount houses. One was increased intercompany borrowing and lending. Similarly. hire purchase and general banks. leasing and credit card facilities) were launched by institutions not directly connected with the commercial banks. This development was the . Disintermediation took several different forms. personal loans. It has been argued.122 Monetary Policy and Commercial Banking During the 1950s and 1960s the dominant position of the commercial banks was challenged by the entrepreneurial innovations on the part of merchant banks. building societies. the network of controls could not be comprehensive. 16 The cost of deposits placed within the commercial banking sector rose. and hence the stimulus to what has been called 'the grey market' and the process of 'disintermediation'. 13 During this period this conservative attitude meant that new approaches to finance (hire purchase. It is not surprising that as a result direct control measures were largely ineffective.2 per cent in 1980. In contrast. 15 The second notable change was the long-term reduction in the share of non-interest bearing demand deposits in the total deposits of the commercial banks. although in absolute terms commercial bank assets increased from R726 million to R19487 million over the same period. Another technique was the increased utilisation of acceptance facilities and their rediscounting outside the banking system by companies seeking to invest their liquid funds. 14 Furthermore. interest-bearing time deposits increased sharply.1 per cent in 1950 to 39. The share of this category of deposit declined from 89. Another method was the selling by banks of assets on repurchase agreements to the private non-banking sector. The 1965 Act broadened the definition of banks or bank-like institutions subject to credit controls.

Katherine Munro


result of a number of factors:inflation and increased liquidity in the
economy; increased competition for deposits among the commercial
banks and the building societies; and finally the changing attitude of
depositors towards their idle funds deposited with the banks.
Depositors in an inflationary environment became more sophisticated and interest conscious. The emergence of the 'grey market'
contributed to the process,and indeed the 'grey market' fed upon the
situation in which the banks' deposit rates were governed by controls
but where they were free to offer a market-related return on money.
LADOFCA further narrowed the gap between permissible lending
rates and the cost of interest bearing deposits within the banking
sector, and in 1979 amendments to LADOFCA exempted amounts
in excess of R100 000 from provisions of the Act. In the 1970s,
inflation, the growth of the 'grey market' and rising interest rates all
pointed towards greater competitiveness and aggression in bidding
for funds on the part of all financial intermediaries, yet the array of
controls had a potentially limiting impact on the commercial banks
and encouraged the banks to respond with innovative new
approaches to the primary function of borrowing and lending. The
banks were confronted by a narrowing margin of profitability on
transactions, for example in the simple transaction process of paying
9.5 per cent on a twelve-month fixed deposit and charging 11 per cent
at the prime overdraft rate. 17 Controls meant that interest rate
patterns did not always reflect the true cost of money and disguised
the actual liquidity situation.
This leads me into the third notable change in the activities of the
commercial banks. From the mid-1960s the commercial banks
responded to these market-related pressures by internal diversification. The banks transformed themselves from narrowly based
conservative providers of short-term credit into far more comprehensive financial intermediaries offering clients a wide range of services.
Similar developments occurred in other banking systems around the
world, but elsewhere, as in the case of South Africa, controls and
regulations played a primary role in this trend. In South Africa, it was
an endogenous response to high liquid asset requirements, increased
competition from both bank and non-bank money institutions
(ranging from merchant banks to the post office, from the grey
market to the building societies), inflation and the imperative of
profitability. The banks took a 'supply-leading' or innovative position
during the 1970s (as opposed to a 'demand-following' position) and in
the process moved from short- to long-term financing.


Monetary Policy and Commercial Banking

Diversification assumed three forms: the development of new
instruments for attracting deposits, for example, negotiable certificates of deposit, debenture issues, hire purchase lending, fixed term
and personal loans. Secondly, the commercial banks began to expand
aggressively into other financial areas, much neglected during the
1950s, namely, insurance, leasing, factoring, general banking,
merchant banking. 18 This new-found entrepreneurial initiative took
the form of founding new companies or by purchasing equity in
already established institutions and in the process accentuating the
oligopolistic structure of the financial sector. Thirdly, the banks
acquired interests in business enterprises outside the financial sector
such as travel services, industrial and other commercial enterprises.
Standard acquired an interest in general banking in 1968 when it took
over the National Industrial Credit Corporation, renamed Stannic in
1972, to cater for both consumer and corporate clients. Nedbank,
with a similar goal in mind, established Nefic in the 1960s and Syfrets
Bank was formed in 1971. Nedbank's major general banking
subsidiary, Nedfin, was formed in 1975 by merging Credcor Bank and
Lease Plan International. In 1975, Barclay's took over Western Bank
to provide hire purchase credit. Bankorp acquired its biggest
subsidiary the general bank, Trust Bank, in 1977, although Trust Bank
really operated as a commercial bank and in 1978 Bankorp founded its
general banking subsidiary, Santambank. This pattern was repeated in
the case of merchant banks.
The Franszen Commission's Third Report of 1970 commented
extensively on the process of banking diversification, but did not argue
that the process was undesirable or unhealthy, but rather that
investments should not consume an unacceptable percentage of the
bank's capital and reserves. 19 Seemingly, the monetary authorities
and the commercial banking sector had arrived at an uneasy truce: the
commercial banks were permitted and even encouraged to search for
new sources of income, but the quid pro quo was the allocation of a
large proportion of their resources to relatively low-earning assets as a
result of the high liquid asset and cash reserve requirements.
What then were the exogenous factors impinging upon the financial
sector and monetary policy? During the first two decades South
Africa's changing position in the international economy has been both

Katherine Munro


a source of strength and of vulnerability. During the early 1960s South
Africa suffered from a sustained outflow of private capital, motivated
by political anxieties and speculative expectations. The crisis of
confidence and the limitations imposed by the IMF in 1961 (should
South Africa wish to call on standby credits) led to the blocked Rand
and exchange control. These drastic measures were successful in
halting the capital drain but were not cost free, for internally exchange
cont.rol contributed to the accumulation of domestic liquidity and since
the economy was protected from the harsher realities of the external
world, the normal relationship between foreign reserves and interest
rate patterns ceased to operate.
During the 1960s exchange rate policy moved in the direction of free
currency convertibility on the capital account. The economy of South
Africa was not closed but the exchange rate was fixed and no
adjustments were made to the par value of the Rand during the
decade. The introduction of the two-tier gold market in March 1968
undermined the effectively fixed system of exchange rates, for it raised
numerous uncertainties about the future price of gold and focused
attention on the question of markets for the sale of gold. The two-tier
system also heralded the beginning of the end of the Bretton Woods
system of fixed exchange rates and its replacement by a system of
managed floating exchange rates during the 1970s. The attainment of a
stable monetary policy and balanced economic growth became more
difficult to achieve as interest rates, money supply, exchange rates and
the price of gold became tied to one another in an equation that
required intricate balancing and a clear crystal ball. The consequence
was that exchange rate policy came to form an important part of
official monetary strategy. 20
In the long run, this meant that the profitability of the international
gold market created new opportunities in the South African economy
in the 1970s and, at the same time, created a new dependence on gold.
In September 1975, the two-tier gold price system was abandoned and
monetary authorities were permitted to enter into gold transactions
between themselves at market related prices. In 1978, South Africa
revalued its gold holdings at a price based on the ruling free market
price. This produced some impressive statistics whilst the gold price
was rising in the free market, but the operation of a free market for
gold introduced a speculative demand and simultaneously greatly
increased both the authority and the vulnerability of the Reserve Bank
in the foreign exchange markets. The First Interim Report of the de
Kock Commission recommended that the Reserve Bank continue to

For example. for the Bank. What then were the major developments in commercial banking in the 1980s? The competitive environment has been sharpened. Expectations of a depreciating Rand and the structure of South Africa's international trade became central in the Reserve Bank and the Treasury's structuring of monetary policy. This has proved to be a far more difficult goal to implement. and in the year ended March 1984 losses amounted to R654 million. in the year ended in March 1983 forward exchange losses amounted to R892 millions. The oligopolistic structure of banking has not reduced competition but has rather accelerated it. 21 The crucial question was how forward exchange rates could be determined by the market without the Reserve Bank serving as a backstop. THE RESERVE BANK AND THE FOREIGN EXCHANGE MARKET During the last decade. BANKING IN THE 1980s These exogenous developments have been part of the backdrop to relations between the Reserve Bank and the commercial banking sector and together with the endogenous factors affected the evolution of monetary policy. from fleet management to instant cash. the First Interim Report of the de Kock Commission recommended that the Reserve Bank should cease its involvement in the forward exchange rate market and should instead promote the development of a fully fledged private market in forward exchange.) Diversification and the provision of a comprehensive range of financial services has broadened competition from merchant banking to general banking. This was implemented.126 Monetary Policy and Commercial Banking be responsible for the marketing of the South African gold output but that the dollar proceeds be released to the gold mining companies by the Reserve Bank. from leasing to hire purchase. The emphasis on banking in the 1980s . (A parallel might be in the performance of the zaibatsu in Japan. from factoring to credit cards. the Reserve Bank has increasingly been drawn into stabilising the foreign exchange market. has had to underwrite the exchange risk and aggregate losses incurred by the Reserve Bank on forward exchange account over the decade has amounted to several million Rands. In 1979. acting on behalf of the Treasury.

electronic transfers of funds and debit order facilities. The banks themselves participated in the process of 'disintermediation'. Image and slogan (Standard's 'We'd like to be your bank'. and offered clients convenience. The nemesis came between 1980 and 1982 when domestic liquidity dried up. Barclay's 'We'll get you going' and more recently 'The Bank' series of advertisements. The banking sector has become increasingly conscious of new opportunities to diversify outside traditional banking forms and even beyond the financial sector. and Nedbank's 'If you're serious about money') are sophisticated techniques designed to promote a banking group as a whole. building societies overextended themselves in conditions of easy liquidity. Another element in the competitive environment has been the growing emphasis placed on marketing and the sale of the specific product to a target market. a consequence of the electronic transfer revolution. Financial services which provided new sources of profit to the banks and thus countered the dampening and restrictive effects of monetary policy. Its collapse was itself a function of competitive challenges from within and outside the cartel. Building societies have low reserve requirements. During the seventies. By February 1982 mortgage rates had risen to 15. Between 1978 and 1980. building societies competed aggressively with the banks for funds. both long-and short-term varieties.25 per cent. The demise of the Register of Cooperation in February 1983 removed the last inhibitions on competition. The principal competitive challenge outside the banking sector came from the building societies during the 1970s. and by March 1982 the five largest societies showed a loss of almost R300 million over the previous two-year period. and were required to hold relatively low interest bearing government stock and at the same time could find an immediate high yield use for their funds in home mortgages mainly within the White home-owning market. Special provisions for White housing was another 'White sacred cow'. It appeared that they could offer similar services to the commercial banking sector but at a far lower cost and in a protected environment. Now it was the turn of the banks to respond and to move into the traditional terrain of the building societies by offering home ownership loans. providing greater support for Black . the rates on government stock rose to market-related levels. credit.Katherine Munro 127 switched from lending and borrowing money to the most efficient marketing of the most efficient financial services. offering a variety of services to specific markets.

Thus it is not surprising that Nedbank was the first bank to introduce computers and so over the years this development. namely. electronic transfer networks. 22 Computerisation. By 1983 Standard Bank had invested R13 million in 278 Autobanks and 14.4 million transactions were processed in 1983.speed. These are all information systems designed to speed up the transfer of information. a lack of constraints on banking operations by South African banks abroad. 23 FOREIGN INDEBTEDNESS IN THE 1980s Finally. definitely contributed to the greater profitability of the group. and by 1983 the major banking groups had forged specific alliances with individual building societies thus broadening the range of cash outlets open to both bank and building society clients. What I wish to suggest rather tentatively is that in the saga of foreign short-term debt and foreign exchange ventures we see a development that was the combined result of monetary policy. Again it offers a competitive technique to those who are either first in the field or who offer the most efficient transfer mechanism. as on the statute books (the situation that led to the ongoing search for new sources of profitability). automatic teller machine systems constitute the information revolution of the eighties. Obviously all this is very contemporary and the picture is incomplete. In the year ended 31 December 1984. the readiness of the part of overseas banks to lend to South Africa and the fluid. together with a tight network.128 Monetary Policy and Commercial Banking housing finance. Standard's early entry into self-service electronic banking was given ina stock broking company's analysis as one of the reasons for Standard's outperformance of other banks. accuracy. I now turn to the most vexed question of the decade to date. However. sophsiticated equipment of this type costs money and the larger the branch network put on line. Standard Bank pioneered automatic telling machines in the banking sector. efficiency and throughput or volume spell profits. Anyone of these factors viewed in . volatile state of the forex markets. expectations of a change in monetary policy (that grew out of periodic liberalising pronouncements of the Reserve Bank and the work of the de Kock Commission). reduce costs and provide a more efficient service . the foreign debt situation and crisis of short-term indebtedness. the higher the costs of the system.

What then was the background to the short-term debt problem? We are back at the question of the dependence on gold. When the balance on current account moved into a deficit situation in 1981 (the consequence of a declining gold price after 1980). What is clear is that the Reserve Bank did not keep itself fully informed on the precise figures of total foreign debts being built up as a result by individual banks?4 Local banks responded with alacrity to the opportunity to expand the overseas operations and as Conrad Strauss has pointed out: 'There was incomplete supervisory constraint on such operations and banks could therefore expand internationally.5 to 3 billion.that is 40 per cent of our exports. He said: 'Twenty four billion is low by international standards . By September 1985 the provisional total of foreign debt stood at $24 billion. for any change in the gold price has a direct impact on the current account and as the price of gold rose in the 1970s this dependence became even heavier. and offered forward cover at rates better than the pure market rate. compared with around 280 per cent for most developing . without the same constraints on capital adequacy and liquidity that applied to their domestic business. of which $14 billion fell due within twelve months. .25 A classical potential pitfall situation developed with South African banks 'borrowing short and lending long'. Barclays National Bank with about $2 billion and Nedbank with $1. The Reserve Bank encouraged companies to borrow abroad. but what made the situation potentially explosive was that the money was borrowed abroad and lent at home. short-term borrowing aboard was used as a palliative. as de Kock has done. but coalescence together with the emergent political crisis and overseas reaction to and handling of that crisis has caused South Africa to join the ranks of the debt beleaguered nations of the Third World. Charles Grant in Euromoney. December 1985 lists the largest foreign currency borrowers. At this stage dollar interest rates were as much as 10 to 12 per cent lower than Rand rates. temporarily at least. thus minimising the negative movement on current account. as at September 1985.Katherine Munro 129 isolation did not constitute a problem or a threat to the economy. 26 In normal circumstances it can be argued. It also limited domestic bank lending and hence money supply and interest rates. that South Africa was not overborrowed. This is obviously a controversial point now denied by the Reserve Bank (with hindsight?). as Standard Bank with $2. It appeared to be a safe course of action for it appeared that the Reserve Bank provided a safety net by manipulating rates in the forward foreign exchange markets (a market controlled by it).6 billion.

The disinvestment campaign had begun in earnest. etc? The controversy raged and today I do not even wish to attempt to answer any of these questions. the flood of external pressure for disinvestment. The author is Eva Militz and the report was funded by the World Council of Churches Programme to Combat Racism. followed by Security Pacific and other American banks. the continuing recession produced an unprecedented total in internal bad debts. the declaration of a state of emergency. I shall leave them to the business historians of the next generation. Nor were financial problems unrelated to the political crisis. Who was to blame.' He goes on to admit that $14 billion due in twelve months was indeed too high particularly if creditors suddenly demand their money back?7 This is exactly what happened with Chase Manhatten. American banks were responsible for $4. and the final financial blow was the end of the year unilateral announcement of the four-month debt standstill. American banks cut off credit to the country. the international media's perception of internal affairs. it was a defeat. Immediately thereafter the recriminations set in. It is interesting to note that in mid-1985 a report on South African borrowing was published. being the first of the overseas banks to 'reassess their credit risk' as it is euphemistically put. unemployment and the high level of violence and . South Africa unilaterally applied a freeze on repayments of foreign debts for four months. it was an admission of virtual bankruptcy. had certain banks been more exposed than others and hence been more responsible for bringing down a shaky financial edifice. what had previously been regarded as a manageable volume of overseas short-term debt suddenly and dramatically took on the appearance of a nightmarish mountain. CONCLUSIONS The year 1985 was traumatic for the financial sector. These disastrous developments were not unrelated to one another and indeed one can link them in a sequence of cause and effect. could the situation have been handled in another way. It was unprecedented. the rate of inflation soared to over 20 per cent. economic recession. under the auspices of the End Loans to South Africa Pressure Group?S The scramble was on for dollars and in the process the value of the Rand sank to unprecedented depths and ultimately.2 billion of the short-term debt.130 Monetary Policy and Commercial Banking countries. The Rand collapsed. on 2 September 1985.

The Graduate School of Business. . J.. Clearly it is still possible for a weakness or a drain of funds from the commercial banking system (some might even argue bad management practices. Perhaps other sacred cows are being nurtured in the stable. A high-risk environment suddenly developed and the vulnerability of the financial sector was evident. Macmillan. 'A Survey of the Banking Sector: An Examination ofthe Sector as a Whole and the Groups Within It With Respect and Background and Strategies up to 1982'. were also a function of deeper perhaps even more basic trends at work over a period of time. 14. L. p. Keith Munro. The third Report of the Commission of Enquiry into Fiscal and Monetary Policy in South Africa: RP 87/1970. J. 5. though. The political crisis has thrown up questions about priorities and it appears that the government is currently opting in favour of expansion. 31-4. University of Cape Town. November 1970. no4. 1984. p. Have the monetarists again been forced to become neo-Keynesians? The financial crisis has thrown up questions about future monetary policy. The Mechanics of the South African Financial System. 'New Developments in Monetary Policy in South Africa'. December 1981 vol. Those 'sacred White cows' I have discussed in my paper (and others I have not even mentioned) are clearly on their way to the slaughterhouse. 49. p. 3. Fourie and W. South African Journal of Economics. the realities of changing priorities in politics appears to thwart much movement in that direction at the moment. London. 64. All opinions and errors remain my own. 6. for his comments. Ibid. Markets. These developments.Katherine Munro 131 unrest. Falkena. unpublished MBA Research Paper. 2. Despite the recent enthusiasm for free market philosophies and approaches. reflation and job creation. Notes and References 1. J. D. Gerhard de Kock. H. B. p. I wish to thank the Standard Bank librarian and her staff for their help and my husband. The inflationary consequences are rapidly sliding into second place. others might say bad luck) to undermine and threaten both the overall stability of the economy and monetary policy. 4. p. The financial crisis has highlighted the continuing importance of the commercial banking sector and has underlined its vulnerability. Kok. 324. Financial Institutions Instruments. Wilson. 185.

p. 1932-82'. May 1979. Conrad Strauss.132 7. Supplement to Financial Mail.73. 24. P. Wilson. 38 and Franszen Report. 68. no. Colin McCarthy. Essays on the South African Financial Structure. J. Financial Mail Investment Conference 15 and 16 November 1985. 8. 66. Standard Bank of South Africa. 28. Meier. March 1983. 13. September 1957. p. 10. Standard Bank. 55-6. 82. 36--41. Wilson. Franszen. C.. 20. 'The Banks Abandon South Africa'. 18. A. 'A Survey ofthe Banking Sector'. 11. South African Journal of Economics. H. 'The Banks Abandon South Africa'. 32. The Star. pp. 22. 1985. no. The Star. M. Barclays Bank. Franszen. pp. 30 April 1985 Confidential Source (see author). 18. Private Circulation Paper. 169. vol. Pretoria. 71. Supplement to Financial Mail. 1. 8 July 1985. pp. in A. 19 June 1985. 51. 19. Meier. 19. D. 4. de Villiers. see pp. pp. Final Report of the Commission of Inquiry into the Monetary System and Monetary Policy in South Africa. Ibid. 'Commercial Banking'. 14. J. 21. 2. 55. vol. 25. 76. 'Bank Regulation in South Africa'. no. Monetary Economics. 30 January 1975. 12. p. 1965'. 26. G. p. G. and Minister of Finance Budget Speech 1985. 'Monetary Policy in South Africa. 78-84. Business Day. 112. p. 'The Implications of the Amendments to the Banks Act. 17. South African Banker. 15. November 1985. p. pp. 'The Present System of Monetary Policy'. 27. 1983. 1932-82'. South African Journal of Economics. 'A Survey ofthe Banking Sector'. G. Charles Grant. in Euromoney. 19. Monetary Economics. Haum. de Kock. p. 1975. 11 February 1972. 'Commercial Banking'. December 1985. 23.71. 'Monetary Policy in South Africa. 65. 19 June 1985. 16. 'Banking in 1985'. 34. McCarthy. D. p. 68. vol. p. Czypionka. Hamersma and N. Monetary Policy and Commercial Banking H. 9. D. Dr J. South African Banker. . 28-31. p. Charles Grant. A. Jacobs.

supported by a growing interest in econometrics. I Not surprisingly. Harvard appointed the first professor of business history over half a century before England took up the challenge. Amercian scholars have led the way. economists had little to offer and contributed little to the emergence of modern business history. where the school of institutionists was out of favour and Keynesian macroeconomics in favour. has moved from the writing of historically specific descriptive history to comparative institutional history that can generate non-historically specific generalisations and concepts. works that were to be the forerunners of a stream of major publications on the modern business corporation. whose thoughts and actions simply disappeared from the scene. As a consequence. Yet though the origins of modern business history go back to the early years of the century. 1964-84 StuartJones In recent years very considerable progress has been made in the field of business history. The whims of eccentric entrepreneurs could not be put into neat mathematical equations. 3 This is a monumental work of synthesis built around the concept of administration coordination. This occurred because of developments within the field of economics. it was in the second half of the century that seminal developments occurred on both sides of the Atlantic with the publication of Gras's monumental work on Standard Oil and Charles Wilson's work on Unilever. which. to the growing field of transaction cost 133 .8 The Visible Hand and the Top 100 Companies in South Africa. Significantly most of these works were the product of historians rather than economists. as Alfred Chandler points out. The former were not interested in micro case studies of historical firms: the latter denied the importance of individuals. So business history borrowed from sociology in the 1950s and 1960s2 but placed it firmly within the framework of institutional history. Its generalisations have relevance to a number of different disciplines. and in the 1970s business history experienced both a qualitative and quantitative leap forward. culminating in the publication in 1977 of Alfred Chandler's The Visible Hand: The Managerial Revolution in American Business. From then on progress was rapid.

In other words. a mere half a century earlier. as a comparison of industries and as national comparisons. to sociologists focusing mainly on labour and differentiating between core economies. as a comparison of companies. for it is especially important when an enterprise in the core economy begins to diversify into industries on the periphery. MANAGERIAL CAPITALISM AND THE MODERN BUSINESS ENTERPRISE The modern business corporation emerged in the United States in the 1880s and ushered in the era of managerial capitalism. and. may be found in Alfred Chandler's chapter. While The Visible Hand is clearly the most significant single work yet to appear in the field of business history. were more akin to those of the fourteenth century than those of the 1880s. to business schools and business executives concerned with strategic planning. one might add. where the large firm lives. his generalisations are derived from his data . how and why. business practices of the 1830s.134 The Top 100 Companies in South Africa economics pioneered by D. The business historian does not deduce hypotheses or theorems a priori from an existing body of theory.collected and collated to answer the historians' questions of when. home of the small competitive firm. where. not a sociologist and not a management scientist. 4 The Visible Hand has profoundly altered our thinking on the development of the modern business corporation. according to Chandler. 'Comparative Business History'. in the festschrift to Charles Wilson. with emphasis on the fact that the buisness historian is not an economist. together with international comparisons. and peripheral economies. which. which is then tested with empirical data. and to government policy-makers. 7 As a result of these changes. for it provides an explanation for the unhistoricity of so much modern economics that is particularly noticeable in the United States and South Africa.6This distinction is vital. C. a distillation of its main findings. as the clustering of large firms in some industries and not in others has been the result of deeply rooted economic imperatives. in modern African studies where theory is often allowed to determine the selection of facts. was as significant and as revolutionary as the rise of commercial capitalism half a millennium earlier. 5 This work looks at business history from three points of view. as does the economist or sociologist. a merchant manufacturer of the 1830s . but a historian. North and Oliver Williamson.

By the second half of the twentieth century managerial capitalism had become the norm throughout the developed world. . and economically oriented historians such as Hartwell. One hundred years later the enterprises that emerged in these sectors in the 1880s were still dominant and their names had become household words. lower costs and higher profits than coordination by the market mechanism. 8 Administrative coordination permitted greater productivity. It appeared for the first time when the volume of economic activities reached a level that made administrative coordination more efficient and more profitable than market coordination. As this multiunit business enterprise grew and its managers became more professional. therefore. and which in little more than a decade transformed business practice permanently. the hierarchy itself became a source of permanent power and continued growth. exceptions that proved the rule. of course. but in general salaried professional managers were not the owners of the new large enterprises that developed in the 1880s. once a managerial hierarchy had been formed and had successfully carried out its function of administrative coordination. Rational economic forces determined the timing and place of the modern multiunit business enterprise. such as wholesaling and the provision of an adequate supply of the necessary raw materials to keep the production unit going. and historically oriented economists such as Rostow. these salaried managers preferred policies that favoured long-term stability and growth rather than those that maximised current profits. but the advantages to be obtained from this development could not be realised until a managerial hierarchy had been created. occurred not at the time of the First Industrial Revolution but at the time of the Second Industrial Revolution! Out goes a fundamental belief of the Marxists.Stuart Jones 135 would have felt more at home with a late medieval firm that he would in one of the giant corporations that burst on to the scene in the 1880s. Moreover. management of the enterprise became separated from ownership and the era of managerial capitalism had arrived. Managerial capitalism quickly came to dominate those sectors of the economy where continuous process machinery led to an enormous increase in output and to the need for mass marketing. Oppenheimers in South Africa. In effect hitherto separate and independent services. It contained many distinct operating units and it was managed by a hierarchy of salaried executives. The great break with the past. There were. This modern business enterprise that emerged in the 1880s possessed two main characteristics. However. were internalised within a single enterprise. Fords in America.

where managerial capitalism was subject only to the control of a centralised political party. W. and Eastman's photographic negatives led to his dominance of the photographic industry. called the U form. was pioneered first by industries processing liquids and then by those dealing with tobacco and grain. 9 Metal working and metal processing came later because in these cases high volume production required further technological breakthroughs. Woolworth) who remained essentially entrepreneurial capitalists in which ownership was not separated from control. In the process cost. . chain stores such as A & P and variety stores such as F. creating the need for new structures to coordinate the expanding volume of goods involved. took over the role of coordinating the flow of goods through the economy.136 The Top 100 Companies in South Africa though in the West. with enormous increases in productivity. very quickly dominated the industry in their respective countries. where it was subjected to the ultimate test of the market. COMPANY COMPARISONS The new centralised multiunit enterprises that developed in the United States in the 1880s grew out of experience acquired in managing the railroads. the mass producer. but unlike the mass marketers (department stores. Then the increasing complexity of modern business led to decreasing efficiency and reduced profitability. Carnegie's pre-eminence in the steel industry was the result of his commitment to technological change and of his imaginative transfer to manufacturing of administrative methods and controls developed on the railways. This centralised functionally departmentalised structure dominated big business for about three-quarters of a century. it was far more efficient than in the East. like that of the mass marketers who preceded them. mail order firms. Duke in the USA and Wills in England. the new mass producers were the pioneers of managerial capitalism. The Bonsack cigarette-making machine revolutionised the making of cigarettes and the two firms that first adopted it. using more complex technology. The type of structure developed in the 1880s. capital and financial accounting were perfected. Their coming. Procter & Gamble's crusher for soap-making led to their having the same impact on the soap industry. In these newer industries. They adopted the continuous process machinery and built the factories in which material flowed continuously from one stage to another. depended upon the completion of the railway and telegraph network. not the mass marketer.

a 10 per cent increase in business resulting from diversification led to more administrative problems than a 100 per cent expansion of the existing manage their enterprise. Singer in sewing machines and McCormick in harvesting machines dominated their industries within a decade and became household names in America. In the 1950s these old centralised firms experienced drastic declines in their profits. This strategy was adopted both by those enterprises that had installed the new continuous process machinery and by those manufacturers whose products required specialised distribution and marketing services which existing wholesalers and retailers could not provide. and a pattern of reduced competition by two or three oligopolistic producers became established.' 11 The continuous process technology. costs were massively reduced. enterprises grew very large very quickly. It reduced transaction and information costs. This coming of the visible hand made possible a threefold reduction in costs. . According to Chandler. the allocation of resources for future production and distribution. refrigeration facilities or specialised servicing facilities for machines. it reduced unit costs and it reduced the costs of fixed and working capital. 10 Vertical integration was essential and was adopted by two sets of producers. such as the bulk storage and movements of petroleum products. 12 With diversification. the needs of perishable goods and machinery requiring specialised marketing services had led to the creation of huge enterprises. 'The techniques and procedures perfected in the first years of this century in order to manage these integrated enterprises have remained the foundation of modern business administration. they were unable to carry out their essential managerial functions. This type of structure brought great profits and efficiency for about three-quarters of a century. Armours and Swifts in meat packing. Rockefeller in oil. nearly all of which had adopted a centralised functionally departmentalised structure . Unless a change in strategy was accompanied by a change in structure inefficiency followed. Having neither sufficient time nor information. as a result of growth creating such complexities that it began to overwhelm their managers. heads of departments in centralised businesses needed to coordinate the flow of several product lines and became overwhelmed by the growing day-to-day operating problems.Stuart Jones 137 As the visible hand of management replaced the invisible hand of market forces in coordinating the flow of goods from raw material suppliers to retailers and ultimate consumers.the U form . These administrative problems occurred when the original enterprise either (i) entered new markets or (ii) diversified into new products.

diversification into other lines was relatively easy. . and Sears Roebuck in the 1920s. electricals). made a fortune in the 1960s reorganising European firms in an M form. because existing technological skills and facilities and existing marketing plant and skills could be utilised. lumber. the decentralised divisional structure. In the science based industries (chemicals. McKinsey & Co. Du Pont's perfected the new decentralised divisional structure and Pierre Du Pont was instrumental in its adoption by General Motors. INDUSTRY COMPARISONS The large business enterprise with its heirarchy of middle and top managers emerged to operate the railways and then suddenly appeared in industry in the 1880s. here in South Africa as well as in North America. Esso. Diversification leading to the new structure did not take place at the same pace in all industries. but only selectively. monitoring and allocating resources. each division acted as a semi-independent centralised functionally departmentalised structure. The importance of the second of these has recently been highlighted by the numerous blunders incurred by petroleum companies rushing into buying mining companies and finding that expertise in petroleum exploration and production did not transfer easily into coal and copper mining. furniture. leather. General Motors. Alfred Sloan implemented it. but in metals. clothing. and in food and non-durable consumer products. because skills and facilities were not easily transferable. those of coordinating. In textiles. Perhaps the main ones are: the concept of strategy and structure and the complex relationship between the two. large multinational firms did not appear before 1914. and the definition of the basic functions of general management. The pioneers of the new form were Du Pont. the concept of transferable resources. Thus the potential to diversify depended upon the transferability of existing facilities and skills and. as Chandler notes somewhat sardonically. generalisations and concepts have emerged that are not historically specific and all of which are crucial to the success of modern business.138 The Top 100 Companies in South Africa This change in structure was the adoption of the M form. firms were slow to diversify. but in iron and steel and in metal fabrication. From this study of how different companies responded to the challenge of growth. If one wanted to be a captain of industry one needed to pick one's industry carefully. publishing and printing. In this system.

salaried managers took control of moving the flow of goods and materials and the visible hand of management replaced the invisible hand of the market. oil. fruit. By the 1880s the new processes of mass production were placing impossible strains upon existing wholesalers both in the provision of raw materials and in the distribution of the finished products. In these large firms that emerged. The integration of mass production with mass distribution occurred when and where the wholesalers had difficulty in coordinating the massive flow of mass produced goods to hundreds of thousands of customers. foodstuffs. in the second half of the twentieth . when and where the wholesalers had difficulty in ensuring a comparable flow of raw materials and semi-finished materials into production plants. and when and where the wholesalers were unwilling or unable to invest in specialised marketing and distributing facilities and personnel.Stuart Jones 139 machinery. Volume distribution of meat. In all these cases the mass manufacturer had nore incentive and more resources to make this investment than had the traditional wholesaler. and Singer producing 20000 sewing machines a week. One hundred years later in the 1980s such firms have tended to cluster in the same industries. they steadily embraced an increasing proportion of the American economy. with the progress of technology. Xerox. The oil and tobacco semi-monopolies were broken up but the vask bulk of the large firms survived and. they were multinational and were able to transfer abroad the skills they had learned in America. by the 1880s American tobacco was producing 6000 million cigarettes a year and Armour and Swift were butchering 7 million cattle. beer. and volume distribution of machines required massive investment in trained personnel to market and service them. Anti-trust campaigns by populist politicians had little effect upon their progress because of their competitiveness and efficiency. In barely a generation these large firms had come to dominate a significant portion of the American economy. They internalised the wholesale function within the enterprise and financed their expansion out of their large cash flows. 13 For example. they emerged in the 1880s and very quickly became dominant. volume distribution of oils and chemicals required massive investment in specialised tankers and storage depots. and so on required massive investment in refrigeration facilities. Often. In the science-based industries specialised knowledge was required that was unlikely to be possessed by ordinary wholesalers. chemicals. too. These new large firms came into being by integrating mass production with mass distribution for the first time in history.

the modern industrial corporation has nevertheless reflected national differences. 2. 14 Although it has been concentrated at all times and in all places in the same types of industries since its emergence in the 1880s.140 The Top 100 Companies in South Africa century. with American strength in both. The United Kingdom. for instance. Ultimately it has been technological progress that has been the driving force behind the emergence of the very large industrial enterprise. sewing machines. American subsidiaries have tended to dominate certain industries throughout the world. By 1973 over 80 per cent of firms employing over 20000 workers in the world were multinational and just over half of them were American. though a number of new industries. 15 1. The growth of the modern large-scale industrial enterprise has been the result of investment in non-manufacturing personnel and facilities rather than in manufacturing plants and personnel. merely reproduced the success of Eastman Kodak three-quarters of a century earlier. Chandler has deduced four major general conclusions about these large industrial corporations. The industries in which large firms rose to a position of superiority in the last years of the nineteenth century were still dominated by the same firms one hundred years later. 3. Such non-manufacturing investment occurred when manufacturing enterprises were able to carry out non-manufacturing functions more effectively and at lower costs than they could have done by buying from or selling to other firms. agricultural machinery. office machinery. which occurred . Such non-manufacturing investment initially appeared when new technologies permitted manufacturing establishments to produce an unprecedented volume of goods for distribution. computers or aircraft. NATIONAL COMPARISONS The very large firm that emerged at the end of the nineteenth century quickly extended its horizons beyond national boundaries. such as photocopying. which need to be emphasised. had shown pronounced strength in consumer goods and Germany in producer goods. lifts and printing presses. has joined their ranks. Establishing a head start was clearly a major factor in determining the pattern of world industrialisation in the twentieth century. in all of which the United States was the pace setter in the 1880s. telephone equipment.

Also. Indeed the visible hand of management may have become the main factor in promoting economic growth. One wonders. lists of the largest firms in South Africa invariably include wholesalers and retailers and property .Stuart Jones 141 in the 1880s with the completion of modern transport and communications systems. between the mismanaged Eastern European countries and well-managed Western European economies. One wonders. and even for the performance of different economies as a whole. too. whether Britain has been less well served by the large buisness enterprise than West Germany. whether this vital factor in the production process has been able to develop efficiently in South Africa in an oligopolistic situation. 4. capital and labour. These differences in non-manufacturing and manufacturing personnel and facilities. Certainly the track record of the state-capitalist monopolies set up in Britain since 1945 has not been good. sources of supply. for it places the modern business corporation on a par with the traditional factors of production. they concentrated on the production of different types of goods in various countries. Such a view casts a whole new perspective on differences in the economic development of First and Third Worlds. the new volume-producing enterprises faced different situations. non-manufacturing investment.natural resources. as regards domestic and foreign markets. reinforced and replicated for over 100 years. 16 This is a revolutionary argument. and on the different countries in Western Europe. as have differences in the standard factors of production . and available technologies. and differing intensity in. which led to differing types of. have been as responsible for the variety in the performance of enterprises in national economies. for example. In the 1880s. or whether the South African experience has borrowed more from the monopoly situation of the centrally planned economies? Direct comparisons between South Africa and other countries are difficult to assess because of the presence of so many holding companies in the Republic that don't fit easily into American devised standard categories of classification. in the different industrial states. Although the new industrial corporations invested in non-manufacturing personnel and facilities in each country.

1 Distribution by industry of the 200 largest manufacturing firms: United States (firms ranked by assets) Standard industrial classification 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 Food Tobacco Textiles Apparel Lumber Furniture Paper Printing and publishing Chemical Petroleum Rubber Leather Stone. for instance. chemicals. Coleman and P. D. but Table 8. Britain. The very large firms have clustered in food. Germany and America. we can obtain some idea of relative similarities and the major contrasts by looking at the pattern of the largest enterprises in South Africa. clay and glass Primary metal Fabricated metal Machinery Electrical machinery Transportation equipment Measuring instruments Miscellaneous Diversified/conglomerate Total 1917 1930 1948 1973 30 6 5 3 3 0 5 2 20 22 5 4 5 29 8 20 5 26 1 1 0 32 5 26 5 22 3 0 4 1 7 3 18 26 5 2 18 24 22 5 21 2 1 0 0 1 1 6 2 24 24 5 2 5 24 7 24 8 26 3 1 0 0 4 0 9 1 29 22 5 0 7 19 5 18 13 20 4 1 15 200 200 200 200 3 10 6 3 Source: A. very large firm that emerged in the 1880s. The outstanding feature of the 200 largest firms in the United States in 1973 is how little change there has been since 1917. metals and machinery (Table 8.142 The Top 100 Companies in South Africa firms. 'Comparative Business History'. Within these categories some small changes have occurred as a result of mergers and take-overs among the very large firms. Nevertheless. Jr. the number of firms in primary metal working and fabricated metal working has been reduced. . C. petroleum. p. Chandler. in D. In this way. 17. but it was the internalisation of the functions of the former that was one of the major characteristics of the multiunit. 1984).1). Mathias (eds) . Enterprise and History (Cambridge: Cambridge University Press.

2) clustered in the industries which had led the world at the beginning of the nineteenth century and in the consumer goods suited to the world's first urban-dominated economy. D. the largest firms in Britain (Table 8. 1984). and in leather and textiles.Stuart Jones 143 against that can be set the increase in the number of firms making electrical machinery. as a result of not growing as swiftly as the newer more technologically oriented industries. Chandler.2 Distribution by industry of the 200 largest manufacturing firms: United Kingdom (firms ranked by sales for 1973 and by market value of quoted capital for other years Standard industrial classification 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 Food Tobacco Textiles Apparel Lumber Furniture Paper Printing and publishing Chemical Petroleum Rubber Leather Stone. 'Comparative Business History'. clay and glass Primary metal Fabricated metal Machinery Electrical machinery Transportation equipment Measuring instruments Miscellaneous Diversified/conglomerate Total 1919 1930 63 3 26 1 o o 1948 1973 64 4 52 33 o 18 3 o o o 24 3 o 4 5 11 3 3 5 10 9 2 35 6 o 3 3 o 8 6 7 15 3 2 o 3 7 18 14 1 4 5 28 8 7 13 22 4 3 200 200 200 2 8 11 20 o o 18 7 o o 4 10 2 o 7 7 21 8 6 3 16 14 7 26 14 16 3 1 2 200 Source: A. C. in food and tobacco production. as a result of mergers. Mathias (eds) . p. Jr. Table 8. The only persistent decline has been among industries processing the products of American fields. the number of very large firms in . in D. Enterprise and History (Cambridge: Cambridge University Press. During the half century after the First World War. By comparison with the United States. 22. Coleman and P.

with its great strength in mechanical and electrical engineering. Compared with the United States and Germany. electrical machinery and fabricating metal accounted for half the very large firms in 1913. This no doubt reflects the small size of the market and the prevalence of an open economy until the 1960s.3. Britain was dragging her feet in the electrical industry and was possibly overcommitted to transportation equipment. Germany has traditionally been strong in producer goods and this is at once apparent in Table 8. as so many of the vested economic interests stood to gain more from the continuance of the open economy. while the old order persisted. where six of the largest 200 firms now fall into that category. the drive to industrialisation was retarded. In primary metal processing a similar reduction occurred. Germany and the United States and. as yet. did the country seriously embark upon a policy . too. in the degree of foreign ownership of large portions of secondary and tertiary sectors of the economy. No printing and publishing firm has ever reached the top 200 in the United States. South Africa's industrial base is much younger than those of Britain. Along with this development an increasing proportion of the secondary sector is now subject to local control. reflecting the post Second World War economic expansion in Germany. machinery. but since then this particular industry has made great strides in Germany. This is now ending. The relative decline in the dominance of food processing firms in Britain has been a feature of the second half of the century. though most of this took place in the depressed 1920s. In particular. South Africa has been unique in permitting foreign ownership of financial institutions. Neither Germany nor the United States show comparable strength to Britain in printing and publishing before 1953. as the banks and insurance companies pass into South African ownership. Only in the 1930s. However. Primary metal working. Sixty years later the number in the last three categories had increased. The modernisation of the British economy revealed itself in the doubling of the number of firms in the chemical and petroleum industries. Consumer goods of the perishable variety held their own. and in the trebling of the number of very large firms fabricating metal and making machinery. and then for nationalistic reasons. but in Britian they have occupied an important place since the first appearance of the popular penny daily newspapers in the early years of the century. much narrower. South Africa is unusual. but in textiles there was a sharp drop in the second half of the century.144 The Top 100 Companies in South Africa food processing almost halved and in textiles they more than halved.

with its over-large . 'Comparative Business History'. Enterprise and History (Cambridge: Cambridge University Press. Chandler. Coleman and P. Jr. in D. of sustained industrialisation.Stuart Jones 145 Table 8. Unlike America. D. though. C. South Africa arrived at the stage where its secondary manufacturing sector placed it among the industrial countries of the world. p. in South Africa the mining finance houses that had emerged at the same time as the very large business corporations in the United States continued to overshadow the whole economy. therefore. 23. where the very large industrial firms that emerged in the 1880s dominated the economy and were frequently much larger than the banks and finance houses. Some time. Mathias (eds). This was further boosted by the Second World War and the need for import substitution and then actively promoted by Nationalist governments since 1948. 1984). in the second half of the twentieth century. In this respect. clay and glass Primary metal Fabricated metal Machinery Electrical machinery Transportation equipment Measuring instruments Miscellaneous Diversified/conglomerate Total 1913 1928 1953 1973 23 1 13 0 1 0 1 0 26 5 1 2 10 49 8 21 18 19 1 1 0 28 0 15 0 1 0 2 1 27 5 1 3 9 47 7 19 16 16 2 1 0 23 0 19 0 2 0 3 0 32 3 3 2 9 45 8 19 13 14 4 1 0 24 6 4 0 0 0 2 6 30 8 3 1 15 19 14 29 21 14 2 1 1 200 200 200 200 Source: A.3 Distribution by industry of the 200 largest manufacturing firms: Germany (firms ranked by sales for 1973 and by market value of quoted capital for other years) Standard industrial classification 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 Food Tobacco Textiles Apparel Lumber Furniture Paper Printing and publishing Chemical Petroleum Rubber Leather Stone.

with increasing dependence upon the more volatile primary sector occurring at the same time as a considerable advance in the manufacturing sector. but it was markedly less foreign dominated. in South Africa's somewhat colonial economy. are exlcluded the mining companies in the primary sector and banks and insurance companies in the tertiary sector. is the malign effects of . making it possible to draw a more meaningful comparison between the structure of the Top 100 companies in South Africa and those of America. some trends may be discerned in the changes that have taken place in the past twenty years. too. Excluded. Britain and Germany. which in the statist-oriented economy of South Africa is a major factor. and perhaps the most obvious. Nevertheless. is the exclusion of the state sector.146 The Top 100 Companies in South Africa primary sector the South African economy has remained structurally relatively backward. The Top 100 companies. By definition. First. harbours and airways. despite the relative increase in the weighting of mining after the increase in the gold price in the 1970s. which. In the 1970s. the Armaments Corporation and the Industrial Development Corporation. the structural progress of the 1950s and 1960s was reversed. the rapid growth of secondary manufacturing led to a relative decline in the mining sector and to a broadening of the base of the economy. Foreign ownership was particularly important in the motor and petroleum industries and in sections of engineering and electrical engineering industries. Great strides have been made in industrialisation and these are reflected in the list of quoted companies. The economy was passing into South African ownership and this. are not fully representative of the economy. The South African Top 100 is not directly comparable to those of other countries for a number of reasons. the giant stateowned Iron and Steel Corporation. First and most obvious is the sheer growth of the secondary sector. is also significant. all of which would merit inclusion in the Top 100 in terms of assets. By comparison with 1984 the industrial economy of 1964 was both small and fragile and the influence of the Empire was still very marked. too. which is noted for its unusually strong and influential primary and tertiary sectors rather than for its strength in secondary manufacturing. In the 1950s and 1960s. By the mid-1980s not only was the industrial sector very much larger. the Sasol oil from coal enterprise. is revealed in the list of top companies. are the subsidiaries of foreign firms. however. as well as two very large agricultural cooperatives. Automatically excluded are the railways. therefore. too. A peculiarly South African feature of recent economic growth.

even though by international standards their size is often very small.4. 6 June 1975 and 24 May 1985. Such enterprises have been put into the diversified/conglomerate category in Table 8. varying from car and lorry distribution and sale to Cape Table 8. Mergers. take-overs and amalgamations have been common and this has made it difficult to classify a large number of enterprises. For example. some that are involved in electrical engineering or general engineering are also engaged in large-scale wholesaling and in the property market.4 Distribution by activity of the 100 largest industrial firms in South Africa (firms ranked by assets) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Food Tobacco and matches Textiles Apparel Lumber Furniture Paper and packaging Printing and publishing Chemical Petroleum Rubber Leather Stone. . Also because the South African Top 100 includes stores and building and construction firms I have added these.147 Stuart Jones exchange control in a small economy. Capital has been locked into the economy and this has tended to give a certain incestuous colour to developments. and Stock Exchange Handbooks 1967-1984. clay. together with sundry transport undertakings. glass and cement Primary metal Fabricated metal Machinery Electrical machinery Transport equipment Measuring instruments Miscellaneous Diversified/conglomerate Stores Building and construction Transport services 1964 1974 1984 22 3 4 1 2 1 4 15 3 2 12 1 3 1 2 5 1 8 3 5 1 7 2 2 3 3 1 1 8 2 1 1 4 6 6 4 7 1 2 4 3 5 3 7 9 5 4 2 19 10 4 4 1 15 12 11 3 6 4 2 7 Source: Financial Mail 29 October 1965.

with the glaring absence of local firms in petroleum production. emphasising once again the strength of the South African economy in the distribution services. fabricating metal and electrical machinery. Building and construction firms of one form or another provided five firms in the Top 100 and building materials.148 The Top 100 Companies in South Africa Tramways and Putco as categories 22. but in the motor industry foreign ownership remained the rule. paper and packaging firms with four. followed by pulp. but . had assets of only R72. but the full effect of this is disguised by the increase in the number of firms in the diversified/conglomerate group. particularly cement production. enterprises in food or drink dominated the Top 100 with twenty-two representatives. In producer goods progress was underway in transport equipment. Anglo-American Industrial. that is such a pronounced feature of the South African economy is apparent in these changes. In primary metal working there was a significant increase in the private sector. a further eight. The drive to monopoly. and in the number of paper and packaging firms after 1964. In 1964. Ten years later. textiles with four and tobacco with three. machine making and in the high technology petroleum and chemical industries. and textile firms from four to two. CHANGES WITHIN SOUTH AFRICA The coming together of mass production and mass distribution was the driving force behind the emergence of the modern multiunit corporation in the 1880s in agricultural product processing. the most striking change was in the increase in the number of firms described as diversified/conglomerate. In producer goods there was also a broadening and deepening of the industrial base. Barlows or Cullinan Holdings. Hulett's Sugar. like De Beers Industrial. in 1974. Another indication of the growing maturing of the South African economy is the reduction in the number of food processing enterprises from twenty-two to fifteen. Nine of the Top 100 were stores. The overall small size of the market may be gathered from the fact that the largest firm in 1964. In building and construction a mild darwinian process had led to reduction in the number of big firms. following the sequence but not the numbers of the standard industrial classification. or at best oligopoly. 501 million. often industrial holding companies. only dented by the growth of Toyota and Datsun. The importance of processing local agricultural products into mass produced consumer goods is at once apparent in the South African economy. 23 and 24.

was also new to the Top 100. the industrial scene had changed very considerably and the scale of operations was far different from that of a mere ten years earlier. without exception. had become the largest enterprise by 1984 with total assets ofR7566 million. S. with its imperfect market conditions and blocked currency. S. the assets of the largest firm. and in 1974 the assets of the S. Breweries. the growth of Federale Volksbelegging reflected the rise of Afrikaner economic power in the manufacturing sector. In 1984.A. The 1984 numbertwo.A. The breakdown of the firms in 1984 shows further evidence of the growing maturity of the South African economy with the reduction in the number of firms processing primary products. Barlow Rand. Asset growth among the Top 100 had been considerable. Smith listed in 1964. no longer existed as an independentfirm. Barlow Rand. All in all it would appear that forces were at work in the South African economy. were seventy five times larger than those of the smallest firm. which had not managed to get into the Top 100 in 1964. the assets of the largest firm. after further sustained industrial growth. By 1984. It was now more than twice as large as the number two and 1974 leader. In 1964. The biggest firms were growing much larger rapidly and the gap was widening between them and the smaller ones that just managed to squeeze into the Top 100. was not even listed in the 1964 Top 100. Sasol.A.Stuart Jones 149 no significant change had yet takes place in the production of building materials. but they had jumped to third position by 1974. while Hulett's. but for rational economic reasons. Nor was C. G. Barlow Rand. the 1964 leader. Similarly. second in 1974 with R5636 million. were less than fourteen times those ofthe smallest firm. A glance at the top ten in the 1984 list shows at once thatthe leaders were all. though some changes had taken place within their ranks. in the same kinds of businesses that had emerged in the United States in the 1880s and led the way to establishing the modern corporate economy. not as a result of political considerations. Breweries was the top company with assets ofR695 million compared with a mere R73 662 million in 1964. Hulett's. not too dissimilar to those that had emerged in the United States in the last decades of the nineteenth century. In 1974. Department stores. nor in the number of stores. Clearly the move towards oligopoly was well under way. for example. Randle Bros & Hudson. representing a transfer to the private sector of an enterprise previously under the control of the state. Breweries were less than twenty-four times as large as those of Stafford Meyer. but this time accompanied by rapid inflation and continued repatriation of local business. were beginning their long decline. Food and beverage .

On paper no change had occurred in the number of firms fabricating metal. In an economy with a well-organised distribution system experiencing rapid population growth. as revealed in the Top 100 companies. but in practice. Sappi and Mondi. which now accountfor almost a fifth of the Top 100 enterprises. Two of the 1984 leaders were in petroleum products for the first time. were establishing their predominance. reflecting this very pronounced trend towards companies that can only be described as diversified/conglomerate. In paper and packaging the number of firms was unchanged. Yet perhaps the most significant changes were occurring in the field of producer goods. were now down to twelve and in tobacco and match there was now only one firm. In the years to come one may expectfurther vertical integration and further defensive mergers as South Africa follows that path already outlined by the United States in the late nineteenth century. In this respect Toyota. Datsun-Nissan and Mazda are different from their predecessors. major changes were under way in the automobile industry. the latter from four to eleven. it is not surprising that both stores and building and construction firms should have increased in numbers. had significantly broadened and deepened its industrial base and was well placed for further sustained growth. By 1994. the South African economy. but with franchise agreements with the Japanese parent. the former from ten to twelve. rapid urbanisation and sustained increases in real incomes in the modernised sector. They don't appear in the Top 100 because they are part oflarger holding companies. mainly caused by the take-over of other glass firms by Plate Glass. In building supplies there had also been a reduction. Here growth of Barlow's Highveld Steel is concealed. The European owned firms were pulling out of the country and being steadily replaced by 'Japanese' ones owned and controlled in South Africa.150 The Top 100 Companies in South Africa firms. but this conceals the fact that the two biggest enterprises. it is possible that Iscor will also have passed out of the public and into the private sector. INTERNATIONAL COMPARISONS AND CONCLUSION In the second half of the twentieth century all the major market-oriented economies have experienced significant moves towards oligopoly . which had numbered twenty-two in 1964 had fallen to fifteen in 1974. being part of the Anglo-American group. By 1984. and there had been a slight reduction in the number of firms in the chemical industry. then. and this is complicated still further by the fact that Mondi is not publicly listed. Sasol and Trek.

as the demands imposed by mass production with continuous process machinery and mass marketing have forced competing firms to internalise their wholesale activities and replace the invisible hand of the market by the visible hand of management. the final separation of ownership from control and. In South Africa.Stuart Jones 151 and a reduction in the number of firms competing with one another. Germany. Sustained economic development in the modernised sector of the economy and the increase in savings that have accompanied it have led to the growth of enormous insurance companies which have become the owners of a large part of the industrial sector in a way that is not strictly comparable with developments in Britain. Among these are the small size of the market. Decisions taken by the management of Renault and Peugeot in France are not likely to be determined by ownership and the same may well be true today in the management of ISCOR and Highveld Steel. Ownership of the capital involved is not yet irrelevant. . on the other. restrictions upon the market by an anti-market oriented government with a penchant for producer cooperatives and state-owned enterprises. and the numerous controls that have enveloped the traditional factors of production. It has unlocked the doors to the increase in wealth and to the rise in living standards that has been such a feature of the past hundred years. the progress of managerial capitalism has been impeded by a number of different factors. leading to the misuse of land. The development of managerial capitalism. marks. for the decisions of middle and top managers in very large multidivisional firms will not differ according to ownership. the death knell of old-fashioned Marxist views from the nineteenth century about the inevitability of revolution and increasing misery. the blocking of capital within the country and rigidities in the labour market. and has made possible the conquest of poverty on a global scale. This trend has occurred because of the continued growth of very large multiunit or multidivisional firms. Britain. because managerial capitalism has introduced a new level of efficiency into the economy. save when short-sighted politicians interfere. but it may become so in the future. with all the key decisions being made by trained top and middle management. Germany or the United States. France and South Africa have all been following in the steps of the United States. on the one hand. which from its very first appearance in the last quarter of the nineteenth century looked beyond narrow national frontiers to a world market.

1977.152 The Top 100 Companies in South Africa Yet within these very obvious and very serious limitations. Chandler. . tobacco. Alfred D Chandler. Mass. Clearly South Africa does not have a balance between producer goods and consumer goods comparable to that of the United States and Germany and in some ways is more similar to Britain with its strength in consumer goods and distribution. The Visible Hand: The Managerial Revolution in American Business. America historically impeded the movement of capital by its peculiar banking laws. Between 1964 and 1984 the number of food firms in the Top Ten was reduced by one and department stores were eliminated. though it is only in South Africa that these have become major shareholders in banks and owners of huge industrial enterprises. Notes and References 1. Sasol and AECI. the South African experience is not so very different from that of other market economies in the late twentieth century. while the number of firms working with metal rose from two to three of which two. Smith. were new entrants since 1964. C. but the emergence of three or four large banks has been a feature of Britain. the two decades after 1964 in South Africa seem to resemble the two decades after 1880 in the United States. engineering and chemicals were the same industries that experienced transformation in the United States in the decades after 1880.. every reason to think that general economic laws are at work here and that. 3.. in D. Barlows and C. 'Comparative Business History'. Enterprise and History: Essays in Honour of Charles Wilson. and two of the Top Ten are now in chemicals and oils. G. p. The industries in which the very large firms clustered in America at the turn of the century are the same ones in which the big South African firms clustered in 1984. p. 1984. 3. dropped out. J r. Stewarts and Lloyds. Britain and Germany. the progress of industrial concentration is following a similar path to that of the large corporations in America. Ibid. Cambridge. 4. the Top Ten companies were all multidivisional enterprises organised on the M plan and eight of them either were not in existence in 1964 or were not then in the Top Ten. therefore. To an extent. Food processing. therefore. neither of which existed in 1964. notwithstanding all the political ideology masquerading as scholarship. Germany and South Africa. and one. Cambridge. Alfred D. In 1984. Coleman & Peter Mathias (eds). 2. and in all four countries large insurance companies have emerged. There is. Jr.

Most of the material for this section is taken from the Introduction to this seminal work. 8. Ibid. p. Jr... Ibid. 11. Ibid. 8. p. 'Comparative Business History'. 25. p.. chapter 8. Ibid. 6. p. 16.. Chandler. pp. 14. p. Ibid. The Visible Hand. Ibid.. 5. 9. Chandler. Ibid. p. 14. Alfred D. p. Ibid. p. 15. 20. Ibid.. 26. 286. 153 Alfred D. 289. Jr.. Alfred D. . 7. 13. 25. 12. 10. 'Comparative Business History'. Chandler. 24-5.Stuart Jones 4.. 16. Jr. Ibid. p.

would be guesswork) nor on world welfare (at best. MTN 155 . The purpose of the paper is simply to comment on some of the problems which arise from the establishment of MTN in developing countries and to present some data on the national origin and geographical distribution of MTN in SADCC countries. Furthermore. and this affects the institutional aspects of international economic relations. In addition. This is due not only to their growing power in world affairs. This paper is largely descriptive. this would have been too broad a topic. However. SOUTHERN AFRICAN DEVELOPMENT COORDINATION CONFERENCE It had originally been intended to consider MTN in the whole of the Southern African region. Nor will there be any attempt to quantify the effects of MTN on SADCC countries (which. a nebulous concept). but also to the special relationship which exists between the MTN and the governments of both home and host countries. in my opinion. an increasing part of international trade is made up of the marketing activities between subsidiaries of MTN operating in different countries. It does not aim at analysing whether MTN are beneficial or detrimental to the countries in which they operate.9 Multinational Corporations in SADCC (Southern African Development Coordination Conference) Jacqueline Matthews Multinational corporations (MTN) have attracted a great deal of attention in recent years. since South Africa is far more advanced than the rest of the area and is considered by many international organisations as a developed area. It would have meant discussing problems of MTN in both developed and developing countries.

transport and communication Swaziland . These are: Angola . the trade and aid agreement between the European Economic Community (EEC) and sixty-five African Caribbean and Pacific countries (ACP).soil conservation. it would be to her advantage to encourage such an organisation. Although it appears unlikely that SADCC will succeed. their economies will undoubtedly benefit from cooperation in trade. provided that South Africa's policy of destabilisation ceases in the new climate of political reform.industrialisation Zambia . I particularly in the context of Codes of Employment and international sanctions. There are at present nine members. Botswana.fisheries. SADCC is well known as a relatively new organisation. in the foreseeable future. With regard to South Africa's position vis-a-vis SADCC. land utilization and tourism Malawi . International organisations such as the World Bank and the European Economic Community have taken an interest in SADCC and the Lome Convention aid programme has ear-marked certain funds to encourage SADCC in regional cooperation.foreign aid and a Southern African Development Fund Zimbabwe . and of the Preferential Trade Area (PTA) with nine East African Botswana . aiming at the economic development of the Southern African region (excluding the Republic of South Africa) and at a lessening of dependence on South Africa.manpower training Tanzania . transport and research. However. it should be noted that SADCC does not aim at economic integration since there are no plans at present to form a free trade area nor a customs union between the member production and distribution All these countries are signatories of the Lome Convention. established in 1979. which can all be described as developing countries. Moreover. Lesotho and Swaziland are members of the Southern African Customs Union together with South Africa. knowing that .animal disease control and crops research Lesotho . wildlife and forestry Mozambique . each of which has been assigned an area of development and research. Thus it was decided to limit the framework of this paper to SADCC countries.156 Multinational Corporations in SADCC in South Africa have already been widely documented. in decreasing their dependence on South Africa.

If Spain and Portugal had been inordinately afraid of competition. Production includes goods and services. they would not have entered the EEC in January 1986. In the current literature. A MTN must not be confused with international portfolio investment. its ownership pattern and so on. their development. for instance regarding the size of the company. modes of operations. more stringent definitions are sometimes used. Ownership arrangements also vary and the parent company may share the .Jacqueline Matthews 157 SADCC's economic development will provide a growing market for South African products and a neighbouring source of supply for other goods. in other words. Unfortunately. strong pressure groups within the country resent foreign competition and may well influence the public into regarding SADCC as a threat. amplitude and activities. MULTINATIONAL CORPORATIONS Terminology The terms 'multinationals' and 'transnationals' are used widely and will be used here synonymously. but operate equally in many countries. There are great variations in the characteristics of MTNs. Moreover. The foreign subsidiary is owned (either wholly or in a large part) by the parent company which has its headquarters in the home country. Characteristics of MTN MTN will be defined here in a broad sense to include any enterprise with production locations in more than one country. Some authors argue that there is an important difference between the two: that while transnationals have their parent company in a specific home country. This is indeed a rare occurrence. These groups forget the beneficial effects of 'the cold wind of competition' as it has been called. competition could lead to an increase in the efficiency of local producers and an improvement in consumers' choice. multinationals have no such base. Current literature favours the former whilst the United Nations Centre for Transnational Corporations prefers the latter. the operations are ultimately controlled by the parent company and the aim of the subsidiary is subordinate to that of the enterprise as a whole. where individuals or financial institutions simply buy shares in foreign companies.

i. etc. Many host countries' governments welcome MTNs in the hope that through taxation. Increasingly. Other comparisons such as employment.e. sources of supply. Although it is debatable whether Gross National Product is comparable to MTN sales. Although all businesses carry risks. Many factors will influence large corporations into going abroad: cheap land or labour. they may benefit or damage the host country's output and employment. MTNs undertake greater risks (although at the same time they diversify these risks). The host country's balance of payments may improve if the subsidiaries export a large part of their output but it may worsen if they import inputs on a large scale. the opposite will be the case.158 Multinational Corporations in SADCC ownership of the subsidiary with local residents. if the MTN displaces local companies. Under the Third Lome Convention of 1985. and partly because a corporation requires large resources in order to become a MTN. it is nevertheless interesting to consider these data. If MTNs establish subsidiaries where there is a gap. host governments in Third World countries favour joint ventures. then it can be assumed that the host country's output and employment will be enhanced. Partly because of these risks. Broadly speaking. closer contact with valuable customers. corporations or the foreign government. low taxation rates or transport costs. Problems The most controversial aspect of MTNs is probably that of their effect on developing host countries. and a careful examination of all aspects of the venture is normally carried out before taking such a decision. Other problem areas are the transfer of technology and labour organisations. In most cases. On the other hand. there will be a . It is risky to generalise. they tend to be large organisations.1 illustrates the importance of some of the largest MTNs. joint ventures between EEC and ACP industrialists are encouraged in the hope of promoting the development not only of industry but also of local entrepreneurship. are more likely to be misleading. Table 9. the need to avoid new trade restrictions. companies that become MTN already have an export branch and overseas contacts. The long-term aim of companies which expand into foreign countries and thus become multinational is profit maximisation and investments security. balance of payments and government revenue. where it is impossible or difficult for local nationals to set up a profitable enterprise.

7 19.6 19.5 58.5 25.31.4 20.1 23.1 32. DC: World Bank.1 46.9 359.4 109.1 1208.5 24.9 23.5 476.0 1053.8 195.5 24.6 121.159 Jacqueline Matthews Table 9.8 71. Department of Economic and Social Affairs.6 101.8 26.9 37. and World Development Report 1980.6 66.5 71. Transnational Corporations in World Development.5 39.7 56. Corporate sales figures from United Nations.2 24.9 48.9 Product Rank Economic entity ($ billion) 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 Yugoslavia Norway Texaco Rumania British Petroleum Finland Standard Oil of California Greece Bulgaria ENI Ford Motor Colombia Thailand Gulf Oil Standard Oil (Indiana) IBM General Electric Pakistan Atlantic Richfield Fiat Unilever (GBR) Compagnie Fram.3 110.2 51.3 147.2 25.5 31. .4 27.7 Source: Gross national product figures from the World Bank Atlas (Washington. 1980 Rank Economic entity 1 2 3 4 5 6 7 8 9 10 United States USSR Japan West Germany France United Kingdom Italy China Brazil Canada Spain Netherlands India Australia Poland Mexico East Germany Sweden Exxon Belgium Switzerland Czechoslovakia Royal Dutch/Shell Nigeria Argentina South Africa Austria Indonesia Mobil Oil Turkey Denmark Venezuela General Motors South Korea 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 Product ($ billion) 2639.7 155.1 139.1 Ranking of countries and multinational corporations according to size of annual product.4 89. 1983).8 255.6 137.6 52.6 61.2 50.1 243.2 37.4 57.9 758.8 23.3 63.7 61.1 22. Third Survey (New York): United Nations.3 37.2 267. 1983) Annex table 11.3 73.7 153.aise des Petroles ITT VEBA Portugal Hungary Petroles de Venezuela All other developing countries: less than 56.0 77.3 114.6 28.6 70.3 40.5 601.

Would they prefer it if MTNs did not employ workers in foreign countries at all? The question of wages is also difficult. Some maintain that certain techniques are inappropriate to developing countries and that companies in developed areas. Workers' organisations have an ambivalent attitude towards MTNs. A further debate concerning employment is whether MTNs increase the human capital of host countries. Trade unions in the home country tend to disapprove of MTNs establishing subsidiaries where workers will accept lower wages. or whether trade unions in the home country object to the export of jobs. Technical and managerial skills may increase following the establishment of subsidiaries provided that MTNs do not offer too many enticing transfers abroad to those local employees who have acquired those skills. with large R&D (Research and Development) budgets. it is unwise to generalise: the outcome depends on MTN staffing policies and the reaction of local employees. Whether this is paternalism or neo-colonialism is not relevant to this chapter. This could happen but MTNs may be able to alter the prices of their inputs and outputs in such a way that less profit will be shown in the host country. This varies . On the other hand. should undertake the responsibility to improve existing technology in order to make it more suitable for Third World countries. MTNs will be accused of exploitation by paying 'starvation wages' and if they are too high. What is relevant is that the transfer of technology to developing countries is largely carried out by MTNs. Besides 'inappropriate technology'. The transfer of technology is often debated in the context of economic development.160 Multinational Corporations in SADCC substantial increase in State revenues. It is sometimes said that MTNs always keep the best managerial posts in their foreign affiliates for nationals of the home country. they sometimes manipulate prices in order to show a lower profit in the high tax-rate country and a high profit in the low tax-rate country. there is now also talk of 'inappropriate products'. Once again. If wages are too low. But it is not clear whether this disapproval stems from a solidarity with foreign workers who may not be in a strong bargaining position. others point out that MTN social responsibility does not extend that far. This is called 'transfer pricing' and can also be used to avoid the payment of high import duties on inputs. Where MTNs operate in several host countries. they will be accused of upsetting the social equilibrium of the developing host country by creating an 'elite'.

There were allegations of overmining and of low tax payments. which only apply to MTNs operating in South Africa and are only concerned with conditions of employment for Black employees. The danger of exploitation of host developing countries by MTNs has attracted the attention of international groups. when a country is in a colonial position. In the context of North-South relations. it has not yet been finalised. This will be referred to again below. let us consider some relevant data. Because of these and other problems. MTNs IN SADCC COUNTRIES After this brief overview of some of the problems concerning MTNs particularly in developing countries.Jacqueline Matthews 161 according to MTN policies and the definition of 'the best managerial posts' . As far as can be ascertained. This should not be confused with the Codes of Employment such as the Sullivan Principles and the EEC Code. This . mentioned earlier. the size of the labour force. To obtain accurate data on all these aspects would have required more time and other resources than were available to the author. However. 3 The United Nations Centre for Transnational Corporations. these rules have not always been successful in protecting the interests of developing countries where leaders and legislators lack knowledge and sophistication. the Brandt Commission (set up in 1978 to consider international development issues) examined these problems a few years ago and made certain recommendations. as is the case for Namibia. etc. developing countries tend to lay down certain constraints and rules to regulate activities of MTNs. Let me say at once that a complete picture of MTNs in SADCC countries would have to give figures on the magnitude of the foreign capital stock in each of the member countries. the sectoral distribution of MTN activities. A rather different kind of institution concerning MTN is the Overseas Private Investment Corporation established in the United States for the purpose of insuring corporations who wish to go MTN. profits. This should certainly be investigated and steps taken to ensure that a fair proportion of the profits assist local development. there is scope for abuse on the part of MTN. is presently working on a code for MTNs. This was suggested by press reports 2 on the Thirion Commission of Inquiry presented to the National Assembly in Windhoek in March 1986. Moreover. wages.

4 South Africa is considered a Developed Market Economy.162 Multinational Corporations in SADCC chapter will therefore be limited to the geographical distribution of MTNs in the region. Table 9. relative to all developing countries. and only 43 South African.5 and 9. Although not noticeable in this table. It may be noticed that South Africa is not listed although in the publication from which the data was taken.7. Clarke when he considers 'the problematic definition of country of origin' in a study of MTNs in Zimbabwe. MTNs with parent companies situated in developing countries. One of the reasons may be as follows.9. attention is generally focused on MTNs in developing countries. The absence of data for British MTNs operating is Lesotho may be puzzling at first. Only about a quarter of some 98000 affiliates were situated in Third World countries in 1980. It would seen that there may have been significant undercounting of the latter although it is also probably true that these enterprises have tended to be of larger average size than British firms. 6 He writes: the largest number of foreign firms was of UK origin (184 of the 293 noted) whilst 62 were American. Only Hong Kong. In the current literature.s it is therefore surprising that it does not appear in Tables 9. i.4 shows MTNs subsidiaries in SADCC countries.2 shows that MTNs operate far more extensively in developed areas.e. Table 9. but increasingly countries such as India are home countries to MTNs.9.2.4. Table 9. but this is explained by the fact that these will be negligible compared to British MTNs in the Third World as a whole. Since South African investment in neighbouring countries is well known.3 lists the main home countries with MTNs operating in Africa. 0. It is not always easy to determine the country of origin of a MTN because of the complexity of financial arrangements. another development is the growth of Third World MTNs. Consequently. 6 Canadian. This is explained by D. A further aspect is that there were large numbers of British firms with South African subsidiaries and/or associates.1 per cent of British MTNs operating in African . G. Table 9. probably because of the widespread interest in North-South relationships.3.5 clarifies this point: considering foreign subsidiaries in SADCC countries. Malaysia and Singapore feature in Table 9. However. the definition British or South African is neither clear nor in all instances a correct or useful one to draw.

and some decisions require government sanctions. Table 9. If advanced technology is involved. Data for South Africa have been underlined.3 per cent of British MTNs operating in African developing countries are in this country. Preference is given to firms using local resources and which export their products. A recent Economist Intelligence Unit ReporC states that all SADCC countries encourage private foreign investment.Jacqueline Matthews 163 developing countries. Finally. wages and prices. There are. 19. it is of interest to consider the reaction of SADCC countries to MTNs. The control of SADCC countries on foreign MTNs are farreaching on remittances of profits. are in Lesotho. and it is difficult to obtain foreign currency to import raw materials if the aim of the MTN is to produce goods entirely for the local market. this State was not included.7 looks at each of the SADCC countries and the relative importance of the home countries from which MTNs operate. most States prefer joint ventures and favour the involvement of the dominant parastatal company. to give protection to MTNs against nationalisation and non-convertibility of dividends.6 shows the distribution of foreign affiliates of MTNs from selected home countries among host developed market economies. of course. whether they are labelled capitalist or Marxist. and most of them have signed agreements with the US Overseas Private Investment Corporation (OPIC) mentioned above. Several of the SADCC members offer incentives to attract MTNs from abroad. MTN in Lesotho being relatively negligible. Let us bear in mind the point made earlier about the difficulty of establishing the country of origin of an MTN. Table 9. and they have both private and public sectors operating in the economy. dividends. ATTITUDE OF SADCC COUNTRIES TO PRIVATE FOREIGN INVESTMENT Considering the problems inherent in the establishment of MTNs in developing countries. a greater degree of foreign control is allowed. . According to this report. Zimbabwe has the largest share. The high figure for Australian MTNs in the Republic has been attributed to an insurance company. National Mutual. taxes and import tariffs.

8 6.0 6.2 5.5 0.5 2.7 0.3 11.5 3.2 South and East Asia Europe Developing countries 17.8 0.2 1.1 Australia Austria Belgium Canada Denmark Finland France Germany.4 8.1 58.0 100.0 100.0 100.5 18.2 0.2 17.7 2.2 3.2 .8 93.7 9.0 100..1 69.3 14.0 Subtotal Total Distribution among regions of foreign affiliates of companies from selected home countries (percentage) North America Table 9. of Italy Japan Home country Europe 5.2 0.7 Africa 0.2 3. Rep.8 82.0 West Asia 4.3 80.8 4.2 1.9 30.8 2.2 74.7 6.0 100.4 17.7 0.2 15.5 1.7 1.0 100.8 1.5 5.0 68. - .6 4.4 3.7 1.8 2.1 12.0 19.4 2.5 43.2 9.7 3.6 41.7 73.1 0.8 1.4 39.0 100.s:.0 100.5 58.5 56.0 100.2 81.2 34.7 85.2 9.5 0.0 7.2 1.3 3.19.9 7.4 73.9 Other a 82.5 100.4 1.2 8.9 Latin America Host region Subtotal Developed market economies 1.9 40.2 6.2 0.0 13.6 26.6 0. Fed.2 63.7 3.6 18.2 7.9 2.5 81.8 72.5 9.1 0. a-.9 41.5 8.8 18.3 27.9 0.1 0.1 4.

2 17.9 3.3 13.0 100.6 27.4 7.8 Luxembourg Netherlands New Zealand Norway Portugal 0\ .2 0.5 8.3 2.2 76. Third Survey (New York: United Nations.7 35.0 100.9 Spain Sweden Switzerland United Kingdom United States Average (Developed Market Economies) 9.8 42.4 0.4 8.4 3.0 100.4 2.3 1.1 0.6 0.5 5.2 Hong Kong Malaysia Singapore 44.7 9.1.0 100.0 100. aAustralia.4 6.1 6.6 56.7 5.0 83.9 0.9 10.1 0.1 4.2 4.9 7.9 6.9 1.2 0..3 0.9 6.6 21.4 9.2 60.0 4.5 0.8 1.0 100.0 100..9 0.0 0.7 2.3 29.5 87.5 9.0 100.0 100.3 23.1 75.7 2.1 73. table 11.8 23..8 70.0 Source: Transnational Corporations in World Development.2 100.1 24.0 21.9 16.3 0. Japan and New Zealand.7 34. 1.0 13.3 4..1 31.8 0.6 57.2 57.5 13.0 0. U1 .7 86.1 8.8 88.0 4.8 40.8 82.7 7.5 5.1 72.0 16.5 9.2 42.3 0.8 76.7 2.4 81.2 34.0 100.2 1.0 61.0 86.8 74..2 9.9 55.8 0.0 100.1 24.1 0.5 4.0 55.5 0.3 4.2 8.7 0.2 62.0 100.3 65.7 5.5 2.3 1.0 10.8.9 0.0 100.7 21.9 10.6 26.9 4.9 3.6 5.3 21.8 65.7 0.4 10.1 14.1 12. 1980).4 19.2 1.5 90.

6 0.5 1.9 1.6 1.2 1.3 g.8 1.8 7.2 1.9 3.4 South and East Asia Developing host region 3.6 7.3 1.1 0.2 7.7 0.0.2 4.9 0.1 3..l 4.5 1.4 6.5 Finland France Germany..2 0.3 1.4 2.6 8.2 0.0 3.1 1.2 8.2 0.4 0.9 2.9 Developed market Grand economies total Distribution of affiliates of transnational corporations by home country within regions.3 0.1 0.2 4. Italy Japan Africa 0.8 3.8 0.7 1.3 4. 1980 (percentage) Australia Austria Belgium Canada Denmark Home country Table 9.3 3. .1 1.4 2.8 0.R.4 Latin America 0. .2 5.4 5.9 3..6 3.4 0.3 0.0 3.1 5.5 6.1 IB..0 0.1 0.1 West Asia 1.2 1.0 0.4 12.6 2.0 2.2 0.4 1.8 0.3 2..1 3.6 1.3 0.1 5.5 0.5 0.7 1.8 0.9 Europe Total 0. F.

4 4.1 0.1 1.6 0.4 0.3 36.1 2.] 0\ - .9 42.0 l. Malaysia and Singapore.1 0.3 0.6 25.0 3.7 0.5 0.9 3.0 0.0 2.9 1.5 40.4 100.0 1.100.2 0. table II 9.0 21.3 1.8 0. *Less than 0.6 0.1 100.5 0.5 5.7 26.6 2.2 4.2 0.1 0.3 100.4 1.2 1.2 * 0.3 Sweden Switzerland United Kingdom United States Other countries a Netherlands New Zealand Norway Portugal Spain -. Third Survey (New York: United Nations.3 1.1.4 34.4 5.5 5.0 1.2 Source: Transnational Corporations in World Development. 2.2 15. Luxembourg. 1980).0 2.4 10.4 10.6 2.4 6.3 1.6 33.4 4.5 4. aHong Kong.5 8.5 0.6 * 0.0 0.1 62.0 100.5 0.0 2.4 0.0 3.9 4.4 56.0 Total 100.2 25.0 26.8 31.3 100.9 0.0 100.

.17.1 0.2 FRA* 100% 99.9 0.2 0.5 1.6 0.5 0.4 UK' 100% 96.7 0..3 0.7 6.2 0.7 0.3 0.8 0.1 0.4 Distribution of foreign affiliates of MTNs from selected home countries in host SADCC countries.0 1.4 0.1 0.6 0.1 0.0 14.1 SW/* 'AUS BEL CAN DEN Australia Belgium Canada Denmark GER FRA ITA JAP Western Germany France Italy Japan NET NOR SWE SWI Netherlands Norway Sweden Switzerland Source: Extracted from Transnational Corporations (New York: United Nations.4 0. 1980) Annex table 11.3 0.0 1.8 0..3 2.1 3.7 0. 0\ 00 ..1 2.2 0.3 0.3 CAN* 0.97.2 ITA' 100% 99.4 100% 96.9 0.0 100% 100% 98.3 0.8 4.5 1. 2.2 0.2 1.1 JAP' 100% 95.5 4.4 0.1 0.9 1.1 0.7 3.1 0.2 USA' Table 9.2 0. 318-9.5 NOR' 100% 98.1 3.2 0.2 SWE* 100% 99. pp.1 All countries Britain United States 100% 99.2 0.1 0.5 3..5 3. among all developing countries.3 0.2 BEL* Total SADCC Affiliates in other LDCs Angola Botswana Lesotho Malawi Mozambique Swaziland Tanzania Zambia Zimbabwe A US' UK US 100% 86. 1980 .6 0.7 100% Total 94.0 0.1 0.7 1.6 0.4 0.6 0.5 0.3 1.9 GER' DEN* 100% 99.3 0.2 0.3 0.1 0.0 0.0 1.3 0.1 0.6 NET' 100% 95.9 100% 99.7 0.1 6.2 0.

0 100% 85.2 4.2 2.5 \0 .3 2.0 1.5 0.5 15.1 2..0 3.4 SWI 100% 55.1 FRA 100% 94.7 5. within African developing countries. 323-6.2 0.9 19.9 2..1 44.5 0.4 100% Total 2.6 1..8 0.6 9.1 0.4 5. 0\ .7 74.0 0.3 GER 16.5 39.8 0.1 0.9 11.2 0.0 1.5 2.1 3.3 All countries 14.3 0..7 0.4 0.2 1.5 4.6 1.7 16.1 4.5 1.3 USA Source: Extracted from Transnational Corporations (New York: United Nations.9 ITA 100% 94.3 1.1 2.0 2.5 4. pp.2 11.4 4.3 100% 100% 88.9 0.1 0.18.6 4.2 3.6 100% AUS' Distribution of foreign affiliates of MTNs from selected home countries in host SADCC countries.5 lAP 100% 83.6 28.1 BEL 5.7 9.8 1.3 2.1 5.0 6.3 0.0 1.9 0.9 100% 24.3 3.60.1 0.1 2.2 CAN 0..9 0.4 1.8 0.6 5.3 76.1 3. 1980 Total SADCC Other African LDCs Angola Botswana Lesotho Malawi Mozambique Swaziland Tanzania Zambia Zimbabwe Table 9.7 2.7 0.4 UK 1.9 2.2 1.7 1. 100% 94.4 NET 100% NOR 100% 84.2 1. 1980) Annex table 11.2 25.2 DEN 100% 99.3 0. *% omitted because companies from home country concerned have a total of less than 25 foreign affiliates in African developing countries.3 4.2 SWE 100% 97.

2 2.1 2.2 2.8 8.8 0.4 5.2 0.3 3.9 0.7 5.2 5.3 5.7 0.3 19.2 0.4 8.7 1.1 0.8 2.1 20.1 2.1 0.5 2.3 0.9 0.6 --.2 1.4 4.8 FRA 3.2 1.8 0.5 1.0 0.2 4.5 0.6 0.4 7.2 2.7 4.7 2.9 0.1 1.1 0..2 1.8 2.0 4.8 2.1 0.4 5.0 0.7 1.4 0. F.1 5.5 5.6 0.7 0.1 2.7 1.8 1.1 3.1 0..7 0.7 1.R.6 6.9 0.5 0.0 2.4 4.3 0.8 0.2 41.9 0.8 0.5 8.0 1.6 14.5.2 0.3 7.7 1.9 0.8 0.5 0.7 1.6 2.6 2.4 0.3 1.5 11.6 1.3 1.2 1.7 0.4 0.1 1.5 1.5 2.4 6.2 0.2 0.5 0.2 4.1 0.4 0.1 0.9 2.0 0.8 13.2 0.5 13.7 0.2 2.1 1.7 1.6 1.2 2.5 1.3 1.7 0.6 8.4 5.4 6.6 AUS AUT BEL CAN DNK DEU FIN 0.5 22..3 6.8 15.2 1.4 2.1 5.4 0.1 2.0 1.5 0.4 0.4 5.6 1.4 2.0 13.2 0.3 0.9 8.8 0.7 0.0 0.0 12.1 0.3 0.2 0.7 6.8 3.8 8. Greece Iceland Australia Austria Belgium Canada Denmark 11.2 15.9 1.4 1.0 1.0 0.4 14.8 1.7 2.3 13.2 1.9 0.0 14.9 0.9 0.9 0.3 0.7 1.1 Netherlands New Zealand Norway Portugal South Africa 1.9 0.0 0.9 2.7 1.4 0.6 8.8 1.7 0.6 1.5 0.4 2.2 0.0 0.7 6.1 1.9 8.6 2.6 20.5 0.5 0.1 1.5 2.7 0.7 0.6 1.5 0.2 26.4 0.0 0.8 0.5 1.4 5.5 2.2 ·4. 1980 Developed market economies Host country Table 9.4 0.2 0.2 0.1 0.1 0..4 3.3 9.8 0.9 0.6 1.2 1.6 0.1 2.7 1.7 8.3 1.2 3.4 4.5 14.9 0.2 2.1 ITA Home country" Distribution of foreign affiliates of MTNs from selected home countries in host developed market economies.9 Ireland Italy Japan Liechtsten Luxembourg Finland France Germany.3 0.9 3.6 1.1 3.3 0.4 1.2 1.6 6.5 3.4 6.1 1.6 0.2 9.9 1.2 8.1 6. .5 0.2 1.8 19.1 1.7 1.2 0.6 0.4 3.9 0.0 24.6 0 3.0 1.4 11.2 1.8 0.3 8.9 1.1 2.5 10.1 0.3 2.2 1.J 0 .8 0.1 1.2 2.4 5.0 1..4 77.7 0.4 12.7 3.7 9.2 10.6 4.4 3.8 0.7 6.2 0.4 6.3 0.2 0.9 4.1 0.7 0.9 11.4 1.5 3.3 6.6 All JPN NLD NZL NOR ESP SWE CHE GBR USA countries 2.5 1.6 0.2 0.6 8.4 0..6 6.5 9.6 1.2 7.7 3.6 1.6 9.1 0.9 0.8 10.5 6.2 0.3 1.6 3.2 14.

. .0 7.8 7.9 3.8 27.6 3.0 100.0 100.8 5.0 19.1 2.0 100.0 2.2 1. Rep..8 10.1 404 7.2 2932 7. aThe following codes are used to identify home countries: AUT Austria BEL AUS Australia FIN DNK Denmark DEU Germany.0 100.0 100.0 8.1428 2474 756 6087 229 3326 1136 7.4 7.6 1265 33.8 1.5 1.3 7.2 Source: Transnational Corporation (New York: United Nations.9 3591 6.5 12.0 100.18.0 12..7 22.7 Spain Sweden Switzerland United Kingdom United States .1 3.3 8.0 100.l . 1980) Annex table 11.8 25.3 0..0 100.2 1.5 3.7 9.9 100.4 No.7 2.0 7.-.0 2.9 4.2 135 2.2 16.0 2.1 3.8 14.9 1.9 14.6 1..6 0.9 10.5 Belgium Finland Netherlands Spain United States 348 4. Fed.7 14.0 0.0 100.2 0.0 100.0 100.3 7.4 3..0 100..2 0.0 100.9 16.8 2. ITA Italy JPN Japan NLD PRT Portugal ESP NOR Norway USA CHE Switzerland GBR United Kingdom 208 8.6 0.0 4.4 23.6 1.4 5.5 1.0 100.8 15.4 5..8 1.6 100.4 14.0 9.2 3.0 100.6 1104 8.8 3. of cases 6.8 1.9 1.9 1.4 27.8 7.1 0.2 Total 42.0 100.1 4.2 4.3 6.3 10.2 1.0 100.9 5.7 CAN FRA NZL SWE Canada France New Zealand Sweden 3526 18895 21959 70423g1 7.2 10.3 1.2 11.

1 0.4 1.5 3.7 16.1 0.0 0.3 1.8 2..7 Host countries Malawi Moz.6 2.3 0.8 5.'100% 46.0 5.4 Tanz.9 0.4 4. -..7 56.3 1.6 5.6 73.0 5.6 8..2 2. Source: Extracted from Transnational Corporations (New York: United Nations.3 0.1 1. the figures given do not always add up to 100%.I N .2 2. Germany Home countries Table 9.7 Distribution of foreign affiliates of MTNs from selected home countries in SADCC host countries (except Lesotho).5 76.8 4.6 0.4 100% 1.0 15.8 87. Total ± Other home countries Portugal Sweden Switzerland Britain USA France Italy Japan Netherlands Norway Australia Belgium Canada Denmark w.2 0.3 3.7 Swaz.2 0..5 Zimbabwe Zambia 0.7 18.8 2.0 100% 2.9 7.2 86.0 0.1 2.6 100% 78.3 15.6 Angola 100% 100% 100% 73.19.4 0. 1980 .9 2. 11.2 1. 1980) Annex table II.. 'Because of the rounding-off procedure.7 1.1 0.7 0.3 0.8 7.0 100% 2. 0.8 1.1 0.5 Botsw.0 3. 1.8 6.6 15.

that it will improve income distribution. and half of the total capital stock in Zimbabwe is foreign owned: half by South Africa and about a third by Britain. As it appears that SADCC's . from the available evidence. there may be tax holidays and exemptions from import duties. there remained uneasiness about the 'exploitative nature' of private capital. Since independence. But the rejection of foreign investment and MTNS. Zimbabwe is examined in more detail in the report because it has the largest foreign investments in the region (not unexpected since it is also the most developed of all SADCC countries) and because 'it is in many ways typical in its ambivalent attitude to further foreign capital'.7. bicycles and typewriters. This casts some doubts on the data in Table 9. CONCLUSION It appears.Jacqueline Matthews 173 Each SADCC country has its own investment rules. This does not mean. is even less likely to improve people's welfare. in 1982. investments of over Pula 10 000 are eligible for grants under a scheme which began in 1982. Thus there can be no claim that MTN will assist in increasing the welfare of the people. the Zimbabwe government recognised the vital role foreign investment can play in development and. Angola enacted a law to encourage foreign investment in 1979. These few examples illustrate the variety of arrangements which exist in SADCC with regard to MTNs. however. Licences are required in Swaziland and joint ventures with local firms are preferred to purely foreign firms. that SADCC countries have a positive attitude towards foreign MTNs and it can be safely assumed that foreign investment will generally contribute towards development. which depends on government policies. and foreign investments are guaranteed against nationalisation for ten to fifteen years. In Botswana. G. there is a five-year tax holiday and grants for up to five years for employing unskilled labour and for training. In 1981. where new projects do not harm local firms in the manufacturing sector. assuming that almost half of all capital flowing into the country would come from the private sector. there have been twenty-three new agreements with foreign firms from a dozen countries. However. For instance. 8 There are more than 300 foreign firms in the country. quoted earlier. Clarke. but may be explained by the point made by D. a national development plan was published. there has been particular interest in food processing and assembly of electric motors.

Croom Helm. Centre for Transnational Corporations (CTC). 7. Catholic Institute for International Relations. p. ibid. South Africa in the World Economy. pp. p. Muller. pp. McGraw-Hill 1983.174 Multinational Corporations in SADCC economic situation has recently been causing some concern. London. ch. London. United Nations. Special Report. A. 1980. M. Projects and Prospects. pp. Transnational Corporations in World Development. 8. Hanlon. 6. Rogerson. Matthews (ed. Notes and References 1. 'Multinational Corporations in Southern Africa: A Spatial Perspective'. 1984. 1980. 179-220. London. Duncan G. Clarke. 9 March 1986. 4. 2. Sunday Times. J. Third Survey. 'Multinational Companies in South Africa'. . Foreign Companies and International Investment in Zimbabwe. 5. Report published by Pan Books. SADCC: Progress. since a reversal of this policy could only hinder further economic development. Taylor and N. 3. Muller. 10 in M. The Economist Intelligence Unit. M. ibid. 3. A. 207-35. The Geography of Multinationals. 86. London. it is to be hoped that SADCC countries will continue to welcome MTNs. Rogerson and G. 182. 1983. Thrift (eds). J. ch. C.). J. 8 in J.1980. For example. G. Hanlon. 85 ff. under the title: North-South: A Programme for Survival. Johannesburg. Durban.. no. 1982. C. New York. Johannesburg and Sunday Times. follow-up: Common Crisis: North-South: Cooperation for World Recovery.

Initially each branch acted totally independently. the Board of Directors in London realised that all was not well and decided to appoint a General Manager in South Africa to keep an eye on all activities and to control the running of the Bank more closely. This included the whole Cape Colony and Natal. was an experienced banker and on his arrival in South Africa made major changes and tightened the controls considerably. the introduction of the British interest necessitated a wider sphere of influence. etc. The capital was luckily forthcoming and on 13 October 1862 the Standard Bank of British South Africa was born. The records created in this initial stage are unfortunately very few and far between . that was where the new bank's headquarters were. They were unable to raise sufficient capital in South Africa and sent a deputation to England to raise the necessary money. exclusively within Southern Africa. Although the original idea had been to limit the Bank's activities to Port Elizabeth.primarily as a result of a shortage of duplicating facilities. etc. The first branch was opened at Port Elizabeth in January 1863 and thereafter Durban and various centres in the Eastern Cape Province. each with its own board of directors. Robert Stewart. In 1864. Local boards of directors were abolished and all branches were henceforth responsible to the South 175 . From 1864 the Western Cape also fell under the Bank's sphere of influence. In the Articles of Association the Bank was granted permission to open branches in Southern Africa in areas under British rule. however. The first General Manager. The lack of control inevitably led to mismanagement and a number of managers granted themselves and their friends large unsecured overdrafts.10 TheStandardBankand Its Records as an Economic Source Barbara Conradie The Standard Bank was the brainchild of a group of Port Elizabeth businessmen who wanted to establish their own local bank. There was also really little need to put too much on paper as a result ofthe autonomy of each office. As the Board of Directors was situated in London. The actual banking activities were.

Now an industry free from the dictates of the seasons was entering the economy. policy. As soon as the diamond wealth of the Griqualand West area was confirmed the Standard was the first bank on the scene with a branch to assist the industry. As the Bank's ever growing number of branches were situated over a wide geographic area.176 The Standard Bank African General Manager who made Port Elizabeth his headquarters. but also the general conditions in the country . As the Board of Directors had the final say with regard to branch extension. Each branch was inspected every twelve to eighteen months. they had to be well informed. He also introduced a weekly correspondence with the London Board of Directors which kept them informed on not only the activities of the Bank. as a result. the General Manager experienced difficulty in controlling them at a distance. In 1866. the experience was to stand the Bank in good stead as the first bank on the Witwatersrand gold fields later. Despite problems and mistakes which arose out of ignorance at the beginning. weak. The purchasing of gems from diggers and the sale on their behalf in England was a new venture in the banking industry in South Africa. give a marvellous running commentary on the development of the subcontinent. very similar to those written by the Governor of the Colony to the Secretary of State in England. and poor transport facilities and. Wool production was susceptible to droughts. The importance of the diamond discoveries (and later gold) to the economy are illustrated clearly in the General Manager's correspondence. but after a poor one. Although the Bank was not represented in the Orange Free State or Transvaal until later .even the early letters refer to the economic conditions and prospects of these areas. As all aspects of life influenced the Bank. The Inspector was also an experienced banker who travelled from branch to branch to check books and judge each branch's efficiency. Not only the branch and the routine aspects of commercial banking are described. After a good season the economy was healthy. all were extensively discussed in the General Manager's letters. These weekly letters. The reports compiled by the Inspectors are wonderful sources of information of local economic development. he introduced a system of inspection whereby the results and activities of each branch could be assessed. but outlines of the economic stability and prospects of the town and district are detailed. the country's economy was largely dependent on the fluctuations of the seasons. Previously wool had been the main South African export product. .especially those affecting the economy. floods. etc. giving it a wider base and a better chance of stability.

as well as the growth of the town from which the branch operated. little economic development had taken much so that the Bank has .both good and bad. but overall these reports give an invaluable description of the development of a town and its environment on an almost annual basis. The earliest reports are dated 1867. Records of individuals and companies having opened accounts are kept. Confidentiality between the Bank and its clients precludes the Bank from keeping records relating to individual account holders. As the Bank was reasonably alert to any economic activity. To make it more convenient for the Board of Directors in England to explain trends and growth patterns in the South African context to the shareholders. in 1872. The reason for this was. These liability lists are valuable in determining the broad details regarding the individual account holders although exact figures are not given. Taken together they also provide an excellent general description of the economic history of the country . to determine the viability of maintaining a branch in the district concerned. Obviously the quality of these reports as general information sources differs from Inspector to Inspector. but no details as to the actual financial position of each. I These reports summarise the events and developments of the Bank itself and the economy in which it operated for the previous six months. which can be regarded as a major source of information on regional growth. of course. With the broadening of the South African economy. the General Manager. it is safe to say that prior to the Bank's arrival in a centre. After 1910 the volume of business conducted at the various branches made listing liabilities too time consuming and laborious. with a brief description of the manager's opinion of the person/company and their ability to repay the amount.Barbara Conradie 177 Most of the towns in the last century were dependent on the farming community and details of their successes and failures. are described. In the Standard Bank's archives in Johannesburg there is a reasonably complete set of these reports up to 1940. but reports were only compiled once the Bank was actually established in a centre. the spectrum of subjects discussed in the General Manager's weekly letters to London expanded. Up to 1910 the Inspectors' reports on branches did include lists of clients who had some kind of loan or other liability. began compiling half-yearly overviews of happenings in South Africa. The descriptions of general economic conditions in an area also helped to explain exceptional results attained by the branch concerned .

the records created by the Bank became more and more bank oriented. The General Manager's weekly correspondence with England. The return of independence in the early 1880s forced the Bank to change its charter to areas in Southern Africa irrespective of whether they were under British control or not. . It not only served a wide geographic area. This is when the 'British' was dropped from the name of the Bank.178 The Standard Bank decided to publish an edited version of those dated up to 1910 as a contribution to the country's economic history and to celebrate its 125th anniversary in 1987. it opened branches there as well. The Standard's interests were not confined to the Cape and Natal only. an active interest in events in the Transvaal and Orange Free State. ceases to give details of general economic interest around the 1940s. as general events are taken more and more as known. With improved communications and better public media coverage on events in South Africa after the First World War. to a certain extent. the Bank cooperated closely with the National Bank of the OFS and kept a close watch on developments in that quarter. although continuing until the 1960s. It remained while other banks fell by the wayside. It was conservative in its dealings and stable. Even before extending its influence to other areas it had. The Standard was the biggest and most influential bank in South Africa during the last century. They were discontinued in 1962 when the South African arm of the Standard broke away from the London company and acquired greater administrative autonomy. For the period 1865 to around the outbreak of the Second World War. These reports increase in volume as the economic activity in South Africa increases and in 1927 become annual rather than half-yearly. also limits the amount of background to the Bank's own reasons for doing things. Its role in the economy was substantial. but as government banker to the Cape and Transvaal governments and underwriters and supporters of the National Bank of the OFS played a vital role in economic decision-making. This move meant that the Bank could remain in the Transvaal even after independence. objective and insightful commentary on the economic happenings of South Africa and should not be ignored by anyone wishing to study any aspect of the country's past. the Standard Bank's records undoubtedly provide valuable. The minute the Bank heard that the Transvaal had been annexed as a British territory in 1877. however. through customers. Telephonic communication. Although local legislation kept the Bank out of the OFS until 1900.

See Alan Mabin and Barbara Conradie. 1986. . An edited version of these reports was published on the end of 1987.Barbara Conradie 179 Note 1. Standard Bank. Johannesburg. (eds) The Confidence of the Whole Country.

British Kaffrarian Bank.108. 22. 27 bank rate (official discount rate). 118123.23 Albany District. 18 Argentina. 113-131 marketing of. 4 origins.30 Asbestos. 1968 Bank Act.16 agency houses. cost. 168-9.119.115. 81. 39 Angola. 115. 136 accounting.88.29. 51.127.129. 14. 69. 5. Cape of good Hope. 107 Marketing Act 1932. 121 structure. 28. 16. 29.Index AECI (African Explosives and Chemical Industries).117. 85. 29 Jewish. 159. 115. 14 productivity of. 136 African. 114. 139 Amsterdam. 76. 117. Financial Institutions Amendment Act 1985.107. 56 Algoa Bay. 170-1 automatic tellers. 156. 128. 1965 Bank Act. 139 Armscor. Barclays. 86. 18. 70.114. 15 in Cape Colony. 39 American Tobacco. 78. 120. 130. 106. 95 Atlantic Richfield. 170-1. 159 Australia. 173 Apartheid. 123.48 Aliwal North.94-5. 13. 163. 58. see investment trusts agriculture farm incomes. Continental 181 . 128 bank definition by 1965 Act. 156.124.172 Austria. 114. 1972 Amendment to Bank Act. capital and financial. 48. 116. Netherlands Bank. 114 banks central banks: Bank of England. 159 Armaments Corporation. 137. 87. 166-7. 4 commercial. 115 definition of by Bob Hope. 5 changing functions. Bankorp (see also Trust Bank). 127 networks. 159. 122. 62 American Celanese. 164-5. 124. Commercial Bank of Zambia Ltd. 7. 74. 50. 148 Anglo-Persian Oil Co. 88 Anglo-American Corporation. South African Reserve Bank. alphabetically: Algemene Bank. 152 A & P (Great Atlantic and Pacific Tea Company).77. 16.. 158 Afrikanerdom. 118. 151 Anglo-American Industrial. 1979 Bank ActAmendment to 1968 Act. 116. 166-7. 146 Armour & Swift. 122. Chase Manhattan. 120. 30 private.105-11. 22. Limitation and Disclosure of Finance Charges Act 1968LADOFCA.98. 129 commercial banks. 1985 Bank Act.. Caribbean and Pacific countries.120. 47. 114 statutes relating to banking: 1942 Bank Act. 164-5. 121-128 classic functions.22.111 bankers Continental. 14 drought. 4 banking amalgamation movement. 106. 75. 12.118. 125-6. 99 Anglo-African Shipping Co. 69.

61-2 general banks. Nedbank International. 69. 114. 22. 85.22. Stannic. Nedbank. credit controls. Nedbank. 1839-50. 124. Commercial and Agricultural Bank. 11. Nedbank. 50-1. note issues. 93. 75. deposits. Standard Bank. Trust Bank. discounts. assets. Nedbank. Nedbank. Neficrho. Santambank. 126: Amsterdamsche Goederen-bank NV. 72. branches. 52.124. Oriental Bank. 83. 114. 58. 55. acceptances. business. 51.117-18. 86. 121. balance sheet. assets and liabilities in the 1850s. 88-9. 144. advances. in Eastern Cape in 1860.58. 65. early dependence upon shareholders. Societe Hollandaise de Banque S. Nedbank. advances. 124.124. 58. 76. 93. Nedbank. Nedbank. 124. Credcor Bank.182 Index Illinois. GraaffReinet Bank. 55. 124. 71. 58-9. 98. Eastern Province Bank Foundation. Eastern Province Bank. Port Elizabeth Commercial Bank. see Nedbank above.81-2. Eastern Province Alliance Bank. 98.77. 55-8. 124. 124. 88-9. Nedbank. 56. Nedbank. 72.98. 51. 122. London and Westminster Bank. 69. Standard. becomes a South African corporation.63.66.116. 92. 58. Hire purchase. opening in Pretoria. 53-5. excess liquidity. Volkskas.92. 59-65.122. Netherlands Bank of Rhodesia. 93. Eastern Province Bank. 52. . Eastern Province. 77. Nedfin.65. 124. 74. 117. 62.127-9. Netherlands Bank in South Africa.94. Security Pacific. Port Elizabeth Bank. 72. 84. Eastern Province Bank. assets. 122 merchant banks. 79. Standard Bank. and liabilities in the 1840s. assets. 117. Nedbank. 124. branches. 71-3. 130.60. 81. deposits. 47. Cradock Union Bank. Hongkong & Shanghai. Morgan Guaranty. Transvaalsche Handelsbank.114 Commercial banks.61-4. 93-4. Western Bank. 98. 55. 10.114. South African Central Bank.98. Nedbank. 18. acceptance business. General Manager's weekly letters and half yearly and Annual Reports to England. capital. 86.51-5. 62-3. early years. 83. 57-8. 124. 74. Lease Plan International. 176--7. 83. 114. De Haagsche Commissiebank. 58. 62-4. capital. 31. Standard Bank. 92. separation from London. 122.44.77. Eastern Province Bank. 121-3.57. 127-9. 54. 57. 94. 88-9. discounts. 117.98. Frontier. 5. 11. 178. 61-2. Eastern Province Bank in the 1860s. liabilities. 22. 69-103. Inspectors' Reports 1866--1910. 60-2. Eastern Province Bank in the 1850s. letters of credit. 87-8. 58. 74. Nefic.10. National Bank of South African Republic. 71-3. Bank Handlowy. 114. 70-1.92. 52-4.A. 176--8.. 124. 64-5. Natal Bank. liabilities. 8. Imperial Banks. Standard Chartered.175-8. Syfrets. 62.70. Nedbank.

142-3.Index Bankierscompagnie NV. 148 Barlow Rand. James. 51 Black socialism. 85 BSA (Birmingham Small Arms). 149-50. Nederlandsche Handel Maatschappij. Schroders.. 127 Bulgaria. 34-5.159 183 Bretton Woods System.62 Beit. Union Acceptances. 28. 38 Westing House. 98 mortgage banks. 87. 19. 17 Boer Republics.176 British Celanese. 134-6. 75. 35 Chadwicks. 7 Bedford. 110--11. Mathesons. 7 Carnegie. Andrew. Rothchilds. 1. 28. Zivnostenska Banka. 145 . 89. 8. 30--1.2 capitalist economic development. see wool. 74-6. Twentsche Bank. 173 Brandt Commission. 74. Slovenskatatra Bank. British occupation. Mees. 69 Cape Tramways. 159. 159. 3 economic organisation. 47 Calcutta. Robert (see also investment). c. Eastern Province Guardian Loan and Investment Company. 161 Brazil. 140. 9-10. Sir Francis. Nardoni Banka Ceskolslovensla.30. 7.159. 74. 6-7 Boesak. 19-20 state. 31. 19-22. Parish. 42. Netherlandsche Bank voor Zuid-Afrika NV. 8. Bank en Assurantie Associate NV. 168-9.133-4. 120 modern. 159 Portland Cement. 98. 170--2 canned fruit. A. 146. 75.47. Mees en Hope Groep NV. 72. 28-9 Barlows (see also Barlow Rand). 1 enterprise. 23 Bonsack cigarette machine. 72. A. canned fruit Caucasian Company. 31-2 capitalism Afrikaner. British. 11. skins. 6. 39 Petroleum. 31. 137-8. R. 3.170--2 Benson. 14. Statni Banka. hides. 72. 78. four phases. 16. 31 Chandler. 58 Barberton. Nedeurope. Goldschmitts. 39 Canada. 72-4. 159 butter. 73 cash crops. Nefic. 141 Western. Steiglitz. 31. 85. Adamson & Collier. 30. 122-3. 127-8 great expansion. butter. 47. 89. Barings. 30. 136 Carter. Morgan Grenfell.12 capital. German. Nederlandse Overzee Bank NV.34-5. 38 Thomson. 28. Alfred D. 151 market. 136 Botswana. 95 Cape Colony. 27-8. 134 entrepreneurial.25 entrepreneurs. 38 Brugger. 34 Baring. 140-4.. 98. 7 Belgium. 2. E. 7. Theodoor Gilissen NV.36-9 Black. 146 capital. 38 Buenos Aires.. 156. 30. 44. venture. 1978-80. en Zoonen. 89. 34. 106. 50--1.170--2. Heine. 16-17 commercial. 6. 28-9. 162. 151-2. 75.162. Jr. Hambros. formation. 125 Britain. Houston. 136 managerial. 2 Cape Town. 164-7. 31. Mesdag en Groeneveld. 74. 152 Barnato. 98. 2 private. B.. Nefic Acceptances Ltd.164-7. 40 building societies. 35. 34. 164-7..

81 Duke. 73. 147-50. 1984. 159 . 126 credit control. 54. 49. 110 economic organisation efficient 1 4 23-4 ' . 159 Combined Shipping. J. 141 Eastern Province (see also Eastern Cape). George. G. 55 East Germany. 108-110. 159 East London. Eastern Cape. 1 East. 87 Cronje. 84. 161 Columbia. 56. 87 Compagnie Francaise des Petroles 159 ' Compagnie d'Importation de Laine 95 ' Companies Act. 73. 136 Eastman-Kodak. 32 education in Natal.. 159. 90. 49. the 136.. 86. 148-150 De Beers Industrial. 176 Exxon. Frederick 41 Eckstein. 120. 95 discount houses. see infrastructure Esso (see also Exxon). DrF. 17 electronic transfer networks 128 ENI. 122-4 Escom. J.147 ' exports. William. 128 Denmark. 18 national structure. 23. 173 Cock. 107 copper mining. 35 Cradock. 122. 175 Eastern Europe. Economist. of South Africa. J. 159 Clarke.85. 113 125.. 149 Flat.159 ' entrepreneurship. 119 de Kock Commission. 76 Cullinan Holdings. 159 Datsun-Nissan.123-4 credit creation. The. 116 computerisation. 50 banking in.156-7 code of employment. c. 105. 176 as a product. . 48-9. 49. 138 Durban.. 60 promissory notes. 17 de Kock. 130 diversification. 94. 148 debenture issues. 128 confirming houses. B. 129 de Kock. 152 consumer boom. 138 Euromoney. 5. 115 Credit Guarantee Insurance Corporation. 50 codes of employment (see also Sullivan Principles).117. H.. 125 coins.184 Index China.prosperityin. Pierre. M. investment groups). 7 economic growth. 119. 125-6. 136 Du Pont.. 140 Eckstein. G. 156. 4. 50. 124 decentralisation. 170-2 Dewavrin A.175 Dutch East India Company. 3. 65. of banking functions 124 ' Dommisse. inadequate.. 95 diamonds capital formation. 52-4. 159 factoring. 126 F~derale Volksbelegging. 7 discovery of. 88 conglomerates (see also holding companies. H. 164-7. 161 exchange control. 58. Fils. 56-7 Credit cards. 162.. 6 Eastman. 106. 53 bills of exchange. 124. 122 disinvestment. 49 Czechoslovakia. 60-1 Rix Dollar. 148 currency convertibility. D. 129 European Economic Community. 117 121 disintermediation.

4 holding companies (see also investment groups. 164-7. oligopoly). H. & Co. S. 56--7 Grahamstown. Charles. 47.62 Fortrade Group.124 imperial banks (see also banks.12. 122-3 Griqualand West. 55-6 import substitution.. 159. 106--7. 32 early company formation. abandonment by South Africa. 10 Franszen Commission. Robert (see also investment trusts).9.Index financial crisis of the 1860s. 61-3 Graham's Town Journal. 52-3 eighth. 82. 23 Fort Beaufort. 34 Hammond. 56--7.18-20. 58. 2. 151. 159 grey market. 39. 32. 122. 176 taxation and contribution to government revenue.. 8. 62 Grant. 110-11 Fleming. 23 India. 31 Rand. 170-2 Frankel. 87 General Motors. M. 159. 135 Harvard. 69. 9 Free State Gold Fields. H. John Hayes. 126 Hirschmann. 133 Greece.176 Gulf Oil..114. M form. 57. 12 Western Deep Levels. 107-8. 70. 65 Gottheimer. 31. R. 159 IBM. 159 foreign investment.164-5 Hope & Co. 33. E.87 IMF. 7. A.. 150-1 hire purchase. 36. A. 124. 59 Finland. 129 Goldschmidt. R. per capita. 159 IMEX. 19. 148-9 Hungary. 50-1. 129 France. 159 General Sales Tax. 85. 50 seventh.41-3 MacArthur cyanide process. 12 Gooch.162. Baron. 32. & Co. 8 East Rand.. U form 136--7 first industrial revolution. 138.. N. 133 hides. 18 investment in (see also investment groups).124 Frontier Wars sixth. 77. 87 forward exchange rate market.37 at Pilgrim's Rest. 38-9. 43 Ford. 129 rise.. 35 Hartwell. Albert. 8 output.146 . commercial. 86 Hong Kong. Henry. 159 General Mining.. 150 Holsboer. 164-5 Indonesia. 18 exploration companies. 129 Gras. 164-7. 170-1 firm structure of. 138 structure of. 17 Godlonton. 145 incomes. 95 Highveld Steel. 99 Hamilton Smith. 126. B.. 12. 12 West Rand. B. 50. 76. 73. see under Gottheimer. S. 159 Industrial Development Corporation. 62 gold mining booms. 159 Hamburg. 4. 107-8 Ghana. 141 fiscal policy. 8. R. 135 First World.10. 56 General Electric. 135 Ford Motor. 2 185 gold price fall. 159. H. Albert Grant. 19. 28 Hulett's Sugar. 42 Graaff Reinet. 13. imperial). 88 Gold Standard.

147. 173 in gold mining. 139 metal. 143. 124 insurance companies. 35 foreign. 147 lumber. 143.87 Japanese. 147. Goerz. 140 machinery. 144.150. 148 machinery.152 furniture. 144. 40 Neumann. 140 measuring instruments. 148. 4 industry aircraft. 145.95 foodstuffs. 3.49 Insull. 147 machinery.149. 5. 140. 33. 142.145. 143. 142. 139. 137. 109-10. 144. mov~ into by banks.147 textiles. 140. 143. private.150. 18. ESCOM. 152 machinery.150. 140. 143.186 Index Industrial Revolution. 142. 148. 49 roads. 143. 147. & Co. 147 soap making.150.147 meat packing. 142. 117.20 publishing. 37. 106. 142. 152. printing presses. 142. office. 34. 145. 140. 139. 19. 2.150 petroleum. 42 Farrer.149 influx control. sewing machines. lifts. 142. 41. 136 stone. 111. 145. 147. 123. 140 machinery. 12. 142. 56 wool washing. 143. 41. 41. 147. 150. 140 consumer industries. 121. 147. 148 chemicals. 140.147. 145. 128 infrastructure capital need. 129 International Chamber of Commerce. 147. 145. 11-12. 148. 144. 163. 139.152 photocopying. 143.21 harbour development at Port Elizabeth. 38 investment groups. 139.148. 152 dynamite.19. 147 iron and steel (see also ISCOR).152 transport equipment. 37 in United States railroads. 5-6. 144. ownership of banks. 35. 145. 130. Sam. 144. 19. 144. 49 railways. 143. 3. 140 building and construction. 12 early developments. interest rates. 148. 39 insurance. 145. 138 rubber. 5. 39-43 G. 17 information revolution. 145. 145. agricultural. telephone equipment. 144. see gold mining Scottish overseas. 143. 138.148.142. 156 investment in Australia. 142. Albu. 107. 142. 142. 144. 42 . 137. 140 machinery..20-1 electricity.21 paper-making. 142.20. 14. 143.149-50. 142. 148. 143. 143. 143. 138. 145. 138.152 clothing. 95 cement. 145. 42 Consolidated Gold Fields. 142.143. 142. 147 computers. 142. 145. 143.40 A. 48 inflation. 145. 145. 152 progress of. 143. 87 international sanctions. 36 in United Kingdom. 86--7 fishmeal. 140 printing.150 carbide. W. 140 machinery. 145. 27. 36 in exploration companies. 145. 140 machinery. 18. & L. Heilgers. 143. 138. 42 Finlays. electrical. 150 leather.148 tobacco. clay and glass.152 output. 147. 148 wagon and cart building. 147 producer goods. 142. 147. 12. 42 F. 138. after 1948. 139.

137 McKinsey & Co. 139. 138 Malawi.39. R. National Mutual Insurance Co. J. 138.P.22. 159.. 113-31 monetary supply. 35-9.Index V. 23. Frederick.29. 164-5.151 Italy.105. Johannesburg. 73 Marxists. 158 187 London.. 166-7.157-74 multi-unit enterprises. 156.51.J. 12. Charles. 71. 41 Exploration Co. 27. Loeb & Co.36. 85. 6. 139.87. 9 Stock Exchange. 136. 156.155. 107-9.. J. see under banks Mexico. 156. trade 52 Kakabeeke. 162.. P. D.9. Sassoon &. 95 Mathesons. capital of 34 ' Mozambique. 42-3 Bird & Co. Beit. 33 Merchants Trust. 170--1 172 ' ITT. 40 Werner. 30.40. 50 Mazda.90. John.28. 168-9 multinational corporations. 140. Gold. 36-8 South African Goldfields Exploration Co. 105. 10.17.. 73 Kreglinger & Fernau. booms). J. 163 near-money. .146. Exploration and Land Co. 5. 1870. Eva. 77 Kimberley. 8 population. 138. 130 mining finance house (see also investment groups).159. 106. 40.. 170--1 McCormack. restrictions on mobility 11 17 ' . 156. 33 Mosenthal.31.97 98 102 175 ' . 2 Liberty Life. Colonial Secretary in the Cape 1842-52.5 Mosenthal Brothers.70. 114 Lome Convention.32. Luxembourg..37. 159 Mondi 150 monetary policy. 135.140--1. 136.150.108-9 Montagu. 117 .. 135. 107. 34 Koeberg Nuclear Power Station. U. 151 Masurel Fils..}. H. Namibia.. 135. 162. 119 leasing. 164-5. 38 Lewis. early years.168-9 Malaysia... 32 Mobil Oil. 33 Transvaal. 164-5 Manschot. 88.109 money market. 159 Militz. B. 166-7. 34.151 mass marketing. 159 Japan. 137.33. 137. 41 42 investment trusts.. 42 Korthals Altes. 8 Stock Exchange. 34-5 Kuhn. 124.164-5. 150 merchant banks. 72.. Co. 126 Lesotho..166-7 170--1 172 job reservation 11 17' .94-5.81. 136 137 138 ' . 42 Wallace Bros. 8. 97 Kubicek. 31 Maynard. Robinson 42 E.42. 151 mass manufacturer. 7. growth of. 110--11. 34 ISCOR.116 land values. 32 labour. 106. 161 National Finance Corporation 105 116 ' . C. Arthur. 75 Kaffir ?~oms (see also under gold mmmg. 168-9. 195 Mining Journal. Land Bank. 21 Korsten. 174 Lever Bros. 85. 38 London and South African Exploration Co. 71. crash 1895. 7:8. 70.70 Keuning.88. 87.69. 8 Johannesburg Stock Exchange.. Sons & Co.

49. 139 skins. Jacob. 150.150 SASOL. 159 neo-Keynesians. Sir Ernest. 141. M. 159.146 St Petersburg. 166-7. Anton.149. see under infrastructure Rand Revolt. D. 97 Rembrandt. Henry.172 preferential trade area.J.. 86 Sanlam. 151 Plate Glass. 176. 71. Group of Companies.72 Singapore. 86 Sears Roebuck. 164-5 Singer.. J. 135 Orange Free State.. 137 ROCO. D. 22. & Hudson. 164-5. 146. 51 Somerset East. J. D. 159. of Eastern Province. 38 Schroder. see currency Pruissen. 71. 22. 50 Norway. 166-7. 40 Salisbury. 22 Pakistan. 0.56. 81.. 74. 122. 166-7. 164-5. 12.175.114 Renault. 51. 152 social welfare. 7 Rhodesia. 178 railway bonds. 159 Peugeot. W. 3-4 Norton. 150 Poland. 51. 148. 91 Rhodesia and Nyasaland. 145 Sharpeville. 149 Register of Cooperation. 91. 138 Smith.131 Netherlands. 170-1.166-7. 157. J. 114 oligopoly.. 85-6 personal loans. 52 economically active. 152 Rhodes.. 138 secondary sector. 23 Somerset. value of.. 32 North. Alfred. 172 O'Hagan.. & Co. 148. 170-1. B. 85. 62 South Africa balance of payments. C. 152 open-market operations. 159 Rupert. 109. 149. 150.116 Rostow. 159 poor white problem. 164-5. 159 Paris.164-5. Federation of. John. 147. 107.. 156 Pretoria. G. 133 Oppenheimer. see industry second industrial revolution. 136 promissory notes.59.170-1 Nineteenth Century.135 Rotterdam.116 Proclamation R184. constraints on. 72 roads. 97 population.31. 159 Rumania. D. 127 Registrar of Banks. 134 north-south relations. 61. 98 New Zealand. 73 PUTCO. 152 Schiff. I. 3. 14 Poppe-Schunhoff and Stiicken. 149. 109 Randle Bros. 129 .55.. 124 Nigeria. 4. 151 retailing stores. 115 Reid. 95 Sloan. 137. 23 Port Elizabeth. C. 95 Scottish-Rhodesian Finance.114 SAPPI. H. 118 Procter & Gamble. 170-1. 107. 137. 162 North-Thomas Thesis. W. 135 Second World War. 124 Petroles de Venezuela. C. 162. 27 railways. see under infrastructure Rockefeller. 117 Oppenheimer.172 Netherlandsche Handel Maatschappi.188 Index negotiable certificates of deposit.32 Old Mutual. 1967. 159.70-1 New York. 85 Royal Dutch Shell. 136. 12 Rand. H. C. 22.176 Portugal.

134 . 159 Thailand. 32. H. 97. 22 United Nations Centre for Transnational Corporations. 150 transfer pricing. see under capital Venture Corporation. 159 United Building Society. 1 VEBA.. 125 Uganda. 50. 166-7. 113.161 urbanisation. 159 Third World. 18 Walker Bros. 47. 148.. 134-46. 151 Williamson. P. 108. 156. 159. 145. Robert.. 87 Wattine. 133. 23 Tanzania. 161 Swaziland.151. 137 Standard Oil of California. 149. 144-52 investment in Zimbabwe. 64 Tiger Oats. 149 Standard Oil. 170-1 Stafford Meyer. 152 Stewart.107 budget 1985. 156. 16. see Johannesburg Strauss. 128-30 gross domestic expenditure. 163 USSR. 23 two-tier gold market. 159 Switzerland.152. 157. 156. 159 venture capital. 162 national income. 159. 129 Sullivan Principles. 1984. 95 Toyota. 159 §tatist. 160 transnational corporations. 17. 89. 168-9. 173 Sweden. 140.159 Venezuela. 164-5.164-5. 164-5. 17 Uitenhage. 159 Standard Oil of Indiana. 160. 152. 109 gross domestic product. 0. 159 van Aggelen. internalised. the 136 rise of. 163 South Korea. 178 Trek. 137 Verwoerd. 170-1. 161 Thompson. 150. 90. 175 Western Europe. 156 Southern African Development Coordination Conference (SADCC). D. 176. 175 Stock Exchange. 146.Index budget 1984. William Rowland. 158. 3 USA. 150 Turkey.172 US Overseas Private Investment Corporation (OPIC). 159. 141.170-1. 146-50 South African Breweries. H.159. 117 Texaco. 90 imports. 162. see multinational corporations Transvaal. H. 2. 98-9 industrialisation in. 152 top 100 companies.17 Spain. 162 189 Thirion Commission.172 West Rand Bantu Affairs Board. 37 Stewarts and Lloyds. 144. 155. The. 157. Oliver.164-5.. 114 exports. 159 Soweto. 141. 90. 95 West. 159 top 10 companies. 166-7. 49 Unilever. 110. 109 economy's dual characteristics. Conrad. 1 Western Cape. 17. 166-7.170-1. 35 vertical integration. 98. 129. 87 Southern African Customs Union.. 149 South African Foreign Trade Organisation. 140. 162.172 Tambo. 17 wholesaling. 84. 150 West Germany.166-7. 84. 168-9 Technical Committee on Banking and Building Society Legislation. 141. 159 Tutu. 98-9 foreign debt. 139. 23 national product. 161. 85 van Riebeeck.

162. Charles. 133. quantity..158-9 wool trade. 173 Zurich. 52.168-9 Zimbabwe.176 wool production. 126 Zambia. & H. George Jr. D. 130 Xerox. 95 Wood.. gold discovery. 63 wool. 163. 48. destination of. 159 Zaibatsu. 1830s and 1840s. 61 Index Woolworth.190 Wills. 57 cash crop.156. W. 139 Xhosa. 136 Wilson. 49. 168-9. 0. 74.7. 48. 59. with interior. 2 Wolmaatschappij. 65 Wood. W.86. 58.95 exports. 156. 64. 5. 3. 52 Yugoslavia. 4. 134 Witwatersrand. 136 World Bank.86 . 156 World Council of Churches. F. 95-6 exports.91. 95-8 boom of 1850s. NV. George Sr.