BANKING AND BUSINESS IN SOUTH AFRICA

Banking and
Business in
South Africa
Edited by

Stuart Jones

Head of the Division of Economic History

University of the Witwatersrand

Palgrave Macmillan

ISBN 978-1-349-09634-3
ISBN 978-1-349-09632-9 (eBook)
DOI 10.1007/978-1-349-09632-9

Stuart Iones,

1988
Softcover reprint ofthe hardcover 1st edition 1988 978-0-333-44465-8

All rights reserved. For information, write:

Scholarly and Reference Division,
St. Martin's Press, Inc., 175 Fifth Avenue, 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.
p. cm.
Bibliography: p.
Includes index.
ISBN 978-0-312-00517-7: $39.95
1. Banks and banking-South Africa-History. 2. Banks and
banking, Central-South Africa-History. 3. Business enterprises-South Africa-History. 4. Capitalism-South Africa-History.
I. Iones, Stuart.
HG3401.A6B36 1988
87-33245
322.1'0968--dc19
CIP

Contents
List of Tables

Vlll

Acknowledgements

Notes on the Contributors

Xl

Introduction

The beginnings of capitalism in South Africa

The era of wool and diamonds, 1820--86
The era of gold, 1886-1914
The early industrial era, 1914-48
The era of nationalism and state capitalism, 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,1839-73

47

Stuart Jones

Stanley D. Chapman

Arthur Webb

The foundation of the Eastern Province Bank in 1838

The early years, 1839-50
The 1850s: the heyday of independence and the
unitary bank
The 1860s: increased competition, bad debts and
absorption into the Oriental Bank
Conclusion
v

50
51
55
58
65

Contents

vi

The Separation of Nedbank, South Africa, from the

Parent Institution in the Netherlands
H. W. 1. Bosman

69

Introduction
The Second World War and post-war years
Parent bank and affiliated bank
Two affiliated banks - 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,

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

The South African Reserve Bank and the Course of the

Economy
D. W. Goedhuys

105

The run-up to August 1984

The restrictive 'package' of 2 August 1984
The results
Reflections

106
107
108
110

Monetary Policy, 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

Contents

Endogenous factors and change in commercial banking

Exogenous factors - gold and monetary policy
The Reserve Bank and the foreign exchange market
Banking in the 1980s
Foreign indebtedness in the 1980s
Conclusions

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

List of Tables
1.1
1.2
1.3
1.4
1.5
1.6
1.7
2.1
2.2
2.3
2.4
3.1
3.2
3.3
3.4
3.5
3.6
5.1
5.2
5.3
5.4
5.5
5.6
5.7
5.8

Wool exports from South Africa, 1835-72

The annual value of South African gold production,
1885-1981
The value of gold output, 1914--48
Gross value of industrial output, 1915-48
Gold output, 1948-84
Capital expenditure in the South African gold mines,
1966-85
Gross value of manufacturing output in South
Africa, 1948-76
Distribution of Scottish overseas investment, 1884
Merchants Trust investments and results, 1888-1918
Shareholdings in Bird & Co., Calcutta, in 1917
British and continental shareholding in the Rand
mining companies, April 1900
Wool exports through Port Elizabeth, 1830-70
Assets and liabilities of the Eastern Province Bank,
1841-9
Assets and liabilities of the Eastern Province Bank,
1850-60
Assets, liabilities and profits of Eastern Cape banks
in 1860
Wool exports from Port Elizabeth, 1860-9
Liabilities of the Eastern Cape banks, 1861 and 1862
Capital and reserves of the Netherlands Bank as a
percentage of the capital and reserves of all the
commercial banks, 1945-73
Assets and liabilities of the Netherlands Bank and its
ratio to other commercial banks, 1945-73
Total deposit funds of the Netherlands Bank in
relation to the deposit funds of all the commercial
banks, 1945-73
South Africa, gross domestic product, 1947-73
Imports and exports, South Africa, 1947-73
NBSA total import and export finance, 1947-64
Total bills discounted or bought, 1965-73
Advances, 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

List of Tables
5.9
5.10
5.11
5.12
5.13
5.14
8.1
8.2
8.3
8.4
9.1
9.2
9.3
9.4
9.5
9.6
9.7

Acceptances, 1971 and 1973

NBSA acceptance facilities, 1947-73
NBSA bills bought or discounted, 1945-63
NBSA commodity export financing, 1952-64
NBSA proportion of export finance of diamonds
Total export facilities by NBSA for wool, hides and
skins as a percentage of total NBSA export facilities,
1952-64
Distribution by industry of the 200 largest
manufacturing firms: United States, 1917-73
Distribution by industry of the 200 largest
manufacturing firms: United Kingdom, 1917-73
Distribution by industry of the 200 largest
manufacturing firms: Germany, 1917-73
Distribution by activity of the 100 largest industrial
firms in South Africa, 1964-84
Ranking of countries and multinational corporations
according to size of annual output, 1980
Distribution among regions of foreign affiliations of
companies from selected home countries
Distribution of affiliates of transnational
corporations by home country within regions, 1980
Distribution of foreign affiliates of MTNs from
selected home countries in host SADCC countries,
among all developing countries, 1980
Distribution of foreign affiliates of MTNs from
selected home countries in host SADCC countries,
within African developing countries, 1980
Distribution of foreign affiliates of MTNs from
selected home countries in host developed market
economies, 1980
Distribution of foreign affiliates of MTNs from
selected home countries in SADCC host countries
(except Lesotho), 1980

IX

93
93
94
96
97
97
142
143
145
147
161
164
166
168
169
170
172

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, 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.
STUART JONES

Notes on the Contributors

H. W. J. Bosman is a director of Mees en Hope and of the Bank of
the Dutch Municipalities. 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, Credit and
Banking in 1959. Professor Bosman's book on the Netherlands
banking system has gone through many editions in both English and
Dutch. He has been advisor to the EEC, 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.
Stanley D. Chapman is Passold Reader in Business History at the
University of Nottingham. In recent years he has specialised in
British overseas trade and finance. He is the author of The Rise of
Merchant Banking (1984) and numerous books on the cotton
industry. Currently he is working on the history of British mercantile
enterprise and its activities round the world.
Barbara Conradie has been in charge of the Archives Department of
the Standard Bank group of companies in South Africa since 1980.
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. She is a graduate of Stellenbosch University and
University of South Africa and grew up in Bloemfontein. 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,
magazine and newspaper articles.
D. W. Goedhuys is Adviser to the South African Reserve Bank. He
was formerly Professor of Finance in the University of the Witwatersrand and is author of Money and Banking (1972 and 1982).
Stuart Jones is a Senior Lecturer in Economic History at the
University of the Witwatersrand and Head of the Division of

xi

Xli

Notes on the Contributors

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

1 Introduction
StuartJones

Efficient economic organisation is the key to successful economic

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

Introduction

inevitably to the emergence of a semi-literate society that could hardly

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

Stuart Jones

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

Introduction

4
Table 1.1

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. R. H. Davenport, 'The Consolidation of a New Society: The Cape

Colony', in M. Wilson and L. Thompson (eds), The Oxford History of South
Africa, Vol. 1 (Oxford: Oxford University Press, 1968), p. 290, and by J.
Inggs of Unisa Economics Department.

-Thomas thesis respecting efficient economic organisation and

property rights. Table 1.1 shows how wool exports quickly came to
dominate South Africa's exports and to provide the foreign exchange
for essential imports.
With the constraints on the balance of payments removed and
market forces bringing about the development of more scientific
farming, assisted by state capitalism in the form of road construction,
development in the second and third quarters of the nineteenth
century was steady rather than spectacular before the discovery of
diamonds in Griqualand West, in the 1860s. All these developments
needed the assistance of financial intermediaries, for banks, as
Hirschman and Rostow pointed out over a quarter of a century ago,
form the lateral linkages that emerge as a response to growth in other
sectors of the economy. 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. Agricultural developments by themselves
had not until then been sufficient to elicit the formation of nation-wide
banking, nor had the development of world-wide trade in the sixteenth
and seventeenth centuries. This, it is true, had led to the emergence of
major financial centres in Europe, in Amsterdam and London, and to
the refinement and standardisation of banking techniques. In London,
for example, in the later seventeenth century, the private bankers built
their business around the three classic functions of English banking:
deposit taking, discounting and note issuing. But these developments,
important in themselves, 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.

Stuart Jones

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. Then, 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. Cape Town led
the way with its first modern bank in 1836, the Cape of Good Hope
Bank, but the Eastern Province, only recently settled by English
speakers, responded first to the stimulus emanating from the
industrialisation in Britain, with its development of wool growing and
wool exports and, as Arthur Webb shows in his study of the Eastern
Province Bank, this led to rivalry with Cape Town and Port Elizabeth.
Nevertheless, it was the hinterland of Port Elizabeth, the Eastern
Province, and not the older Western Cape, that saw capitalist
enterprise bind South Africa into the international economy.
Before the era of gold the process of capital formation was slow and
linked to the progress of agriculture. Inevitably the main demands for
capital came from requirements of the infrastructure, both for roads
and bridges and then for railways. 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 - a large sum of money in those days for a poor colony. 8 This
was the first achievement of the local colonial secretary, John
Montagu, 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. The Montagu Pass, Michell's Pass,
Bain's Kloof and the Zuurberg Pass today stand witness to this first
burst of sustained capital investment in South Africa.
Steady economic growth based on small beginnings inevitably
meant that the rate of capital formation would be slow; and this in turn
made it very difficult to get railways built in the early nineteenth
century. During the nineteenth century railways made enormous
demands upon available capital resources, Britain alone being able to
construct a network without state support. In South Africa, not even
the state was wealthy enough to engage in much railway construction.
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. In a land of
sparse population and great distances between the various commercial
centres, there was not sufficient volume of traffic to warrant the
building of railways. In 1870, when the diamond diggings of what is
now Kimberley were in full swing, there were only 150 kilometres of

Introduction

track in the whole country - a suburban line linking Cape Town with
Wynberg, the line from Cape Town to Wellington, and the tiny line
from Durban to the Point. 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,
Canada or Australia. Indeed the Boer Republics were barely part of
the international economy.
The explosive growth of Kimberley made a railway to the mining
town essential, 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 - hence the
burden fell upon the state. From Kimberley the nearest port was East
London, 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. State capitalism under
the leadership of the politicians provided Kimberley with three lines to
the coast, but at the price of using a narrow gauge that cost less to
build. Later, as the lines from the coast reached out into the interior of
the continent, the same narrow 3 ft 6 ins gauge was used instead of the
standard 4 ft 8Y2 ins of Europe and North America. The state
capitalism of the Cape Colony was, therefore, ultimately responsible
for determining the gauges of all the railways in Southern and Central
Africa, including that of the Benguela Railway through Zambia, Zaire
and Angola to the coast at Lobito Bay.
Kimberley finally received its railway in 1885, the year before gold
was discovered on the Witwatersrand and the year before the
Canadian Pacific reached Vancouver; 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. A decade and a half of diamond digging in
Kimberley had led to the construction of a railway network in the
Cape, 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. However, this particular example of state capitalism had
not provided the Colony with a network best suited to its existing
agricultural economy. All three lines were built helter-skelter to
Kimberley without any thought of the business of the districts through
which they passed. In this way, right from the beginning, state
capitalism exposed the danger inherent in letting politicians decide
important economic questions - a practice from which the South

Stuart Jones

African tax-payers have suffered in recent years - while private

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

Introduction

Local resources were inadequate. In this way the era of gold brought
South Africa into immediate and direct contact with the capital
markets of the world.
Johannesburg burst upon the economic scene. Within a year,
sixty-eight companies with a total nominal capital of 3 063 000 had
been floated: within two years of the 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. II By January 1890, 450
companies had been floated in Johannesburg with a nominal capital of
11000000. The first bank, the Standard, 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. 12 Within two
years of the Stock Exchange opening it had 300 members and over 300
companies were officially quoted on the Exchange.
After the initial discovery of gold, Johannesburg's development was
punctuated by successive booms. In 1888-9, there was a boom,
another one in 1891 with the introduction of the MacArthur cyanide
extraction process, and a third in 1894-5 when deep-level mining was
developing and the mines were becoming very capital intensive.
Overseas capital markets were involved in this boom, 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. 13 This third boom culminated in the crash of 1895 when
French investors panicked and unloaded gold shares on the Paris
Bourse. 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, and the mining industry learned to live
through periodic winnowing-out processes when the weaker and
financially vulnerable companies went to the wall. The survivors
tended to be those companies that commanded large financial
resources. From the time that deep-level mining began in 1892, the
gold mines needed the resources of large companies, so that almost
from the beginning developments favoured the growth of the mining
finance houses that have dominated the industry ever since. As day to
day control was not always exercised by the owners, 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. 15
The meteoric growth of Johannesburg had a dynamic impact upon
all sectors of the economy. Mining was revolutionised and agriculture,
hitherto retarded by both the lack of markets and the lack of transport,

Stuart Jones

was now exposed to the full rigours of market forces. Secondary

industry began to develop and the tertiary sector was transformed.
From next to nothing in 1886, the population of Johannesburg rose to
80000 in 1895 and to 237104 in 1911. 16 Land values rose rapidly in the
nineteenth century, but then remained stuck on a plateau in the years
before 1914. In 1902, 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, and this was its approximate value in 1911. 17
The first decade of this century may not have been one of boom for
Johannesburg, but what had already been achieved was considerable.
Capital to the value of around 50 million had been created in the
midst of what had been underdeveloped farm land.
The value of the gold output puts it more bluntly, as Table 1.2
indicates.
Table 1.2 The annual value of South African gold production, 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, p. 45; F. Wilson, Labour

in the South African Gold Mines, 1911-1969 (Cambridge: Cambridge
University press, 1972), p. 159; and the Chamber of Mines.

South Africa very rapidly became the world's major source of gold
in the 1890s, 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. 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. By then, too, close relationships had been
established with City interests as Stanley Chapman shows, though
even among the exploration companies the Rand did not dominate
and they pursued a deliberate policy of diversification.

10

Introduction

Gold went out of South Africa: foreign investment flowed in. There
are, however, no precise statistics of the capital investment in the gold
mines in the early years, because of the practice of calling up only a
proportion of the nominal value of the shares, the distribution of
special founder shares to favoured persons, the cost of marketing them
in Europe, and so on. As a result, despite voluminous literature on
economic imperialism and capitalism during this period, 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.
Kubicek's book of 1979 gives the impression of being an up to date
study of this important topic, but in the event it contains little that is
new, and his figures of capital investment in the gold mines are taken
straight from Frankel's work of 1967. 18 Frankel estimates that
between 1886 and 1913 between 116 and 134 million flowed into the
South African gold mines. This was a large amount of money for South
Africa, but it formed only a small proportion of total British, French
and German foreign investment and was, furthermore, small by
comparison with the volume of funds that flowed into American
railways. Its main impact, of course, 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. Before 1886 the South African colonies had from time to time
relied upon raising capital in Britain, but the four provinces that were
to form the Union were not dependent upon inflows of capital for their
development. The diamond industry had been financed from within
the country. The discovery of gold changed all this and, after 1886,
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 situation has continued until
the present.
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 Standard Bank, the first of the
imperial banks to make its appearance in South Africa, had done so
before the discovery of diamonds in Kimberley. It was solidly based in
the Cape, first in the Eastern Province and then in Cape Town.
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, it was not overwhelmed by it. Nor in this period was it
drawn to move its South African headquarters from the Cape to the
Transvaal. The presence of a powerful and conservative bank in the

Stuart Jones

11

midst of such speculation cannot but have discouraged the emergence

of other less secure banks. What in fact happened was that the Natal
Bank moved into the Transvaal, the Netherlands Bank, hoping to pick
up government business, did likewise, and Kruger's government
authorised a new Transvaal-based bank, the National Bank. Supposed
to free the Boer government from imperial control, the new National
Bank found itself obliged to rely on British capital. The immediate
result of the gold discoveries, therefore, was to reproduce in banking
what was happening in mining, the end result being dependence upon
imported capital and foreign control. This became absolute when the
National Bank bought up the Natal Bank in 1914, and was in turn
taken over by Barclays in 1926.
Railways, banks and gold mines were the great representatives of
capitalist enterprise in South Africa before the First World War. They
were supported by a market oriented agriculture in the Eastern Cape
and Natal. Elsewhere in the Union agriculture acted as a brake on the
process of modernisation. 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. If capitalist development had
not made as much progress by 1914 as might have been hoped, this was
because non-economic factors impeded the working of market forces.
While restrictions on labour mobility and the beginnings of job
reservation may have been in the interests of selfish minorities, it is

unlikely that they were in the interests of capitalist development.

Indeed by 1914 South Africa's society was beginning to reveal the
inherent tensions and contradictions among its various components;
and in the struggles that ensued the representatives of capitalist
enterprise were not always the victors.
THE EARLY INDUSTRIAL ERA, 1914-48

The capitalist enterprise induced by the development of the gold mines

overflowed into other sectors of the economy in this period, helped in
the first instance by wartime import substitution, then by deliberate
government policy after 1924, by the rise in the gold price in 1933 and
finally by the stimulus of the Second World War. The demands of
industry for capital were not as great as those of the gold mines. South
Africa followed the classic route to a modern economy with the first
industries producing manufactured goods from local raw materials or

12

Introduction

concentrating upon relatively simple consumer goods. Not until the

Second World War did assembly line methods feature in the
engineering industry which, until then, remained relatively backward
and undercapitalised. However, dynamite production was capital
intensive, and the government sponsored an iron and steel industry
with the foundation of ISCOR in 1928, but on the whole the industrial
base remained thin before the Second World War placed unprecedented demands upon the economy. Consumer industries producing
textiles, boots and shoes, clothing and furniture developed, but with
the exception of iron and steel, growth of the more capital-intensive
producer goods lagged behind. The age of the assembly line in
engineering really grew up in South Africa during the Second World
War. 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. Yet it was also the time when Ernest
Oppenheimer built Anglo-American into the major mining finance
house and tied diamonds to gold. In the First World War rising prices
and a fixed gold price threatened the economic viability of many of the
mines; 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, after which output would
decline. 19 When the Nationalist government refused to devalue along
with Britain in 1931 this very nearly happened. Fortunately for the
mining industry, 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. Then, the massive
increase in the price of gold acted as a stimulus to sustained economic
growth. In the 1920s, 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. 20 In the 1930s, new development
moved to the West Rand, capital poured into the industry-80 million
between 1933 and 1940 - and output went up accordingly. So too did
the rate of taxation. 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. 21 With regard to the South African gold mines
both capital and labour may lay claim to have been exploited, capital
by the government and the non-unionised Black labour by the mining
companies and the White mine-workers. In the late 1930s the Free

Stuart Jones

13

State gold field was discovered, but its development began only after
the war and it had not come on stream by 1948. Between 1914 and 1948
the value of the gold oputput almost trebled with virtually all the
growth occurring after 1933. Table 1.3 below gives the figures.
Table 1.3 The value of gold output, 1914-1948 ( millions)

1914
1919
1924
1929
1934
1939
1944
1948

35.664
39.280
44.739
44.229
72.311
98.943
103.149
99.919

Source: Union Statistics for Fifty Years, 1910-1960 published by the Central
Statistical Service, Pretoria, 1960, K-4 and reproduced under Government
Printer's Copyright Authority 8629 of 18 December 1986.

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. 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.
Across the ocean in India, the main restrictions on the progress of
industrialisation were the low productivity of peasant agriculture and
the low incomes of peasant households - the same conditions which
applied to much of South Africa. The paradox of South Africa was that
on the one hand a portion of the primary sector, gold mining, provided
a powerful stimulus to development and effectively removed constraints on the balance of payments, while another portion of the
primary sector, agriculture, 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. The real wages of Blacks
between 1914 and 1948 did not rise in either mining or in
agriculture. 22
The picture in the agricultural sector was bleak. In 1914, 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. For years they had been
sheltered from market forces and this made it difficult for them to

14

Introduction

adapt to the sudden growth in demand. The farms were undercapitalised and the farmers undereducated. Problems had been building up
before the Boer War; but the dislocation that resulted from the war
and Kitchener's brutal policies, together with a growing shortage of
land for the rapidly increasing population, created the 'poor White
problem' that exacerbated race relations and made some positive
policy towards both industry and agriculture imperative. Non-capitalist policies were adopted. The 'poor White problem' was to be solved
by a positive policy of industrialisation - recognition at least that the
land could not support them and in direct contrast to later National
Party policies towards surplus Black labour - and the agricultural
problem was to be solved, not by raising productivity as in contemporary America, but by raising prices through the creation of state
marketing monopolies. Monopsony became the policy of the government. Even so, the value of output did not rise significantly before
1939.23 Subsidies to farmers became the normal policy in the
inter-war years and in the 1930s these amounted to about 15 million a
year. Their limited impact upon the process of modernisation was
revealed in a 1941 study of farm incomes. In that year half the
owner-occupiers received less than 200 per year, more than half the
tenant farmers less than 100 per year, and the sharecroppers
(bywoners) less than 50 per year. 24 Nevertheless, 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.
Despite this weak agricultural base the period from 1914 to 1948 was
one of rapid industrialisation; and it may be argued that the role of
leading sector in the South African economy, which had been filled by
the mining sector in the half century before 1914, was now filled by
secondary manufacturing in the years after 1914. Most of this
industrial development was the product of market capitalism. Until
around 1924 the number of factories and workshops increased at the
same rate as the gross value of output, but after that date more
intensive use was made of capital and the value of output rose faster
than the number of establishments. An idea of the change under way
may be gained from Table 1.4.
The gross value of industrial output had risen more than fourteenfold while the value of gold output had barely trebled. Some large
industries had emerged, 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. In

Stuart Jones

15

Table 1.4 Gross value of industrial output, 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, 1910-1960 published by the Central
Statistical Service, Pretoria, 1961, L-3 and reproduced under Government
Printer's Copyright Authority 8629 of 18 December 1986.

economic terms, 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.
While this expansion of the secondary sector might be seen as
evidence of dynamic capitalist enterprise, this does not mean that
individual capitalists were always able to determine policy. On the
contrary, there were signs that non-economic factors frequently
determined state policy. Full factoral freedom was not achieved and
was becoming less likely as the state began to place restrictions upon
development. Labour mobility was restricted by laws tying Blacks to
the land or by laws restricting free movement into the urban areas. The
apprenticeship laws effectively kept Blacks out of skilled occupations
and the 'civilised labour policy' acted as a formidable barrier to labour
mobility. Recruitment into the bureaucracy followed a similar line. In
peace time there were no restrictions on capital movements in the
White areas, but the division of the country between the races
effectively kept White capital out of the Black homelands. In general,
though, 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.
In the tertiary sector the banking system stood up well to the
depression ofthe 1930s. The amalgamation movement that swept over
England immediately after the First World War had its counterpart in
South Africa, where the degree of concentration went much farther
than it did in Britain. For much of this period there were only two

16

Introduction

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

Stuart Jones

17

promoting policies conducive to economic growth that led to their own

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

18

Introduction

all bank accounts from Barclays to Volkskas and in 1986, on the

dissolution of the Provincial Council of Natal, the Botha government
appointed an Afrikaner in charge of eduction in that province. Yet, if
English speaking White businessmen have experienced discrimination, it is nothing to that which has confronted prospective Black
entrepreneurs, though even in the repressive 1960s, the Verwoerdian
era, at least one Black millionaire emerged proclaiming thereby the
eventual doom of apartheid.
Apartheid, as conceived by Malan in 1948, was anti-capitalist,
anti-English and anti-Black. It was a negative policy of the have-nots,
the underprivileged, with an anti-urban bias. In the 1960s, 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. 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. Not surprisingly few took
the bait; and industry with its increasingly Black labour force remained
obstinately in the White areas. It is important to have some
understanding of this background, because although South Africa has
experienced vigorous economic growth, this growth has not necessarily coincided with the best interests of capitalists. Capitalism,
therefore, cannot be blamed for all that has happened since 1948, even
though individual capitalists may have supported the ruling group.
The main outlines of development since 1948 have been the
continued progress of industrialisation; 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,
and with the burst of investment that followed the 1974 rise in the price
of gold; and the colossal investment in the infrastructure. By
comparison the provision of housing and hospitals has lagged behind
(not enough capital has been invested in housing), while the centres of
almost all the cities have fallen victim to 'development' so that sterile
boxes now dominate most of them. 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, it
places a well nigh insuperable one on that of South Africa's less
developed neighbours. The background to the emergence of sophisticated financial services in modern South Africa has been this massive
investment in industry, gold and electricity generation, the spectacular

Stuart Jones
Table 1.5

19

Gold output, 1948-84 (Rand millions)

1948
1954
1964
1974
1984

200
329
730
2565
11 684

Source: D. Hobart Houghton, The South African Economy, Cape Town,

1967, p. 46; and Chamber of Mines, Gold and South African Gold Mines,
Johannesburg, 1985, p. 41.

growth in the assets of the banks and insurance companies, and the
emergence of a few very large corporations.
The figures of gold output in Table 1.5 convey some idea of the
magnitude of the expansion under way and of the ravages of inflation.
With the 1984 gold output amounting to a capital inflow into South
Africa of R11684 million, the gold mining industry has played a major
role in the recent expansion of the South African economy, and
formed the background to the emergence of sophisticated financial
institutions and services. 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, and
amounted to 14 per cent of the value of output in 1984. Large though
this is, amounting to almost two billion rands in 1985, it is small by
comparison with the annual new investment of ESCOM. Table 1.6
gives the figures.
This massive increase in the value of gold output was accompanied
by vigorous expansion in other branches of mining. Coal, iron ore and
platinum were of particular importance. Mineral exploitation fuelled
the growth of the economy, but the engine of growth was industrialisation. Not even the explosive rise in the price of gold in the late 1970s
could significantly retard the restructuring of the economy, though it
did retard the restructuring of the pattern of exports. In the early
1960s, gold mining accounted for 13 per cent of the national product:
twenty years later, after the massive increase in the price of gold, gold
mining accounted for only 11 per cent of the national product. 26
This broadening of the base of the economy was reflected in the
growth of the secondary sector. Private enterprise was mainly
responsible for this, though in the 1970s state enterprise in iron and
steel production, the oil from coal programme, armaments and

20
Table 1.6

Introduction
Capital expenditure in the South African gold mines, 1966-85
(Rand millions)
1966
1967
1968
1969
1970
1971
1972

59
76
75
83
90
87
97

1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985

106.4*
196.1
290.2
374.5
430.3
448.3
689.0
922.0
1221.9
1256.1
1407.6
1645.0
1911.4

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

21

Table 1.7 Gross value of manufacturing output in South Africa, 1948-76

(Rand thousands)
1948
1953
1958
1963
1968
1972
1976

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
station.
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,

22

Introduction

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.

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. Personal disposable income has risen
from R8610 million in 1970 to R46225 million in 1982. 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. Until 1970 the Whites' share of total personal incomes
amounted to about 75 per cent of the total. By 1980 the White share
had declined to about 60 per cent - a remarkable redistribution of the
national income within one decade. 32 The White share of the national
income would probably have fallen to 50 per cent by now, 1987, but for
the economic recession and the political unrest. Already by 1984 Black
expenditure accounted for about 50 per cent of the annual increase in
consumer demand. 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, but it does
suggest that sustained economic growth is in the process of bringing
about a social revolution. Economic growth is bringing an end to
apartheid and a Black bourgeoisie is emerging. Indeed the radical
leaders of today from Tambo in Lusaka to Tutu and Boesak are the
epitome of bourgeois values and attitudes. It is not possible for a
society with an exploding population to have an elaborate structure of
social welfare. (India, four decades after independence, has still not
reached the stage of free and compulsory education and certainly there
is little hope there of pensions and unemployment benefits.) These
benefits do exist in South Africa. 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. Efficient economic organisation, as displayed by some of the
institutions examined in this book, together with clearly defined
property rights, 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. In the process,
without foreign aid, though with foreign investment, the South
African economy has been transformed, the low productivity of
peasant agriculture overcome, and the economically active population
increased to almost 9 million. The alternative road to development,
that of the socialist model adopted by the countries to the north, has
not worked.

Introduction

24

Efficient economic organisation and clearly defined property rights

created the framework of market capitalism that made possible the
rise of the West. The experience of South Africa suggests that it is
undergoing a similar process and that, if this should continue,
sustained economic growth in a framework of market capitalism will
lead the country into a similar era of affluence.

Notes and References

1.
2.
3.
4.
5.
6.
7.

8.
9.
lD.
11.
12.
13.
14.
15.
16.
17.
18.

Douglass, C. North and Robert Paul Thomas, The Rise of the Western
World, Cambridge, 1973, p. 1.
Ibid.
See the article by A. L. Muller, 'The State and the Development of the
Cape, 1795-1820', The South African Journal of Economic History,
vol. 1, 1986.
W. Arthur Lewis, Growth and Fluctuations, 1870--1913, London, 1978,
p.149.
John R. Shorten, The Johannesburg Saga, Johannesburg, 1970, p.
249.
See the article by Jon Inggs, 'The Liverpool ofthe Cape: Port Elizabeth
Trade: 1820-70' in The South African Journal of Economic History,
vol. 2, no. 1,1987.
A. E. Hirschman, The Strategy for Economic Development, New
Haven, 1958, p. 83; and W. W. Rostow, 'Leading Sectors and the
Take-off, in W. W. Rostow (ed.), The Economics of Take-off into
Sustained Growth, London, 1963, pp. 5-6.
V. E. Solomon, 'Transport', in F. L. Coleman (ed.), South African
Economic History, Pretoria, 1983, p. 93.
Ibid,. p. 100.
S. H. Frankel, Capitalist Investment in Africa, Oxford. 1983, pp. 81,95.
D. Hobart Houghton, 'Economic Development, 1865-1965', in Monica
Wilson and Leonard Thompson (eds), The Oxford History of South
Africa, vol. II, Oxford, 1971, p. 14.
John R. Shorten, The Johannesburg Saga, p. 117.
H. Klein (ed.), The Story of the Johannesbury Stock Exchange,
1887-1947,Johannesburg, 1948,p.46.
Ibid., p. 49.
Alfred D. Chandler, Jr, The Visible Hand: The Managerial Revolution
in American Business, Cambridge, Mass., 1977.
John R. Shorten, The Johannesburg Saga, pp. 180,249.
Ibid., p. 234.
Robert V. Kubicek, Economic Imperialism in Theory and Practice: The
Case of South African Gold Mining Finance 1886--1914, Durham, N.C.
1979, p. 22; and S. H. Frankel, Investment and the Return to Equity
Capital in the South African Gold Mining Industry, 1887-1965, Oxford,
1967.

Stuart Jones
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.

25

D. Hobart Houghton, The South African Economy, Cape Town, 1967,

p.101.
A. C. M. Webb, 'Mining in South Africa', in F. L. Coleman, South
African Economic History, p. 190.
Ibid., p. 191.
F. Wilson, Labour in the South Africa Gold Mines, 1911-1969,
Cambridge, 1972, p. 184.
D. Hobart Houghton, The South African Economy, p. 46.
Ibid., p. 57.
Ibid., p. 42.
Ibid., p. 243.
South Africa: An Appraisal, Nedbank Group, 1983, p. 5.
Ibid., pp. 74-5.
Ibid., p. 76.
Ibid., pp. 74-5.
Ibid., p. 78.
H. Oppenheimer, Address to the Chicago Council on Foreign
Relations, 30 March 1983, Supplement to Optima, vol. 31, no. 2,
1984.

2 VentureCapitaland

Financial Organisation:

London and South Africa

in the Nineteenth
Century
Stanley D. 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'. I
Interpreting his quip, we might say that a bank is a financial institution
that conventionally avoided taking significant risk; 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.2 But it is equally clear that for generations this
caution left a large gap in national and international money markets,
that of supplying capital for investment where there is recognised to be
significant risk. This sector of the market is now known as the venture
capital market, and it is important to recognise that it has a history of
its own.
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. First, in London, the undisputed centre of international finance, there was no overall shortage of funds available for
speculative investment. The problem was one of effective connections
between lenders and borrowers, of realistic ways of identifying and
evaluating enterprises that needed capital for growth. 3 Secondly, the
'high risk' (as distinct to 'safe') sector of investment was what we may
call a moving frontier. Traditionally, and still in the early part of the
nineteenth century, this was mercantile activity in the remoter parts of
the world (Africa, Latin America, the Orient, and Australasia). From
the I820s to the I850s it was the securities of new states (including the
USA) and their railway bonds. In the second half of the century it
became mining and (in Britain, at any rate) manufacturing industry.4
The final point, closely related to this one, is that the policies of the
various firms that proved successful in meeting one or other of these

27

28

Venture Capital and Financial Organisation

needs tended to institutionalise them. More exactly, policies ossified

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

Stanley D. Chapman

29

diminished in proportion as the profits have increased. 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,
whilst commercial profits being larger, our Correspondents gain by
their Adventures have of course [become] much safer'.
This is not to suggest, of course, the overseas trade had generally
become less risky, 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.
However, this is not the whole of the London story. The other part
of it concerns the policy of the Bank of England in this period, which
has not been adequately covered in the various official histories, or by
monetary historians. 8 Here again, the position is best described in the
words of Sir Francis Baring, who appears to have been a principal
beneficiary of the rationing of the Bank's resources in the early years
of the European turmoil.
Before the Revolution our Bank [of England] was the centre

upon which all credit and circulation depended, 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. The Bank is still the pivot for
circulation but no longer for credit and discount. 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 ... they determined that Merchants of the first class
should never exceed 50,000 by them and 50,000 more upon them. 9
Baring was of course primarily concerned with the consequences of the
Bank's policy for his own business and, at any rate in his 1802
memorandum, 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. Perhaps the Jewish ones had previously been
restrained by the consideration that the Bank of England gave

30

Venture Capital and Financial Organisation

preference to Christian houses.1O Moreover, many of them were

involved in the textile trade, and could not help noticing the dramatic
rise of Manchester, Liverpool, Leeds, Glasgow and London in this
business. Now that the Bank's ethnic prejudice was no longer a
significant factor, there was every incentive to start an operation in
England. It was indeed in the Napoleonic period that the foundations
of some of the great Jewish banking fortunes were laid - Goldschmitts
0.5 m (until their bankruptcy in 1810), Rothchilds 1.0 m., and Heine
of Hamburg ('the English city' of Germany) another 0.5 m. 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, soon to move to London, and
Steiglitz in Moscow. 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. The reason for this is evidently their attitude to risk taking.
Barings' disposition, like that of Hopes, was to cultivate the safer
clients - i.e. those that were not speculative, or foolish enough to lock
up their capital in unrealistic assets - and grow pari passu within a
dependable circle. This was the product of their long mercantile
tradition. The Jewish firms, by contrast, came of the tradition of Court
Jews, firms that understood the very risky business of arranging the
finances of the numerous petty monarchies of Central Europe. Escape
from the ghetto required the taking of risks, and Goldschmidt,
Ricardo, Rothschild and others were schooled to evaluate and take
them, and in London they set a high standard of competitiveness for
their Christian rivals. In the second and third generations, when their
fortunes were made and they became anglicised, the old Jewish houses
became more conservative, but their tradition was sustained in various
ways. In particular, Rothschilds' involvement in the bullion trade was
never given up, though no longer conducted with the boldness of the
founder. But attracted by the Rothschilds' dramatic success in
London, new migrants from the continent followed similar patterns of
growth. 12
COMPANY PROMOTERS AND SPECULATORS
Shipping and international trade were the traditional areas of high risk
in private sector investment, not only on account of the hazards of
long-distance mercantile activity. In the nineteenth century, when the

Stanley D. Chapman

31

scale of British manufacturing enterprise multiplied, the cost of

marketing often increased even more rapidly than fixed capital
requirements as exports reached the corners of the world, so that the
merchant banks continued to cover the largest sector of risks
shouldered by European and American entrepreneurs. \3 Consequently, 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, the company promoter. In the 1860s and
1870s there were still only two important houses operating in Britain,
Chadwicks, Adamson & Collier, serving domestic industry (mostly, it
seems, by selling established coal, iron and cotton companies), and
Albert Gottheimer (Baron Grant) serving the overseas market. 14
Only the latter can be regarded as contemplating high-risk business, 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; his clientele apparently gave little thanks for the
former and castigated him for the latter, and he has had a bad press.
However, there are some features of his business practice that presage
later developments and consequently deserve attention. According to
H. O. O'Hagan, who succeeded Grant as the leading City promoter,
he had 'a very great following of people who wanted to get rich
quickly'; Grant said they included a string of aristocratic names as
well as 'public writers', clergymen, barristers and other reputable citizens. 15 His issues covered an enormous range, by value
(100000 to 3 m), by type (municipal, mining, industrial, banking,
railways and state), and by geographical sector (domestic, continental
Europe, America, Russia, Asia, and, in a final fling, South Africa).
Several were similar to those later taken up by well-known banks such
as the Hong Kong & Shanghai Corporation, Schroders, Barings,
Hambros and Morgan Grenfell. 16 His final venture, in gold mining at
Pilgrim's Rest in the Transvaal, was quite close to the moderately
successful venture promoted by Mathesons.17 Unfortunately, by this
period Grant had lost the confidence of the investing public, and was
followed by promoters with more circumspect dispositions.
H. O. O'Hagan was probably the most successful of this more
professional group. In his candid autobiography he described how he
invested much time and money investigating every promising proposal
put up to him. 'The financier must be prepared to spend many
thousands of pounds in his investigation of concerns which he may
have to reject ... Every financier must make mistakes, but the best is
he who makes but few, and that is the man who leaves nothing to

32

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

33

EXPLORA nON COMPANIES

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

34

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,

Stanley D. Chapman

35

Mexican and Alaskan mining, and with the safer London public
utilities; by 1895 it already had a diversified portfolio. From the
investor's point of view it offered the additional advantage of priority in
buying shares in the company's promotions, and in the syndicates in
which it participated, often at prices which, in the whirlwind stock
inflations of the period, soon proved to be bargains. 28
The Exploration Company undoubtedly won pre-eminence in the
genus but there were rivals which, from the perspective of this chapter,
warrant some attention. The Venture Corporation was formed in 1897,
originally to amalgamate several doubtful Western Australia mining
promotions. Its status was no doubt increased when the leading
American mining engineer John Hayes Hammond became its
consultant. Perhaps its greatest success was in copper mining in the
Russian Caucasus where, by the Second World War, ithad fathered an
investment of 1.5 m. The subscribers to the copper company included
partners in Morgans, Barings and Hambros, a familiar string of
merchant banks. However - and here is the point for offering this
particular example - 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. According to E. C. Grenfell of
Morgan Grenfell, the Caucasian Co. 'was never a success' and in 1930
was finally liquidated as a complete loss.29
However, in the longer perspective of financial history, exploration
companies were a meteoric phenomenon; they rose quickly and
disappeared almost as fast. Many were obviously a cover for speculation
if not fraud, and, taken as a group, those located in Australia, Russia
and Africa were not very successful after the turn of the century.
Investors preferred to commit themselves to a trusted name, and so we
see the rise of the investment trust and the investment group.

INVESTMENT TRUSTS
There have been several histories of the British and American
investment trust movement, so it is not necessary to retell the story
here. 30 The present purpose is simply to consider to what extent, if any,
these organisations were prepared to invest in other than safe securities.
Investment trusts were, of course, originally a Scottish development,
and their early success is spelt out in some useful estimates of Scottish
capital invested abroad in 1884 (Table 2.1).

36

Venture Capital and Financial Organisation

Table 2.1

Distribution of Scottish overseas investment, 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

20.0m
4.0
4.5
4.5
0.5
2.0
5.0

8.0

40.5

5.5

6.3%

5.0
4.5

0.0
5.0

3.0

Source: 'Scottish Capital Abroad', Blackwood's Edinburgh Magazine,

CXXXV (1884), p. 477.

Evidently much the best return was offered by investment and

mortgage companies, except for cattle companies, where the good
fortune of investors was not likely to last. About three-quarters of the
capital sunk in Scottish mining ventures returned nothing at all, while
two mines averaged nearly 10 per cent. Mining represented the
high-risk area, and on the experience of investing in American
companies it was only an area for those who could afford to gamble. 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, Robert Fleming and Robert
Benson. They came of very different backgrounds, but their early
career experiences had one common element. As young men both had
suffered heavy financial losses. 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. 32 Robert Benson had scarcely
completed his expensive Eton and Balliol (Oxford) education in 1875
when his father, a London and Liverpool merchant, went bankrupt.
He was fortunate to be taken into partnership by J. W. Cross, who had
recently established himself in London as an agent for English
investors in American securities. It is not surprising that both men
were very cautious investors. 33
Financiers have been unusually taciturn as a group about their
careers, policies and results, but Benson was one of those rare
entrepreneurs willing to expose his ideas and experience to public
view. His Merchants Trust reports offer a revealing insight into the

Stanley D. Chapman

37

problems and practices of one of the more successful vehicles of the

movement. According to The Statist, 'the investments of the
Merchants Trust are pretty much as the usual Trust Company type'. 34
As Benson expressed it, 'our business is to invest our money
wherever we can get the best rate of interest, without losing any part of
the principal'. He repudiated all issue and company promotion
business: 'We have taken no initiative in the intricate modern business
of creating, introducing, and placing securities', he insisted. The
problem was, of course, to unite good returns with appreciating (or at
least steady) stock values. Benson's closest connections were in the
USA and, with one interesting exception, he soon found American
railroads his safest and most remunerative outlet. 'We owe the
fortunate position in which we are today entirely to our investments in
American Railroads,' he reported in 1899. 'They have shown
throughout trials a stability, a saleability, and a return greater than any
other part of the globe ... excepting only South Africa.' In 1901, he
added that 'South Africa will probably offer more and more
opportunities henceforward as Railways are developed, and when
order is restored there is nothing speculative about the best of its gold
mines'. The most disappointing areas proved to be Australia and
'home industrials'. The former involved heavy losses while, in the
mid-Edwardian period, home investments scarcely topped 3 per cent
while American railroads were returning 5.3 per cent. 35
In 1919, Benson laid the results of thirty years experience of the
Merchants Trust before his shareholders. They are set out in Table
2.2 exactly as he presented them:
Clearly the success of the whole exercise depended on the
conservative investment in 'American rails'. The gains from investment in South African mining were evidently more than cancelled out
by losses in Australia. The pre-war merger movement and wartime
prosperity of British industry did nothing to cause Benson to retract his
early scepticism.
Looking at the Merchants Trust from the wider angle of the
development of venture capital institutions, it might seem that Benson
could offer little more than the typical contemporary stockbroker's
advice to invest in 'home rails', but this is not fair to Benson, who not
only visited the USA regularly, but also had an early and close
association with the pioneer electrical supply industry. He was
evidently part of the City establishment, was close to some leading
political figures of the age, and was altogether regarded as one of the
best-informed financiers of his age. Nevertheless, he had no facilities

38

Venture Capital and Financial Organisation

Table 2.2 Merchants Trust investments and results, 1888-1918 Percentage

of investments in various sectors

1891

1901

1914

1919

Home
Continental
Colonial
USA
River Plate
Other localities

7.9
4.5
19.2
47.3
14.2
7.0

10.0
5.5
10.8
47.9
12.7
13.2

14.9
2.1
10.7
50.7
9.3
12.3

30.8
3.6
6.7
35.8
11.0
12.1

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, The Times, 1 March 1919.

or capacity to identify and evaluate degrees of risk, except perhaps

through his partner (J. W. Cross), then through his brother in
Chicago. 36
It would be rash to generalise from the experience of one investment
trust, however eminent. Much less information is available on any
other trust, but we do know quite a lot about Robert Fleming, and his
'syndicate books' survive from 1900. Fleming's investment programme, like that of Benson, focused heavily on 'American rails', and
he worked closely with Jacob Schiff of Kuhn, Loeb & Co., New York.
He showed little interest in the British Empire or in risky mining
shares, and his late entry into industrial shares was through American
multinationals like British Westinghouse Co. and British Thomson
Houston Co. After the USA, his main interests were in Latin America
and Cuba. He did not begin to take a serious interest in British
industrials until about 1910, nearly forty years after his first trust was
launched, and when he did so it was in major British companies like
Lever Bros (Unilever), BSA, British Portland Cement, and the

Stanley D. Chapman

39

Anglo-Persian Oil Co. Not surprisingly, Fleming and Benson were

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

40

Venture Capital and Financial Organisation

Aires, St Petersburg, Johannesburg, or wherever. Such investors were

able to combine the attractions of investment in lucrative 'new
frontier' developments with the safety and assurance of familiar
names. 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.
Although the concept of the investment group is nothing new in
South Africa, it is something that British economic historians have
only just begun to take a serious interest in. Consequently
it is difficult to say much about its distribution, scale and capital structure. An initial survey drew attention to thirty such groups for which
some information on capital had survived before 1914, and this
number can now be added to. The largest number were in India
and, speaking generally, the richest in South Africa. Hannah's list of
the fifty largest British domestic companies of 1905 includes two dozen
firms with a capital of 4.0 m or more, all in manufacturing; this
preliminary survey already offers more than half that number. 41 On
present evidence, the investment group developed first in the Orient,
but did not reach its greatest scale there. The case of Bird & Co. of
Calcutta, may serve to illustrate the structure of such firms at the
period.
In 1917, W. A. Ironside of Birds disclosed the structure of the firm's
shareholding to the Indian Industrial Commission, expressing the view
that it was fairly typical of Agency Houses at the period (Table 2.3).
The data did not include the firm's interest in a new engineering works,
a fireclay and silica works, a coke manufacturing plant, and an electric
supply company, so presumably the total shareholding was in excess of
2.0m. The same year, Bird merged with an old rival, F. W. Heilgers
& Co., an energetic former German firm, that managed seven coal
companies, jute mills, and paper mills. The combined organisation,
then much the largest British industrial enterprise in India, had a
capital investment valued at 20 m, an annual profit of 3 m, and
employed directly or indirectly over 100000 people. 42 The most
characteristic feature is that from a dispersed shareholding of perhaps
2-3 m, Birds & Heilgers were able to direct an investment of 20 m.
Birds and Heilgers were much bigger than any other houses, but a
similar structure can be discerned at E. D. Sassoon & Co., Finlays,
Wallace Bros, and other houses active in the Orient at the period. 43 It
was a formula that enabled the Agency Houses to make the transition
from trade to finance with minimal risk and maximum profit, and the

41

Stanley D. Chapman
Table 2.3

10 coal companies:
Europeans
Indians
Americans

Shareholdings in Bird & Co., Calcutta, in 1917

Numbers

Value (lacs)

1551

97

59

nd*

409

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.
Calculation of exchange rates: 1 lac (lakh) = 100 000 Rupees.
One Rupee = Is 4d = 0.0666.
Sources: Report of the Indian Industrial Commission 1916--18, ParI. Papers,
1919, XVIII, ev. of W. A. Ironside for financial data, p. 881. The numbers of
Birds' jute companies are given in G. Harrison, Bird & Co. of Calcutta
1864-1964 (Calcutta, 1964), p. 144.

investors to enjoy the early fruits of oriental industrialisation with

minimum risk.
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 2.4), after the three great
nineteenth-century investment booms had taken place.
Albu and Goerz were, of course, German houses but otherwise,
despite all the fears and reports of growing continental control, British
interest was supreme. In the years following the Boer War, results
were disappointing and British confidence evaporated even with the
leading houses, Wernher Beit and Consolidated Gold Fields. In 1906,
another inquiry established that investors in France and Germany had
risen to at least 39 per cent, and Kubicek thought that they and the
French bought most of the speculative rubbish that was unsaleable in
Britain. But by 1914 the Germans and the French had lost heavily,
became disillusioned and were pulling out; when war broke out they
held less than a fifth of the capital invested in Rand Mines. In a word,

42
Table 2.4

Venture Capital and Financial Organisation

British and continental shareholding in the Rand: mining
companies, April 1900

Group

Market
Valuation

British
Valuation

Wernher Beit
J. B. Robinson
Consolidated Goldfields
Barnato
Farrer
Neumann
G. & L. Albu
A. Goerz
Sundries

73.75m
16.43
38.80
8.83
13.38
11.14
5.30
6.15
14.57

57.53m
13.64
36.86
8.47
10.30
8.80
1.59
18.5
13.40

78
83
95
96
77
79
30
30
92

188.35

152.44

81

Source: Barlow Rand Archives, Johannesburg, HE 305, Private Notes on

Companies and Syndicates. The survey by F. Eckstein was based on careful
examination of the shareholders' registers. It is reported with approval in
Standard Bank Archives, General Managers' Reports, 8 August 1900.

while the British were periodically suspicious of many Rand flotations,

they placed great faith in investment groups. 44
CONCLUSIONS
Several tentative conclusions seem possible from this survey of
financial institutions last century:
1. The specialisation of nineteenth-century British financial institutions is quite remarkable. It can only be explained by the rapid growth
of international financial markets, and their increasing concentration
in London, which allowed any competent entrepreneur to find ample
scope for growth within his own closely defined area. 45 There was no
merit in all firms taking high-risk ventures on board when other new
and profitable business beckoned constantly.
2. Most new organisational developments in the venture capital
market in London were not English. A majority of the merchant banks
were German by origin,46 company promotion began with Gottheimer
(another German), exploration companies were closely associated
with South African developments, the investment trust movement was

Stanley D. Chapman

43

led by Robert Fleming (a Scot) with American collaboration, and

investment groups were closely associated with the Scottish house in the
Orient and German Jewish houses in South Africa. Why was this? Did
the British lack innovative ability in business organisation? Given this
easy success, it is not surprising that the policies of merchant banks,
reputable company promoters and investment trusts soon ossified,
while the less successful forms soon disappeared.
3. If we can generalise from the experience of investment on the Randcertainly much the largest location of venture capitalism overseas in the
period covered - British investors were not timid, but nor were they so
naive or gullible as the French or Germans. The more risky areas were
often abandoned to foreigners, colonials and Scots, who were
consequently most creative in producing new types of organisation to
cope with them. In the end, the favourite institution was probably the
investment group, which united a safe and familiar name with a London
home and local (foreign or colonial) experience. The investment trust,
after a shaky start, presently proved most popular for the rather more
secure investment trust.

Notes and References

1.
2.

3.
4.
5.
6.
7.
8.

9.

Quoted in R. T. Tripp, International Thesaurus of Quotations (1970),

no. 68.
See for example, L. S. Pressnell, Country Banking in the Industrial
Revolution, Oxford, 1956; S. D. Chapman, 'Financial Restraints on the
Growth of Firms in the Cotton Industry', Economic History Review,
XXXII,1979.
R. C. Michie, 'Options, Concessions, Syndicates and the Provision of
Venture Capital', Business History, XIII, 1981.
J. W. McCarty, British Investment in Overseas Mining, 1880-1914,
Ph.D. thesis, Cambridge, 1961; S. D. Chapman, The Rise of Merchant
Banking, London 1984, ch. 2.
S. D. Chapman, The Rise of Merchant Banking. esp. ch. 8.
M. G. Buist, At Spes Non Fracta: Hope & Co. 1770-1815, The Hague,
1974, ch. 1; S. D. Chapman, The Rise of Merchant Banking, ch. 1.
Amsterdam Municipal Archives, Bank Mees & Hope Mss, Information
Books P A 735/Buist 1122-6.
J. H. Clapham, The Bank of England, Cambridge, 1944, I, pp. 263-9; I.
P. H. Duffy, 'The Discount Policy of the Bank of England During the
Suspension of Cash Payments, 1797-1821', Economic History Review,
XXXV, 1982.
Bank Mees & Hope Mss, 'Diversen Documenen, 1802-08', Buist
1128, pp. 211-15.

44
10.
11.
12.
13.
14.
15.
16.

17.
18.
19.
20.
21.

22.
23.

24.

25.
26.
27.
28.

Venture Capital and Financial Organisation

Bank Mees & Hope Mss, Buist PA 735/25, pp. 942-3.
Bank Mees & Hope Mss, Information Books PA 735/Buist 1.
Selma Stern, The Court Jew, Philadelphia, 1950, esp. ch. IX; S. D.
Chapman, The Rise of Merchant Banking, ch. 3.
S. D. Chapman, 'Financial Restraints'.
P. L. Cottrell, Industrial Finance, 1830-1914, London 1979, ch. 5;
Dictionary & Business Biography, Grant, London, vols 1--4,1984-85.
H. O. O'Hagan, Leaves from My Life, London 1929, p. 32; [Albert
Gottheimer] Twyford versus Grant and others ... July 1876, 1876, p.
126.
Schroders later promoted the Lima railway; the Hong Kong &
Shanghai Banking Corporation was a reincarnation of the Imperial
Bank of China; while the Russian Copper Co. later reappeared as the
Caucasian Copper Co.
A. F. Williams, Some Dreams Come True, Cape Town, 1948, pp.
492-6; Standard Bank Archives, Johannesburg, Inspection Reports,
Pilgrims Rest.
H. O. O'Hagan, Leaves from My Life, pp. 36,79,149.
H. O. O'Hagan, ibid., p. 377. For a case study of a Rand promoter in
London see Bodleian Lib., John Johnson Collection, Commerce Box 1,
'Financial Black List 26 Nov 1892' (re C. W. Perryman).
Dilwyn Porter, 'Aspects of the New Financial Journalism, 1884-1914'
paper read at the City & Empire Seminar, Institute of Commonwealth
Studies, University of London, 6 Dec 1984.
J. B. Taylor, A Pioneer Looks Back, 1939, pp. 108--10; A. P.
Cartwright, The Corner House, Cape Town, 1965, pp. 219, 242; E.
Rosenthal, On 'Change thro' the Years: A History of Share Dealing in
South Africa, Johannesburg, 1968; R. V. Kubicek, Economic
Imperialism in Theory and Practice: The Case of South African Gold
Mining 1886-1914, N. Carolina, 1979, p. 153; S. H. Frankel, Capital
Investment in Africa, Oxford, 1938, pp. 89,204, is more cautious.
E. Rosenthal, On 'Change thro' the Years, p. 47; Rhodes University,
Cary Mss 16,101, letter from E. Oliver 18 November 1870.
E. Rosenthal, On 'Change thro' the Years, p. 53; P. H. Emden, Randlords (1935). Various papers in De Beers archives, Kimberley,
communicated by Dr. M. H. Buys; Dictionary of South African
Biography, article on Mosenthal.
Bank of England C29/23, p. 104; Cf. S. D. Chapman, Merchant
Banking, pp. 200-1.
London & S. African Exploration Co. Prospectus issued by De Beers to
provide the funds required for the purchase of ... 21 June 1900.
C. S. Goldman, South African Mines and Finance, 1895, I, p. 51; A.
F. Williams, Some Dreams Come True, p. 222; Standard Chartered
Bank archives, Johannesburg, Inspection Reports, Pilgrims Rest.
R. V. Turrell and J. J. Van Helten, 'The Rothschilds, The Exploration
Co. and Mining Finance', forthcoming article.
C. S. Goldman, South African Mines and Finance, p. 51; J. W.
McCarty thesis pp. 178--9; R. V. Turrell and J. J. Van Helten, The
Rothschilds, list the diversified investments.

Stanley D. Chapman
29.
30.
31.
32.
33.

34.
35.

36.
37.

38.
39.
40.
41.
42.
43.
44.
45.
46.

45

J. W. McCarty thesis pp. 174-9; Guildhall Library, London, Morgan

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

3 Early Capitalism in the

Cape: The Eastern
Province Bank, 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.
Already much pioneering work has been done, particularly with
regard to the impact of capitalism on traditional or pre-industrial
societies.! In many of these studies, however, the internal dynamic of
the evolution of capitalist economic relations has been at best only
partially explained. It is against this background that attention has
shifted to an inquiry of the individual capitalist and his institutions.
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, and particularly
Grahamstown as the chief town of the region, between 1830 and the
1870s, using the example of the Eastern Province Bank.
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. A barter economy existed, linking most of the tribal
groups of South Africa in which metals were exchanged for cattle,
dagga and other products. 2 It was possibly such a westward flow of
trade and the prospect of ivory hunting that drew the first Europeans
to the area. 3 The encroachment of White farmers followed from the
1770s, adding their limited output of pastoral produce to the flow of
trade between Table Bay and the interior. 4 Conflict over land
occupancy saw the introduction of a military presence to the region,
which introduced the beginnings of a cash economy. Cape merchant
capitalism was not slow in responding to these favourable circumstances. 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. Korsten
also opened branch stores at Uitenhage and Grahamstown, the latter
centre having been established as a military outpost in 1814. The
reasonably rapid extension of Korsten's commercial activities to the
47

48

Early Capitalism and Financial Organisation

interior is a good indication of the trading opportunities available. By

1821 the value of goods shipped from Algoa Bay has been estimated
to amount to 1500. 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.
Economic development was given a substantial boost by the arrival
of the 1820 settlers. Coming from a rapidly industrialising economy,
the majority of these people were imbued with a strong sense of
material progress via the accumulation of wealth. 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. Trade suggested itself as an alternative route to
riches. Soon the 'Engelse smous' became a regular feature of the
interior districts, while trade with the Xhosa developed as quickly. By
1826 direct trade was established between Algoa Bay and Britain to
facilitate these entrepreneurs in their endeavours. Prior to this, in
1824, trade between the settlers and the Xhosa was legalised and was
soon valued at around 30000 per annum. 6 Trade with the frontier
peoples, together with the commissariat contracts, ensured the
prosperity of Grahamstown and determined it as the commercial
centre of the frontier districts.
The expansion of wealth was also facilitated by the growth of
woo lied sheep farming. The increasing demand for wool by the British
textile industry was successfully exploited by a group of settlers from
the late 1820s onwards. By 1834 there were over 12 000 pure-bred
woollen sheep in the Albany district, which together with an even
greater number of cross-breds, supplied nearly 36500 kg of wool
worth over 4000. 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.
From the outset these farmers were quickly drawn into the wider
capitalist matrix of credit relations. The difficulties of poor communications for transporting wool to market and capital shortages for
improvement were overcome with the assistance of the merchants. 8
The successful development of the wool trade can be gauged from
Table 3.l.
The creation of the primary product export industry of wool resulted
in various linkages essential to its own growth. Amongst the most
direct of these was the development of the wool washing industry at

49

Arthur Webb
Table 3.1

Wool exports through Port Elizabeth, 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.

Uitenhage and the development of communications - the attempts to

improve the harbour facilities at Port Elizabeth, 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.
The main financial problem besetting the eastern frontier community was the lack of an adequate medium of exchange. The difficulty was
compounded by the issue of a proclamation of 22 May 1822, which
prohibited the issue of promissory notes, drafts and bills of exchange
for any sum less than 50 Rixdollars. \0 When the exchange rate
between the Rixdollar and Sterling was fixed at Is 6d in 1825, this
immediately meant that the smallest bill a merchant could issue was for
the equivalent of 315s. The problem was further exacerbated when,
in 1832, the colonial administration set about the withdrawal of the
paper Rixdollar notes from circulation. Between May 1832 and the
end of 1835 notes valued at 176289, out of a circulation of 200 097,
were destroyed. In lieu of this, government promissory notes to the
value of 174933 were issued. The minimum value of the new issue
was 1, as opposed to the Rixdollar notes which ranged in value to as
low as one-eighth of a Rixdollar. 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 the belief that such notes were a cause of
currency instability . It was anticipated that smaller transactions would
be conducted in coin, for which purpose an additional 60 000 of silver
and copper money was imported. It proved difficult to keep this coin in

50

Early Capitalism and Financial Organisation

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

Arthur Webb

51

Norton and James Black, again both prominent local merchants. All
became directors of the new bank.
The capital of the bank was set at 40 000 in 1600 shares of 25
each. 16 As early as October an amount of 27250 of the capital had
been subscribed, auguring well for the new institution. 17 No shareholders were permitted to own more than seventy-five shares, while 150
were set aside for English traders connected to the Eastern Province
and a further 200 for persons living in Cape Town. 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. As
there was no official charter, the institution was to operate as a
partnership with unlimited liability for its shareholders, as in
contemporary England.
The Eastern Province Bank opened its doors on Church Square,
Grahamstown, on 1 January 1839. Paid up capital amounted to 6 at
the opening but was raised to 1613s 4d per share by March 1839. The
bank was soon undertaking the functions of discounting, issuing its
own bank notes, and accepting deposits, and, in 1840, a London
agency was opened with a view to facilitating immigration. The
London and Westminster Bank was appointed to act as agent, holding
securities of the bank, cashing remittances and granting letters of
credit on the Eastern Province Bank to persons proceeding to the
Cape. The bank was also quick to open a branch in Port Elizabeth.
Two motives suggest themselves for this step, namely, to pre-empt the
Cape of Good Hope Bank and to keep that institution out of the
Eastern Province, and the full realisation that the trade of the port
warranted such a move.
THE EARLY YEARS, 1839-50
The growth of the bank during its first decade of existence can be
gauged from Table 3.2.
Government expenditure was important. In 1831, 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. In addition, there
was a military contingent of some 830 men stationed in these districts.
The population of the area was estimated at roughly 16000 people, of
whom 1700 were involved in commerce and a further 1100 in
'manufacturing,.18 Under these circumstances there was a consider-

Early Capitalism and Financial Organisation

52
Table 3.2

Assets
Coin,
Securities
(Discounts)
Treasury bills

Date

July
Jan.
Jan.
Jan.
Jan.
Jan.

Assets and liabilities of the Eastern Province Bank, 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.

able cash-flow and circulation of wealth in the area. In turn, increasing

numbers of the Xhosa had become familiar with the usage of money
during the 1830s.1 9 Both agriculture and pastoral farming generally
flourished in the 1830s, with the exception of the period of the Sixth
Frontier War, and again during the 1840s down to the outbreak of the
Seventh Frontier War in 1846. The expansion of wool production in
this period was rapid. The frontier districts also showed a remarkable
increase in the output of cereals, so that an unsaleable surplus became
a recurrent problem and further hastened the transition to woo lied
sheep farming. Farm incomes were rising. 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. Grahamstown was
a prosperous community. In 1849, a directory of the town listed
thirty-two merchant establishments or traders dealing with the Xhosa,
and a further seventy shopkeepers, storekeepers, grocers or chandlers.21 The increased military presence on the frontier during the wars
provided a welcome boost to consumer expenditure. A clear
indication of this is to be found in the rapid rise in the discounting
business, note circulation and deposits of the bank during the War of
1846-7 and in its immediate aftermath. Commissariat contracts were
the foundation of several frontier fortunes. The 'Kaffir' trade was
estimated to be worth 25000 per annum in the late 1830s and
certainly did not diminish in the 1840s. Similarly, population had
grown and by 1849 was probably in the vicinity of 40 000. 22
The publication in the local press of balance sheets and profit and

Arthur Webb

53

loss statements was irregular during the years of the bank's existence,
so that an imperfect picture exists of the financial growth of the
organisation. Nevertheless, it would seem that the bank enjoyed
early prosperity, reflecting a surplus of over 1300 in its first year of
trading, after the substantial deduction of 800 for formation
expenses and management costs. On the basis of this result it was
decided to declare a dividend of 6 per cent on the paid up capital.
During the first year some 2295 bills were discounted valued at
170466. 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. In response to the large demand for
these shares it was subsequently decided to hold out for an even
higher price. 23 The price of bank shares continued to rise and in May
1842 a small number were sold for 35, a substantial appreciation on
the paid up value of 1613s4d. 24 Furthermore, profits of 3531 in
1841 allowed the declaration of a dividend of 1 per share, and 3775
in 1842 yielded a dividend of 15s. Reserves at the end of 1842
amounted to 5159.2 5 Dividend payments of 117s 6d in 1843, 3 in
1845, 31Os in 1846, and 415s in 1847 reflect the continuing
prosperity of the bank.
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, clearly reflected in the above table. This situation indicates
the unnatural state of the economy of the region caused by the
additional military presence and was soon dissipated. The bank chose
to act with caution throughout the boom. The increase in note issue
was forced upon the bank by the abnormal circumstances surrounding the outbreak of hostilities. An automatic drain of coin ensued as
the military required cash to pay for supplies from frontier farmers,
who now insisted on payment in hard money. As one source
commented, 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. Ever cautious, however, adequate provision was
made against the time when such notes would be returned for
payment. The specie supply of the frontier was slowly augmented by
imports from Britain throughout the year 1847. 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. 27

54

Early Capitalism and Financial Organisation

The sound financial position of the bank in these years can be

attributed to a stable, if conservative, policy in the acceptance of
business. At no time did the directors see for themselves a public role
in attempting to push note circulation and encouraging demand
deposits. Likewise, its discounting business appears to have been
conducted on cautious lines. 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, which also reveals confusion
between banking functions and money lending: 28
No prudent person would recommend the Eastern Province Bank or
any other company, to trade beyond its capital; and hence it seems
inevitable that if it do (sic) not increase its capital by additional
shares, that another institution of the same character will be
absolutely necessary. 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.
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. A
special general meeting of shareholders was called in April to discuss
the frustration of certain shareholders, as well as of the public, at the
policy of restricting the amount of paper discounted and of giving
preference in that discounting to those bills submitted by shareholders, or endorsed by the directors. 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, shareholders
transactions amounted to 244380, as against the 73133 for the
general public. It was argued that if the average life of a bill was around
three months, then the non-shareholders employed bank resources to
the value of approximately 18000, 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. Undoubtedly, the bank
was not in a position to force its note issue upon the general public, but
neither was it willing to see its resources channelled to the public in
preference to its own shareholders. In the early years of the bank no
doubt many of the most notable merchants of Grahamstown were
shareholders of the bank. With the passage of time, however, rising

Arthur Webb

55

share prices and a restricted share holding acted to exclude second

generation merchants and traders from the inner sanctum. It was in
this light that the call for an increase in the capital of the bank was
made. In practice, of course, the bank's deposit base remained weak.
The general rise in prosperity of the Eastern Province was reflected
in Port Elizabeth, where the value of exports increased from 70 337 in
1840 to 193794 in 1849. It led to demands for a locally controlled
bank. 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, as a result, found the
Port Elizabeth merchants doing to them what they had done to Cape
Town merchants a decade earlier. 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.
The prosperity of the mid-1840s also led to the formation of another
bank in Grahamstown, the Frontier Commercial and Agricultural
Bank, in 1847. This bank had a nominal capital of 75000 in 1500
shares of 50 each of which 25 was paid up. 31 Most of the provisional
committee were merchants and none was associated with the Eastern
Province Bank. They seem to have been influenced by the lack of
suitable investment opportunities in Eastern Province Bank shares, as
well as by the restrictive nature of that bank's discounting practices
that was almost monopolised by its own shareholders. They were no
doubt also attracted by the increasing profitability of banking and the
premiums on the shares of the Eastern Province Bank. In the event,
there was sufficient business for the shareholders of the two banks and
competition between them was never severe. This lack of competition
eventually paved the way for the entry of the 'imperial banks' in the
1860s.
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. It would, however, be
incorrect to suggest that this was an accurate reflection of the
developing banking sector. 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. Thus the growth of branch banking only

56

Early Capitalism and Financial Organisation

developed in the 1860s with the arrival of the imperial banks and
improved communications, particularly the telegraph.
Under these circumstances a bank's growth was limited by the size
of the community it served. 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. There
is, for example, a striking correlation between the fluctuations in the
business of the bank and the revenue account of the municipality. 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. 33 Likewise, 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. The directory for
Grahamstown listed 1218 entries in 1861, although this figure also
included the names of the inhabitants of the 'Hottentot Village' who
had been excluded from the directory of 1849. 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, storekeepers and chandlers. There was also a substantial group who could be
listed as manufacturers. Of the twenty-six people recorded, the
majority were involved in wagon and cart building. 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, both within the community itself, and from the rival
commercial sectors of Port Elizabeth and the other expanding centres
of the Eastern Province, such as Cradock and Graaff Reinet. An
interesting corollary to this development was the rise in the number of
persons who gave their occupation as 'agent', 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.
Information pertaining to the bank in the 1850s is remarkably
scarce. Even the Grahamstown press offers very little beyond the bald
annual statements of assets and liabilities. Trends at least may be
gathered from Table 3.3, which reveals long-term growth interrupted
by wartime fluctuations.
The period of the 1850s opened with the outbreak of yet another
frontier war which persisted down to 1853. Once more the beneficial
influence of war on the business of the bank is evident. This upswing
was followed by a setback in keeping with the general recession which
affected the rest of the Cape economy.34 There was a 40.75 per cent

57

Arthur Webb
Table 3.3
Date

1850
1851
1852
1853
1854
1855
1856
1857
1858
1859
1860

Assets and liabilities of the Eastern Province Bank, 1850--60

Coin,
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,
Post bills,
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.

decline in deposits, a 51.09 per cent fall in liquid assets, and a 31.31 per
cent drop in the value of securities held between 1853 and 1855. It was
not before 1857 that the bank was to regain a situation comparable to
that held at the end of the war. Reports indicate that by then the two
Grahamstown banks were once more in a healthy condition. 35 If there
is a trend to be noted in the affairs of the bank in this period, it is the
extent to which deposits had grown over the decade. It is fair to state
that by the 1850s the Eastern Province Bank had successfully emerged
as a bank of deposit, mobilising the savings of more than simply a
select group of merchants. As such, the bank's role in fostering
economic expansion was considerably enhanced, while the loan of
such funds contributed significantly to the growing profitability of the
institution.
The 1850s were, however, to witness a shift in the position of the
Eastern Province Bank relative to its competitors. The wool boom of
the 1850s, which saw an increase in exports from the Eastern Province
from 1961175 kg worth 212166 in 1850 to 8817185 kg worth
1213410 in 1860, also brought growing prosperity to such regional
centres as Cradock, Graaff Reinet and Fort Beaufort, all of which saw
the successful establishment of their own merchant communities and

58

Early Capitalism and Financial Organisation

banks during the 1840s and 1850s. Thus while Grahamstown continued
to prosper and enjoyed a considerable share of the total trade of the
region, the competition which drew away trade similarly diminished the
potential discount business and note circulation of the Bank. The high
profitability of the two Grahamstown banks, as reflected in Table 3.4,
suggests that while they lost ground to the new banks in total turnover,
the Grahamstown banks were now evolving into deposit banks.
Table 3.4

Assets, liabilities and profits of Eastern Cape Banks in 1860

Bank
Eastern Province
Frontier C & A
Port Elizabeth
P. E. Commercial
Cradock Union
British Kaffrarian
Graaff Reinet
S. A. 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, 10 January 1860.

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, this
development itself then encouraging further extension of the banking
industry. Some local funds were directed into organisations such as the
Eastern Province Guardian Loan and Investment Company, established by Grahamstown merchants under the chairmanship of George
Wood, a director of the bank, in 1861, specifically to cater for
longer-term mortgage investment. The extent of the bank's investment
in such institutions is not known but it is not likely to have been large,
given the illiquidity of such investment in times of economic downturn.
THE 1860s: INCREASED COMPETITION, 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

Arthur Webb

59

had been built. In part, this was attributable to the greater competition
experienced in the British market from Australian wools, but this fact
itself rested heavily on the inability of local merchants to encourage
the production of a better quality product. 36 The severe drought of
1861-2 also played its part, not only in decimating flocks but in raising
the costs of transporting wool to regional centres and the ports. In
Britain, the market for Cape wool was unstable in the early years of the
decade owing to the outbreak of the American Civil War. The same
cause closed the American market for Cape greased wools. Anticipating that wool would stand to gain from the disruption to the British
cotton textile industry by the Civil War, Cape merchants bought up
large quantities of wool at inflated prices. This speculation collapsed
when prices failed to rise causing considerable losses to the eastern
merchants. Prices fell from over Is to 7d per lb for greased wool on the
London market within the space of seven months in 1860. Table 3.5
indicates the trend of wool production and values in the critical years
of the 1860s.
Table 3.5

Wool exports from Port Elizabeth, 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

%
6.7
2.2
27.4
21.0
-11.0
0.6
-2.7
-3.1
5.3

1 213 410
1218474
1080729
1278286
1665835
1453189
1643074
1524796
1407927
1255945

%
0.4
-11.3
18.3
30.3
-12.8
13.1
-7.2
-7.7
10.8

Source: Compiled from the Cape of Good Hope Blue Books.

The financial crisis of the 1860s had its origins in the years of
prosperity of the previous decade. 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. 37 With
the increased funds made available by these institutions, credit
transactions and speculative wool buying increased. The evidence of
both the Eastern Province and Cradock Union Banks suggests that
these institutions now also indirectly financed speculative land

60

Early Capitalism and Financial Organisation

purchases. While high wool and land prices prevailed agents and
storekeepers offered extended credit to farmers, relying themselves
on accommodation from the merchants and brokers. The chain of
credit linking farmer, agent or storekeeper, merchant and woolbroker, was not conducive to security in times of crisis. Given the close
ties between merchants and the 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. 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 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. Once again it is possible to
identify the linkages between the steady growth of the Cape economy,
the improved communications of the period between the metropole
and the colony, both by telegraph and more rapid and regular sea
links, and the rise in interest in the area by British capital. The boom of
the late 1850s and early 1860s also generated an expanding demand for
capital and liquidity. In 1861, the capital of the colonial banks was
estimated at 1572 815, of which 924021 was paid up. The
circulation of these twenty-seven institutions again only amounted to
348318. 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. 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.
The Eastern Province Bank entered the 1860s in a healthy
condition. Influenced by the boom conditions, the paid up capital of
the bank was increased to 100000 during the course of 1860. The
profitability of the bank is indicated by the fact that its 25 shares
enjoyed a market value of 45, while a dividend of 20 per cent was
paid in 1860. 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. 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. The position
of the Eastern Province Bank in relation to some of these banks is
indicated in the Table 3.6 below.
Most of the local banks had been influenced by the recession but the

Arthur Webb

61

Table 3.6 Liabilities of the Eastern Cape Banks, 1861 and 1862
Bank

E. P. Bank
Frontier C & A
Fort Beaufort
P. E. Bank
P. E. Camm.
Cradock Union
Queenstown
S. A. Central
G. R. Bank
Br. Kaffrarian
Somerset
Albert
Colesberg

Note circulation
June 1861

Dec. 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. 1862
104497
80600
15000
79157
67500
17952
15 614
23000
24000
22475
16687
12307
17500

Source: Graham's Town Journal 27 January 1863.

effects on the two Grahamstown banks' circulation was particularly

severe. In part, this reflected the greater strength of these institutions
as deposit banks, but at another level it can be interpreted as evidence
of the decline of Grahamstown as a commercial centre. Trade with the
interior and particularly that of wool increasingly was being channelled directly to Port Elizabeth. This step naturally curtailed the
circulation in the interior of the Grahamstown banks' notes.
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. In particular, the aggressiveness of the Standard
Bank, 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, suggested an active response. 40
Institutions with large capital resources to meet the growing financial
needs of expanding commerce and agriculture were needed. Likewise,
the changing nature of much of the financial business of the region,
which was now directed through fewer hands and which was concentrated on Port Elizabeth, suggested the need for the development of
branch banking to supercede the old unit banks. No longer could the
bank survive essentially on the business of its shareholders, with the
general public playing a minor ancilliary role. With the increasing

62

Early Capitalism and Financial Organisation

competition engendered by the imperial banks, banking would have to

become 'more customer conscious rather than being seen as good
institutions for capital investment'. 41 In order to survive the local
banks would have to generate a wider regional share holding and a
more competitive approach to business. In this regard The Graham's
Town Journal proved a useful ally at least down to October 1863, when
the editor, R. Godlonton, was appointed to the local Grahamstown
board of the Standard Bank.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 collapse of amalgamation
negotiations between the Standard Bank and the Cradock Union
Bank, in May 1863, presented a cue for the bank. For its part, 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. It was clear that a small
institution like the Cradock Bank would not survive independently for
very long. 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. 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. The Frontier Commercial and Agricultural
Bank faced very similar problems to those of the Eastern Province
Bank in declining profitability and circulation. The proposed establishment of branches of the Standard Bank in Fort Beaufort, Bedford
and Somerset East threatened to cut off the Grahamstown banks from
any prospect of widening their area of note circulation. The Frontier
Bank's response to the Standard challenge was to despatch its manager
to Aliwal North, where a branch was opened in July 1863. 44 By
November of that year negotiations between the two banks were in
progress. There were also suggestions that overtures be made to the
Port Elizabeth Bank, the only remaining colonial bank at that place,
once amalgamation in Grahamstown had been concluded.
It was anticipated that the new venture, to be called the Eastern
Province Alliance Bank, would enjoy an increased capital of 500000
with power to increase it to 1000000, in order to rival the Standard.
Progress in the negotiations was swift and within weeks a package was
worked out for presentation to the shareholders of the banks. The

Arthur Webb

63

respective annual general meetings of shareholders of the two banks

were equally quick to ratify the alliance; but in March 1864 the 'Grand
Alliance' began to fall apart. The difficulties facing the amalgamation
stemmed from the actions of one man. The Honourable George
Wood, 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.45
Wood was a past chairman of the bank and was currently a director.
That he also served on the local board of the Standard Bank may cast
some light on his motives. He was, however, legitimately opposed to
any step which could increase his liability in an unlimited banking
partnership at such a time. 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. By then the fate of the majority of the local
banks had been sealed.
Increased competition between the banks, particularly after 1863, in
what was still predominantly a pastoral economy ravaged by drought,
resulted in what was termed 'overtrading'. For the bank, its more
immediate problems were generated by the newly acquired Cradock
branch that was allowed to retain its own board of directors, subject to
general directives from head office. Disturbing reports were soon
made from inspectors sent to the branch. In keeping with the tradition
of the local banks, four of the directors virtually monopolised the
discounting business of the branch. Furthermore, much of the paper
was suspect, lacking two good signatures and sufficient security.
Against this background a major restructuring of the branch was
recommended. 46 The most important of the recommendations was
that the branch should be subordinate to the Grahamstown board.
Banking practice was to be tightened up and the local directors were to
clear their debt with the bank as rapidly as possible. The Cradock
branch was quick to react to the loss of its independence and a long and
acrimonious correspondence ensued. 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, and to avoid a
continuance of the unpleasant and irritating correspondence, 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

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. The offer was accepted with alacrity but
was subsequently overturned by Cradock-based shareholders who
recognised the advantages of the Grahamstown connection. 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'. 48
If the actions of the Cradock local board of directors represented a
blatant breach of sound banking principles, the competitive environment in which the Grahamstown board found itself operating in the
1860s was soon to test its abilities to the full. The Frontier Commercial
and Agricultural Bank was to be less fortunate and collapsed in 1869.
The years between 1865 and 1869 witnessed a steady decline in the
annual profits of the Eastern Province Bank, reflecting the straitened
position in which the Grahamstown business community found itself,
as well as the successful intrusion of, and competition from, the
Standard Bank. Under these circumstances the bank often found itself
entertaining business it would not previously have considered. Despite
falling profitability, and because of its close ties to the stricken
merchant community, 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. 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'.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.
Between 1867 and 1869 the risks inherent in providing a service to
customers dependent upon a volatile primary product were revealed,
when a chain of insolvencies led eventually to the insolvency of their
own chairman and largest customer, George Wood, Jr. In 1867, one of
the ex-directors of the Cradock branch, Tucker, could not meet his
repayments and was granted extra cover to prevent his imminent
insolvency. At least part of the security offered by him consisted of
paper endorsed by Wood Brothers, an eminent Grahamstown firm
and major customer of the bank. In the same year the merchant house
of W. R. Thompson & Co. collapsed. Thompson was a director and
trustee of the bank and his firm a major customer. His resignation was
only the first of several caused by insolvency. In 1868, Wood Brothers
made over various bonds to the bank against further accommodation

Arthur Webb

65

for the purpose of buying wool on speculation. Most of these

transactions involved Tucker in Cradock, so that when he was declared
insolvent in July, the account of Wood Brothers was immediately called
into question. 50 George Wood, J r, as senior partner of the firm and
chairman of the bank, was placed in an invidious position, for he was
also a sleeping partner in the speculations of A. R. Gooch & Co., who
had borrowed heavily from the Frontier Bank against the security of
Wood's name. Gooch's failure left Wood responsible for a further
31113 of debt and contributed heavily to the collapse of the Frontier
Bank. 51 Attempts to prop up that institution cost the bank another
21958, only about half of which was secured. By April 1869 Wood
Brothers was in liquidation. More important to the bank was that this
firm was their largest customer. 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. Liabilities of the firm to
the bank amounted to 58733, of which a considerable sum was
unsecured. 52
The end of independence for the Eastern Province Bank came
quickly in the 1870s. Bad debts at the beginning of the decade amounted
to 96733 more than the bank's reserve funds, 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. 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, prudence led the shareholders to accept a
generous offer of amalgamation with that bank, 54 and on 1 January 1874
the Oriental Banking took over the business of the Eastern Province
Bank.
CONCLUSION
The example of the Eastern Province Bank suggests that economic
expansion induced in its wake the requisite financial institutions. 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. These
organisations were to playa vital role in the provision of credit for
economic development. Discounting released mechant capital for fixed
investment, while the growth of deposits further facilitated loan capital
and mobilised resources which would otherwise have lain dormant.

66

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

1.

2.
3.
4.
5.
6.

7.
8.

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
9.

10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.

33.
34.
35.
36.
37.

67

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.
203-4.
R. Godlonton, The Eastern Province Annual Directory and Almanac,
1849.
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).

68
38.
39.
40.

41.
42.
43.
44.
45.

46.
47.

48.
49.
50.
51.
52.
53.
54.
55.
56.

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
1872.
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.

4 The Separation of
Nedbank, South Africa,
from the Parent Institution
in the Netherlands
1

H. W.J.Bosman

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

69

70

Separation of Nedbank from the Netherlands

South Africa. The branches of the Nederlandsche Bank voor

Zuid-Afrika in South Africa continued offering their services under
the leadership of the local head office, 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.)3
Before 10 May large guilder balances had been transferred into
sterling, dollars and gold. 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,
although provisionally the pre-war situation was restored. However, it
took some years before this separation could be effected. 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, who could possibly provide the South African
contribution to the capital of a new South African bank. Half of this
capital would, however, be provided by the Dutch parent institution.
These and similar ideas had to wait due to the intervention of the
Second World War. Thereafter there was rethinking of the proposition.
The possibility of cooperation with Volkskas had been envisaged for
some time but was later abandoned. Naturally some difference of
opinion arose as to the remaining control by the Dutch bank should a
separate SA bank be founded. Mr J. Keuning, who after the war had
become general manager of the bank in Amsterdam (after he had
formed, together with J. P. Kakebeeke, the management team in
Pretoria during the war), 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,.5
Dr B. H. Holsboer, who had joined the management in SA, in 1947,
'whilst agreeing that the majority principle favoured by the Netherlands connection was indicated, 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, with only Union
nationals on their directorates' . 6
For some time possible relations with the Nederlandsche Handel
Maatschappij, one of the leading Dutch banks, were discussed, but

H. W. J. Bosman

71

this idea was discarded because the main centre of decision-making

would then still remain in Amsterdam.
As to the percentage interest which the parent bank would have in
the SA affilitation, Dr Arndt, the Registrar of Banks, preferred a
maximum of 50 per cent, while Amsterdam had 75 per cent in mind.
Arndt gave in. '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. ,7 There
would be no provision for special powers exercised by Amsterdam,
apart from the powers deriving from the (majority) shareholding.
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.
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, together with the London branch, would indeed form a new
South African corporation with its head office in Pretoria. 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. The Dutch bank would, as was previously the case, have
Amsterdam as its head office and retain the Hamburg branch. Messrs
J. D. D. Pruissen (until 30 September 1951 a general manager and
thereafter a member of the Board of Directors of the Dutch bank), J.
Keuning and (a few months later) H. J. 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). On 20
December 1950, the relevant resolutions were passed at an
extraordinary meeting of the general assembly of shareholders of the
Dutch bank. The SA bank commenced its operations on 15 January
1951.
According to the annual report, there would be close cooperation
between both institutions. The balance sheet total of the Dutch bank
as of 30 September 1951 amounted to Dfl. 46.1 million (against
Dfl.213.9 million as of 30 September 1950), that of the new SA bank
22.2 million and the consolidated balance sheet total of both
institutions was Dfl. 264.5 million.

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. 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.
As from 1 October 1954 a merger became effective, 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. 155.5 million. This bank
retained 75 per cent of Nedbank in the following years. Even when in
1957 Nedbank increased its issued capital from 2 million to 2.5
million, 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'. 8 Other interesting
take-overs by NOB were Mesdag en Groeneveld's Bank NY in
Groningen and Theodoor Gilissen NY in Amsterdam.
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. For
the first time in the 1959-60 report considerable attention was paid to
the political situation, undoubtedly in connection with the events in
Sharpeville, 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. On the other hand, the
report continued, it is not possible to apply a policy, which would
be fixed for all times, to a position which had been reached after a
certain historical growth. Developments in a particular part of the
world cannot be seen apart from what happens elsewhere. 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. And efforts to reach reasonable solutions are less
successful the longer one waits. Undoubtedly this part of the annual
report was written by Keuning who, during his long association with
South Africa, always had an open mind for possible future developments.
In these years there was surely a great interest by the mother bank
in what happened in South Africa. As an example, 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. After that

H. W. 1. Bosman

73

year the position of NOB as the parent company was discontinued, as

will be explained in the next section.
TWO AFFILIATED BANKS - A MUTUAL RELATIONSHIP
Whereas from the beginning two persons from the parent company
(before Mr Pruissen retired in 1952, even three of them) were
members of the Board of Directors of Nedbank (first J. Keuning and
H. J. Manschot, and thereafter J.Ph. Korthals Altes), the opposite
was the case only as from 25 January 1962 when E. Carter and Dr F.
J. C. Cronje were appointed members of the Board of Directors of
NOB. The former was a member, the latter chairman (and the first
South African born chairman) of the Board of Directors of Nedbank
(Carter was replaced by Dr B. H. Holsboer, managing director of
Nedbank, as from 26 January 1967).
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. This was effected by a mutual participation in each other's
capital and by the appointments mentioned above. 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. The
growing importance of other interests on the side of NOB also played a
role. In December 1961, Nedbank issued new capital to the amount of
R1 million. 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, making a total amount of R1550000, was now
placed on the South African capital market so that NOB's share
decreased to 49 per cent. 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.
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'. II
Regarding the speculation in NOB shares, which led to a temporary
holding of its own shares, 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, amounting to Oft. 16
million on a balance sheet total of Oft. 395 million. 12

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

H. W. 1. 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. 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.
In July 1969, agreement was reached concerning the sale of the
remaining 20 per cent participation in Nedbank to South African
interests. '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.'14 The uninterrupted high prices of shares on the
Johannesburg Stock Exchange, and also of Nedbank shares, determined the moment of the sale; 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, 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. This final withdrawal by Mees en Hope from South Africa was
initiated by the Dutch and was unexpected by the South African side.
The details of the transaction included monthly payments between 1
August 1969 and 1 June 1970 in an overall sum of Dfl.55 million,
furthermore, 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 R1.5 million in
institutions, related to Nedbank.
From the point of view of the Mees en Hope Group the investment
had thus come to an end. Instead of reflections on South Africa the
annual reports now contained considerations on other points of
interest, domestic as well as foreign. Apart from that, the problems of
Mees en Hope in the years following, i.e. in connection with a possible
cooperation with the Dutch savings banks, became the focus of the
attention of management and board of directors.

END OF THE RELATIONSHIP

Moreover, in 1974 Mees en Hope faced a management crisis which
finally led, in 1975, to a take-over of the group by Algemene Bank
Nederland, one of the leading banks in the Netherlands. (This bank
was a merger of the Nederlandsche Handel Maatschappij and the
Twentsche Bank, in 1964.) Nedbank had (via Nedeurope in Luxembourg) until then held its part of the capital of the Dutch bank, which

76

Separation of Nedbank from the Netherlands

amounted, after the formation of the Mees en Hope Group, to 7 per

cent of the latter's capital. Both Nedbank and Morgan Guaranty
accepted the official take-over bid of Algemene Bank Nederland
which was effected in the course of 1975.
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.
SUMMARY AND CONCLUSIONS
The relationship based on the Dutch bank holding an important
majority position of 75 per cent in the South African connection, was
maintained for ten years: from 1951, when the South African part of
the bank became an independent entity, until 1961. This relationship
was felt to be an important one in that period. As from 1961 the
percentage remained for a few years at 49, then declined to 25 and 20
respectively. In 1969, the relationship, then based on holding a
minority position, was terminated.
On the other hand, 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. 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). Certainly it was useful
for Nedbank to retain a stake in the growing European Common
Market.
That same European development led the Dutch connection to
diminish and later abandon its South African investment. 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.
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, but it
must surely have played a certain role and strengthened other
considerations. In 1968, NOB had merged, as we have seen, with Bank
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.
Some insiders, working in NOB in the sixties, are of the opinion that

H. W. 1. Bosman

77

it had always been in Keuning's mind to diminish the participation

gradually; but other insiders think that decisions in those days were
taken on an ad hoc basis. And there was another factor, the tendency
in South African official circles to favour a development towards
banks that would be predominantly South African in their shareholdership. That did not mean that no foreign participation was allowed,
but rather that a majority foreign participation was not looked on
favourably. Even during the negotiations before 1951 this attitude of
the authorities had already become clear. 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, 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'. 16
The government agreed to this recommendation and the Bank Act
was consequently amended.
The Government endorsed the view of the Commission that, since
the deposits of a locally registered bank are supplied mainly by local
residents, local investors should have a substantial equity in the
bank, and stipulated that if the combined shareholding of foreigners
in a South African registered bank or bank holding company
exceeded 50 per cent, such shareholding should be reduced to 50 per
cent within a period of ten years. 17
At the time of the Franszen Report, Nedbank had already diminished its foreign shareholding to below 50 per cent. Volkskas and
Trust Bank had always been South African, but Barclays National
Bank and Standard Bank, the two largest banks in the group of the
'big five' commercial banks, only complied with the requirement in
1985. 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.
The conclusion is, therefore, 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, to favour a more national SA bank, pointed in the
same direction. The ever uncertain political situation in South Africa,

78

Separation of Nedbank from the Netherlands

sometimes calm and then in turmoil, was a factor that supported the
dominating tendency. The final abandonment of the Dutch investment of Nedbank, however, was caused by the rather sudden
take-over of the Mees en Hope Group by Algemene Bank Nederland.

Notes and References

1.

2.
3.
4.

5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.

I would like to thank Mr J. F. C. Schotel and Mr J. L. A. Pfundt, both

having worked in high administrative positions in the Dutch bank and
Nedbank respectively, for their assistance, also in checking the
manuscript. I am also grateful to my niece, Mrs Jeannie Burdzik-Stribos
for the suggestions on English usage.
F. J. C. Cronje, Statement by the Chairman, Netherlands Bank of
South Africa Limited, Annual Report, 1961-2, p. 7.
F. J. C. Cronje, Statement by the Chairman, p. 10.
The rest of this chapter gives a few details, 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. L. A. Pfundt, Reports and Records of the Nederlandsche Bank - en Credietvereeniging voor Zuid-Afrika 1888, Johannesburg 1974, and in pages 48-64 of the unpublished manuscript by J. F.
C. Schotel, 'Vit de geschiedenis van de Nederlandsche Bank voor
Zuid-Afrika' .
J. L. A. Pfundt, Reports and Records of the Nederlandsche Bank, p.
367.
J. L. A. Pfundt, ibid., p. 368.
J. L. A. Pfundt, ibid., p. 370.
Annual Report NOB 1956-7, p. 14.
Annual Report NOB 1959-60, p. 16.
On 14 February 1961 the SA monetary unit changed from the SA pound
to the Rand, where 1 SA pound was R2.
Annual Report Nedbank, 1961-2, p. 15; Report, 1963--4, p. 9.
Annual Report NOB 1961-2, p. 13.
The old banking firms of R. Mees en Zoonen in Rotterdam and Hope
en Co., in Amsterdam had merged in 1962.
Annual Report, Bank Mees en Hope NY, 1969, p. 6 (English text).
Cf. the second section of this chapter.
Fiscal and Monetary Policy in South Africa, November 1970, par. 833.
South Africa 1985, Official Yearbook of the Republic of South Africa,
11th edn, p. 394.
Cf. J. L. A. Pfundt, Economisch Oberzicht, monthly Zuid-Afrika, May
and September 1985.

79
Appendix
Table A4.1
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

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.
See note 9 of the chapter. The years refer to the situation on 30 September.
2By Dutch bank is meant Nederlandsche Bank voor Zuid-Afrika for 1951-3,
Nederlandsche Overzee Bank for 1954--67 and Bank en Assurantie
Associatie, later called Mees en Hope Groep as from 31 December 1968. The
amounts are in Dutch guilders.

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 head office was in Amsterdam and had just
been revived after the cessation of the German occupation of the
Netherlands. The so-called head office of the NBvZA in South Africa
was Pretoria, but was called a chief agency and the manager in South
Africa was the chief agent. During the Second World War the banking
activities of the NBvZA was managed by the South African
government appointed controller, Mr J. Dommisse, I due to the
suspension of the bank's activities in the Netherlands as a result of the
German occupation. The South African branches (agencies) and the
bank's London office formed the core of the bank's activities. After
the war it was clear that the banking activities in South Africa had
acheived a certain degree of independence from the mother institution,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 real growth of the bank only came well after 1945. The period
directly after the war was a period of consolidation of the bank's
activities, also in South Africa. In 1945 the bank's capital amounted to
R1124000, its reserves to R1 005 000, the total amount being
R2129000. 3 The growth of the bank's capital and reserves is
reflected in Table 5.1. From these figures it is clear that the bank
showed substantial growth only from 1961 onwards. 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.
The relative position of the Netherlands Bank amongst the other
commercial banks is perhaps more clearly expressed in the ratio of its
81

82

Aspects of Nedbank's International Activities

Table 5.1 Capital and reserves of the Netherlands Bank as a percentage of

the capital and reserves of all the commercial banks, 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

10.72
9.9
9.7
11.03
11.79
12.9
12.42
15.2

Source: Published Annual Reports of the NBvZA and the Netherlands Bank
of South Africa (NBSA) - Nedbank from October 1 1971 and SA Reserve
Bank Quarterly Statistical Bulletin, December 1954-December 1973.

assets and liabilities to those of the other commercial banks. 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 5.2). The period of
the most pronounced growth was, as reflected in the bank's capital and
reserves position, from 1961 to 1973. A somewhat weaker position is
reflected in the growth of the total deposit funds of the bank. As
reflected in Table 5.3 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, although the increase was only 2
per cent between 1967 and 1971 and almost nothing between 1971 and
1973.
The figures above show that the Netherlands Bank was, even in
1973, still a small commercial bank amongst the other commercial
banks in South Africa. It was one of the four big commercial banks,
i.e. Barclays Bank, Standard Bank and Volkskas, but its market share

83

Grietjie Verhoef

Table 5.2 Assets and liabilities of the Netherlands Bank and its ratio to
other commercial banks, 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

3.73
3.82
4.81
5.13
5.85
6.24
6.55
6.96
7.51
7.87
7.25
7.15
8.38
9.81
10.43

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

3.54
3.6
4.62
4.88
5.65
6.12
6.38
6.79
7.43
7.79
7.23
7.01
8.34
10.06
10.47

Source: Published NBSA Annual Reports, 1945-73 and SA Reserve Bank

Quarterly Statistical Bul/etin, December 1954--December 1973.

ranged only from 2-3 per cent in 1945 to 10-15 per cent in 1973 - an
average of about a 12 per cent increase. The Netherlands Bank was
most committed to foreign trade of all the commercial banks and had
far less interest in local agricultural developments. In 1945 the bank
had only twenty-two branches throughout South Africa6 (and one in
London), but when industrialisation and the accompanying trade
boomed in the country, the bank expanded its branch network to
eighty-three branches with forty-eight agencies managed by full
branches, in 1973. 7 The bank regarded itself as a businessman's bank,
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. 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. After the world war the South African economy was still
largely dependent on mining and agriculture; but when the terms of
trade turned against South Africa in the fifties and early sixties,
because of its dependence on imports of manufactured and capital

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, 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

2.39
2.96
3.7
3.95
4.65
5.19
5.54
6.02
6.56
6.42
5.85
6.41
7.72
9.3
9.59

Source: SA Reserve Bank Quarterly Statistical Bulletin, 1954-73 and the BA-9
forms reflecting the quarterly asset and liability position of the Netherlands
Bank, submitted to the Registrar of Banks, 1945-73 (using the September
quarterly submission of every year)5.

goods, the local industrialisation programme was speeded Up.9 South

Africa has experienced a period of rapid economic growth since the
end of the war, but this has been accompanied by an almost continuous current account deficit between 1946 and 1977. This was
the result of the very open character of the South African economy.
Rapid growth depended on the external sector, 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. 10 The United Kingdom remained the
major foreign trade partner of South Africa throughout the period,
1945-73. In 1973, 29 per cent of the total exports of South Africa still
went to the United Kingdom and 22.3 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. It had a weak
base in South Africa, limited capital at its disposal and, because of the

Grietjie Verhoef

85

weak base, was not in a favourable position to attract sufficient

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

86

Aspects of Nedbank's International Activities

in 1969. 17 On this occasion a representative office was opened in

Zurich. 18 These two European offices were not much more than
listening posts in Europe. The bank was mostly represented, not by
bankers, but by business men, who promoted foreign trade with
South Africa and the NBSA's facilities in that respect.
Dr B. H. Holsboer, the general manager, urged the bank to
explore the potential of inter-African trade 19 and it did expand its
representation in Africa during the sixties. An office of the bank was
opened in Rhodesia, Salisbury, in 1951 and in 1967 the separate
banking company, the Netherlands Bank of Rhodesia was established. This bank received its own board, its own hire purchase
company (Scotrho - Scottish Rhodesian Finance) and its own finance
and investment company (Neficrho).20 The bank also moved into
Zambia in January 1955, when the first NBSA branch was opened.
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.
In July 1971, the Zambian government took 60 per cent (nationalised) of the CBZ share capital. 21
This then was the base from which the bank approached the trade
market.
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, the bank's support for
organisations promoting foreign trade will not be dealt with in great
length. It was essential for the bank to interest the public in its main
function, i.e. financing import and export trade. After the Second
World War the SA market was flooded by imported consumer
products and luxuries. 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. Industries
were encouraged to manufacture goods for the local market and to
replace imported goods. This took lucrative business away from the
bank (as it mainly financed import trade), but by encouraging
manufacturers to produce for an export market, the bank hoped to
regain its share of trade financing. The bank approached foreigh
business leaders overseas and offered to introduce them to the SA
market in order to promote exports to South Africa, and it

Grietjie Verhoef

87

approached local industrialists to introduce them to the export

markets open to them (e.g. the bank introduced ISCOR to the export
market for iron). The bank published information in their 'Business
Guide to South Africa' , Economic Bulletin and 'Economic
Opinion' .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.23 In 1962, the bank joined the International Chamber of
Commerce. 24 The bank also participated in establishing the South
African Foreign Trade Organisation (SAFTO) and became its
bankers,25 and it cooperated with the Anglo-American Corporation,
the Fortrade Group, the General Mining Corporation, the Industrial
Development Corporation, Union Acceptances Ltd, and Walker Bros
(London) in establishing IMEX, an organisation designed to promote
South African exports and to bring continuity and stability to that
market. 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. These arrangements
depended solely on the terms of the contract between buyer and seller.
The bank did the majority of its trade financing via its London office,
because most of the trade it financed was destined for, or came from,
the United Kingdom. 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). This meant that the exporter from South Africa had to carry
the credit risk until goods were delivered to the buyer. Advances were
made in South Africa to exporters in advance of their receipt of
payments for goods delivered. Advances were often made to UK
buyers in London when the buyers were also clients of the bank (and
this could well be, 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.g. Combined Shipping, M.

88

Aspects of Nedbank's International Activities

H. Goldschmidt & Co., Anglo African Shipping Co.). In some cases,

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

Grietjie Verhoef

89

then carried out acceptance business in foreign trade, but it was on a

limited scale compared to its bill business and advances. It must also be
kept in mind that since the development of the South African money
market and the accompanying growth of merchant banks, much of the
acceptance business was done there, but again only from the sixties
onwards, as the first merchant bank, Union Acceptances, was only
established in 1955. Furthermore, the NBSA mostly handled its
acceptance business via its finance and investment corporation,
NEFIC (Netherlands Finance and Investment Corporation, established in 1948 to do medium- and long-term financing to NBSA and
non-NBSA clients). In 1968, when the Netherlands Bank reorganised
the structure of NEFIC, it established its own merchant bank, NEFIC
Acceptances Ltd (NAL) and from that date the majority of NBSA
clients dealt with NAL regarding acceptances. 31
In dealing with clients or banks outside the UK, 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. 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. Fixed loans were also used by local South African companies to finance imports. 32
The bank thus provided different forms of financing to prospective
foreign traders abroad and in South Africa. It gave preference in the
period under discussion, to negotiating bills (of 30, 60, 90, 120 and,
less frequently, 180 days) under Letters of Credit, but clients often
simply made use of the normal overdraft facilities provided either in
South Africa or London.
The NBSA made the best possible use of its international
connections and experience to promote foreign trade and to have a
stake in it. The bank insisted that it was aimed at providing service for
businessmen. Nevertheless, the bank's share in financing foreign
trade33 remained almost unchanged during the period discussed here.
It was a limited share; but in the light of the size of the bank compared
to the other three big commercial banks, it was quite an achievement.
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. Table 5.4 shows the growth in the gross domestic
product of South Africa between 1947 and 1973.
Between 1947 and 1973 the GDP showed a 9.8 per cent annual

90

Aspects of Nedbank's International Activities

Table 5.4 South Africa, gross domestic product, 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, December 1954December 1974.

compound growth rate and between 1967 and 1973 it was an increase
of 13 per cent annual compound growth rate alone. 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 11.3 per cent respectively) (Table 5.5).
The bank's share in import and export financing is shown in Table
5.6. According to these figures for the period 1947--64 the bank's import and export financing increased by 6 per cent and 8.6 per cent annual compound growth rates respectively. In 1947, the bank's share
in import financing was 8.5 per cent of total SA imports and in 1964 it was
12.7 per cent, and its share in export financing in 1947 was 14.5 per
cent and in 1964, 11.4 per cent. 35 This means that the bank's share in
import financing increased by 4.2 per cent when total imports of the
country rose by a 5.9 per cent annual compound growth rate, and the
bank's share in export financing dropped by 3.1 per cent when total
exports of the country rose by a 10.1 per cent annual compound growth
rate. 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, the representative

91

Grietjie Verhoef
Table 5.5

Imports and exports, South Africa, 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, 1954-74

Table 5.6 NBSA total import and export financing, 1947--64 (Rand

millions)

Year

Imports

Exports

1947
1949
1951
1953
1955
1957
1959
1961
1963
1964

51.2
51.6
72.6
54
66.9
84.9
76
89.6
116.9
137.8

30.5
36.1
75.4
68.6
79.7
100.6
84.4
104.3
130.5
123.4

Source: JV/4-JV/2, Confidential Annual Reports of NBSA to Amsterdam,

1947-64.

office in New York, and its offices in Rhodesia and Zambia. 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

92

Aspects of Nedbank's International Activities

financing. According to Tables 5.2 and 5.3, the ratio of the NBSA's
assets in 1947 was only 3.82 per cent to that of all the commercial
banks and in 1965 it was 7.25 per cent. The ratio of the bank's
liabilities in 1947 was 3.6 per cent to that of all the commercial banks,
and in 1965 it was 7.23 per cent. The NBSA's 8.5 per cent and 14.5 per
cent share in import and export financing respectively in 1947,
compared to an asset liability position of about 3.7/3.6 per cent,
shows that the bank took business in this respect from other banks
where the latter should have entertained it, according to their position
amongst commercial banks. The same situation as far as imports and
exports are concerned existed in 1963: the NBSA had an asset/liability position of 7.8717.79 per cent as compared to a 9.1 per cent and
12.7 per cent share in imports and exports respectively.
This type of comparison cannot be made for the period 1964--73 due
to a lack of statistics. As stated in note 33, banks' figures on foreign
bills, advances and acceptances (and local advances, as advances
locally could also be used to accommodate foreign trade) does not
exclusively explain foreign trade activity (Table 5.7, 5.8, 5.9, 5.10). It
does give an indication of foreign activities in general, including trade
activities. 36
Table 5.7 Total bills discounted or bought, 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

0.22
3.03
11.5
7.1
7.75

NBSA
total
bills

21254
20747
15996
50117
64 065

Commercial NBSA %
of
banks
total bills
total

132400
106500
107900
153000
295000

16.05
19.48
14.82
32.75
21.7

Source: SA Reserve Bank Quarterly Statistical Bulletin, 1965-73.

NBSA BA-9 forms submitted to Registrar of Banks in South Africa.

The bank's position, as far as bill and acceptance business is

concerned, shows that from 1964, when it started its acceptance
business as a normal business practice, more foreign business was
performed by means of acceptances than by means of bills, and in the
acceptance business, the NBSA clearly took the lead amongst the
commercial banks. (Compare Tables 5.7, 5.9 and 5.10.) Table 5.7

Grietjie Verhoef
Table 5.8
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

3.68
0.57
3.52
0.3
65.65

Total
NBSA
advances

71972
54481
80696
94773
224081

Total
NBSA%
commercial
of
banks
total
advances

1145900
1116300
1432100
1569000
2689000

6.28
5.23
5.63
6.04
8.33

Source: SA Reserve Bank Quarterly Statistical Bulletin, 1965-73, NBSA BA-9

forms submitted to Registrar of Banks.
Table 5.9

Acceptances, 1971 and 1973 (Rand thousands)37

Year

NBSA

All commercial
banks

NBSA as %
of total

1971
1973

59518
102276

89000
129000

66.87
79.28

Table 5.10
Year

1947
1949
1951
1953
1955
1957
1959
1961
1963
1965
1967
1969
1971
1973

NBSA acceptance facilities, 1947-73 (Rand thousands)38

Local acceptances

3048
6770
35450
59518
96135

Source: BA-9 forms of NBSA, 1947-73.

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

94

Aspects of Nedbank's International Activities

demonstrates how active NBSA was in foreign trade. 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 4.2 per cent between 1947 and 1964. Clearly NBSA
had increased its share in foreign trade finance by 1973, especially in
the import trade. According to Table 4.10 the NBSA London office
had already carried out a significant amount of acceptance buisness
before 1963, though bills remained the main trade financing mechanism. Unfortunately, it is not possible to infer from the statistics on local
bills bought and discounted by the NBSA, how many were used to
finance foreign trade. Nevertheless, the NBSA bill statistics indicate
high activity by the bank (Table 5.11).
Table 5.11

NBSA bills bought or discounted,

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. The

Reserve Bank has not published similar figures for all the commercial banks
before 1965.

The general inference that may be drawn from the bank's figures of
acceptances, bills discounted and advances, as compared to that of the
other commercial banks, is that the bank's foreign business grew
steadily between 1965 and 1973. This was a remarkable achievement
for such a small commercial bank like the NBSA, in the light of the
strict import and exchange control measures and credit ceilings
imposed on commercial banks after 1964, which hit the bank hard, as
its main credit activities were foreign directed. The bank's foreign
financing via London was especially hard hit, as advances to London
also fell under the credit ceilings imposed on the banks. Even in 1960
the Reserve Bank suspected that the advances made to the bank's

Grietjie Verhoef

95

London office were attempts to bypass statutory bank requirements in

South Africa, but the bank assured the central bank that it maintained
the required covered position in respect of the London office. Those
advances were used to finance trade activities by clients of the bank in
London. 39
COMMODITIES AND MARKETS
The main export commodities financed by the NBSA were wool, hides
and skins, and cut 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. Thereafter no
such figures, if they were compiled, have been released in any form.
Table 5.12 provides the position of NBSA export commodity
financing between 1952 and 1964.
From 1959 the bank gave separate figures (Table 5.13) for its export
of cut diamonds, the type of diamonds it exported its share in the
export of cut diamonds and uncut diamonds.
Wool, hides and skins (Table 5.14), and diamond exports together
made up the biggest component in the total export facilities granted by
the bank. This was a matter of great concern to the bank, as too great a
concentration on a few export commodities made it vulnerable to risks
if any crisis struck any of these commodities.
The tremendous concentration on three export commodities up to
1957 led the bank to consider gradual, but definite diversification in
export financing. The downward trend in the bank's total export
finance figures, compared to those of other commercial banks
especially in 1962 and 1963, may be explained as the result of its
programme of diversification in export finance. 40 The bank gave more
attention to canned fruit and canned fish, asbestos, carbide, agricultural products related to its Tiger Oats account, and fishmeal. 41
The bank's biggest export activity was wool exports. The South
African wool mainly went to the United Kingdom, France, Germany
and the Netherlands. Smaller quantities went to the USA, Italy,
Portugal, Spain, Belgium, Switzerland and Japan. The NBSA's major
clients were in the Netherlands, France, Germany and Italy. In the
Netherlands, the bank's main wool clients were N. V. Wolmaatschappij and L. en H. Hart,42 in France it went to Anselme Dewavrin Fils,
Masurel Fils, Henri Wattine, Vandeputte Fils and Compagnie
d'Importation de Laine;43 and in Germany to J. Henry Schroder,

29.6
41.2
41.4
30.8
27.3
28.3
31.8

112.4
129.8
121.2
100.3
107.7
107.9
122.4

1952
1954
1956
1958
1960
1962
1964

18.9
24
24.1
23.1
23.2
24.8
30

26.3
31.7
34.2
30.7
25.3
26.2
26

I
expor~

SA total
hides and
skins

2as

% of

10.1
9.2
8.5
9
9.3
9.9
13

NBSA
hides and
skins
exports 4
53.4
38.3
35.2
40
40.1
40
43.3

4as

% of
3

Source: JV/7-JV/10: NBSA Confidential Annual Reports to Amsterdam, 1950-64.

NBSA Board Minutes, 1952-64 (NV).

NBSA
wool
exports}

SA total

Year

NBSA
diamond
exports 6
6
7
11.9
14.5
12.2
15.9
15.5

SA total
diamond
exports5
46
54.4
64.6
62.1
64.2
73.2
9.5

Table 5.12 NBSA commodity export financing, 1952-64

13
12.9
18.4
23.3
19
21.7
16.3

6 as
% of
5

97

Grietjie Verhoef
Table 5.13

NBSA proportion of export finance of diamonds, 1960-4

Year

Cut
%

Uncut
%

1960
1961
1962
1963
1964

74.5
66.7
61.8
71.2
66.5

0.24
1.9
3.5
2.1
2.2

Source: As for Table 5.12.

Table 5.14 Total export facilities by NBSA for wool, hides and skins as a
percentage of NBSA total export facilities, 1952--64
Year

1952
1954
1956
1958
1960
1962
1964

72
73.2
73.9
63.6 - Record level of 74.1 % in 1957
56
48.2
48.5

Source: As for Table 5.13.

Poppe-Schunhoff and Stiicken. 44 Vast quantities of wool also

reached countries behind the Iron Curtain and the Soviet Union, but
went via wool buyers in London (c. B. Reid & Co.) and Germany
(Kreglinger und Fernau) and occasionally via Compagnie d'Importation de Laine when it went to Czechoslovakia. 45 Wool exports by these
companies were financed only for the pre-shipment phase by the
NBSA. Before 1951 the NBvZA in Amsterdam insisted that the bank
in South Africa should only finance wool until it reached its port of
destination. The finance for the next phase of cloth manufacturing had
to be undertaken by banks in Europe. 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. After the NBSA was established, it made use of its
London office to provide further finance for wool clients in Europe

98

Aspects of Nedbank's International Activities

and behind the Iron Curtain. This was done on a basis of credit cover by
the client at the bank in London, on which ground advances, bills
discountable, and later on acceptances, were granted. 46 Wool
transactions with countries behind the Iron Curtain were done on a bill
basis under Letters of Credit, but when other English banks started
doing transactions on a credit basis, the same facilities were demanded
from the bank's London branch. The NBSA was not very interested in
this proposition, as trade with those countries normally carried credit
risks. When the bank stood to lose this lucrative business, it agreed to
extend credit facilities to its correspondent banks, through which its
clients could be helped. The bank did its foreign trade business with
Czechoslovakia through Nardoni Banka Ceskolslovenska, Slovenska
Tatra Banka and Zivnostenska Banka. These banks were all taken over
in 1956 by the Statni Banka. 47 In Poland, the bank's business went
through Bank Handlowy. 48
The markets to which the bank financed most exports were the
United Kingdom, West Germany, the USA and the Netherlands. 49 In
1952, the NBSA financed 6.2 per cent of the total imports of South
Africa from the UK and 14.6 per cent of South Africa's total exports to
the UK. In 1964, it financed 9.52 per cent of South Africa's imports
from the UK and 18.94 per cent of South African exports to the UK. 50
Because the UK was South Africa's main trading partner throughout
the period 1945-73, 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. It must be remembered that
the two big commercial banks in South Africa, Barclays and Standard
Banks, still had their head offices in England and handled the lion's
share of the trade themselves.
The NBSA also financed a relatively small share of South Africa's
total foreign trade with the USA. In 1952, the bank financed 6.3 per
cent of total SA imports from the USA and 15.5 per cent of South
Africa's exports to the USA. In 1964, the position was 7 .23 per cent and
12.53 per cent respectively. The share of the bank in South Africa's
foreign trade with the USA gradually improved after January 1954,
when the import restrictions from dollar countries were lifted and the
bank opened a representative office in New York, in 1958. This
relationship became increasingly important when the USA replaced the
UK as South Africa's principal foreign trade partner after 1974. 51
The bank financed a very large portion of the total South African
exports to West Germany until about 1958. In 1952, the bank financed
35.4 per cent of the total SA exports to West Germany and in 1958 this

Grietjie Verhoef

99

was 38 per cent. In 1964, the bank only financed 18.2 per cent of the
total SA exports to West Germany. The main reason for this decline
was the change in the composition of West Germany's imports away
from wool, hides and skins to more foodstuffs, metals, metal products,
machines, vehicles, jewels and musical instruments, products which
received little financial assistance from the NBSA. Furthermore, 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. The pattern of imports moved in an
opposite direction from that of exports, with NBSA increasing its
share of total SA imports from West Germany from 9 per cent in 1952
to 16.03 per cent in 1964. 52
The NBSA achieved its strongest position in financing trade
between the Netherlands and South Africa. In 1952, the bank
financed 22.3 per cent of South Africa's total imports and in 1964 the
figure stood at 36.8 per cent. Out of the total South African exports to
the Netherlands the bank financed 13.5 per cent in 1952, but this
improved to 23.3 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. Dutch business
often went via the two big English banks. 53
CONCLUSION
The NBSA played a characteristic role amongst the other commercial
banks in the country. It very reluctantly expanded its branch networkand then only to business centres, very seldom to the country - and
therefore could not rely on local resources to supply the working
capital. The bank had a strong international heritage and its
management remained chiefly Dutch until 1971. 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. After 1973, the bank relied on foreign
capital borrowings to strengthen its local capital base. Further
expansion of the bank relied heavily on its foreign activities and up to
1973 very little change had come about in this position. Although the
bank developed new products and services aimed at assisting
businessmen and their prospective foreign needs, by 1973 it had not
yet succeeded in achieving local acceptability as a full South African
bank. This was the result of its emphasis on being an international

Aspects of Nedbank's International Activities

100

bank, but did not mean that the NBSA did more international
business than the other commercial banks. However, it seems likely
that NBSA was more dependent on it than the other banks reflecting its relative weakness within South Africa.

Notes and References

1.

2.
3.
4.

5.

6.
7.
8.

9.
10.

11.
12.
13.

14.
15.
16.

Oud-Archief Disconto, File 1927-1954, H. Haverkamp: Nota voor de

Directie inzake Nederlandsche Bank voor Zuid-Afrika, N.V., 2 June
1949.
This development culminated in the formation of a South African
based company for the bank in SA in 1951.
NBSA, Published Annual Reports, 1945-59.
The bank's financial year runs from 1 October to 30 September of the
following year. An important change in the figures is clear in 1951,
when the South African banking company was formed and started its
own capital and reserve sources. The Reserve Bank published figures
on the total capital and reserves of the commercial banks only from
1959 onwards.
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, including foreign branches, only up to 1964. 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. The BA-9's are
public documents and may therefore be consulted, but any information on e.g. foreign branches, is confidential and banks may refuse
access to them.
NBvZA, Annual Reports, 1939-45, p. 4.
Nedbank Annual Report, 1972-3, p. 22.
See Financial Mail, Special Survey on Nedbank, 13 April 1973, pp. 37,

4l.

R. Y. Bone, Exchange Control as an Instrument to Regulate South

Africa's External Equilibrium, M. Com, 1979, pp. 17-18.
Ibid., pp. 35-6; Nedbank: South Africa: An Appraisal, 2nd edition,
pp. 79, 115.
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, pp. 120-9.
HKfS, Minutes of Board Meeting, 19 September 1967.
Annual Report, NBSA, 1950-1, p. 47; 0U3:4, Letter NBSA-NBvZA
(Amsterdam), Confidential no. 65/68, 26 February 1952; Discussions
with General Management, 12 December 1961.
Annual Report, NBSA, 1969-70, p. 9.
NV/2:58, Minutes of Board Meeting, 18 March 1958; NV/2:71,
Minutes of Board Meeting, 17 June 1966.
HKfS, Minutes of Board Meeting, 14 June 1966.

Grietjie Verhoef
17.

18.
19.
20.

21.
22.
23.

24.
25.
26.

27.

28.

29.
30.

31.

101

HKlS, Minutes of Board Meeting, 14 March 1967; HKlS, Minutes of

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

102

32.
33.

34.

35.
36.

37.
38.

Aspects of Nedbank's International Activities

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

Grietjie Verhoef

39.
40.
41.
42.
43.
44.
45.
46.

47.
48.
49.

50.
51.
52.
53.

103

excludes all foreign branch activities of the bank from 1965 onwards and
thus reflect only the activities of the bank in South Africa. 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.
Discussions with General Management, 1 September 1960.
NV/4:72, Memorandum by W. Koster on the NBSA share in imports
and exports, 1962-3.
See e.g. JV/10/3, Confidential Annual Report, 1958-9, pp. 1-5.
RK/14:6, Letter NBvZA, Amsterdam-Chief Agent, no. 349, 5 April
1946.
RK/14:8, Letter NBvZA, Amsterdam-ChiefIAgent, Confidential,
no. 60/86, 10 March 1947; RK/14:39, Letter NBvZA,
Amsterdam-Chief Agent, Confidential 1269, 6 October 1949.
RK/14:83, Letter NBvZA, Amsterdam-Chief Agent, no. 1801, 18
February 1953; RK14/98, Letter NBvZA, Amsterdam-Chief Agent,
Confidential, no. 66/503, 5 June 1953.
RKl14:118, Better NBSA-NOB, strictly confidential, no. 68/41, 5
December 1954.
RKl14:76, Letter NBvZA, Amsterdam-Chief Agent, Confidential,
792, 7 December 1951; RKl14:89, Letter NBvZA-NBSA Confidential, no. 66/501, 6 June 1953; Discussions with General Management, 1
April 1964.
RKl20:335, Letter NOB-NBSA, 3 July 1956; HK/S Discussions
with General Management; 69/71, 10 June 1971; HKlS, Discussions
with General Management, 57171,13 May 1971.
OIl3:255, Letter NOB-NBSA, no. 4/142, 8 February 1958;
Discussions with General Management, 25 October 1960 and 21
February 1962.
Coherent complete figures of the banks share in imports and exports
according to markets, are also not available (see note 33). The figures
quoted are from the Confidential Annual Reports and are no longer
regarded as reliable by the current bank management.
NV/l:73 Minutes of Board Meeting, 22 December 1953, NBSA
Confidential Annual Reports, 1951-65.
NBSA Confidential Annual Reports, 1951-65; OIl3:19, Letter
NBSA-NOB, Confidential, no. 67/83, 2 February 1954; NB/4:157,
Memorandum on N BSA Share in Import and Export Financing, 1963-4.
OIl3:19, Letter NBSA-NOB, Confidential, no. 67/83, 2 February
1954; NB/4:157, Memorandum on NBSA Import and Export
Financing, 1963-4.
NB/l:107, Minutes of Board Meeting, 15 February 1955.

6 The South African

Reserve Bank and the
Course of the Economy
D. W. Goedhuys

The role of the South African Reserve Bank in the country's economy,
past and present, comprises a range of traditional central banking
functions performed continuously, but punctuated by decisive intervention at critical junctures. At such times the Bank is most clearly
visible as an agent in our economic history. The establishment of the
Bank itself in 1920 may be taken as an obvious first example. 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. Other examples, from among many, are the
momentous decision, urged on the government by the Bank, to
maintain the gold standard in South Africa when the United Kingdom
suspended it in September 1931; the Bank's active part in the
establishment of the National Finance Corporation in September
1949, which pioneered South Africa's money market; and the
imposition of deposit rate control in March 1965 which, together with
attendant control measures, profoundly altered the channels of credit
and the methods of financial intermediation during the next fifteen
years.
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. It consisted of a series of
interrelated measures to liberate and develop the financial markets.
The steps taken to that end are described in detail in the de Kock
Report? Rather than repeat these here, 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, runaway government
spending and a devastating drought.
105

106

The South African Reserve Bank

THE RUN-UP TO AUGUST 1984

The severe drought, which was to decimate agricultural output during
three successive seasons, began when the rains failed in the summer
rainfall area in the 1982-3 season. Coincidentally, the dollar price of
gold, having reached $511 per ounce in February 1983, from then on
followed a declining trend for the next three years. The average price for
1983 was $424 and in 1984 $359. Only three years earlier, in 1980, the
average price for the year had been $613. Since gold accounts for about
half export earnings, the depressive effect which this price decline
had on the country's welfare can be readily appreciated. Nor did
other exports fare much better, owing to the world-wide depression of
the early 1980s. The South African economy as well had been in the
downward phase of the business cycle since August 1981.
Yet, in the course of that lengthy downswing, a short-lived
'mini-boom' occurred between March 1983 and the middle of 1984, and
helped to create the excess demand which later was to require strong
corrective measures. The immediate cause of the uptown of the
economy was the temporary recovery of the gold price from mid-1982
which peakedin February 1983, as already mentioned. Because imports
were contracting at that time, the current account of the balance of
payments registered a surplus in the second quarter of 1983.
The stimulation of the economy resulting from the brief gold price
recovery was magnified by fiscal developments. Sharply increased
spending on drought relief, food subsidies and defence compelled the
government to rely heavily on bank credit in financing the exchequer
deficit. The stock of money expanded rapidly, reaching an annual
growth rate of 22 per cent (for M3) in June 1983. Consumer spending
reacted upwards from the first quarter of 1983 and went on increasing
for more than a year.
On the monetary policy front, 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, and as from 1983 took
the specific form of varying the cost to the banks of the cash reserves they
are required to hold. The previous fixed link between the Reserve
Bank's rediscount rate and the commercial banks' prime overdraft rate
had been cut in February 1982.
On the strength of the rising gold price since the middle of 1982 and a
higher level of interest rates than that prevailing overseas, exchange
control over non-residents was lifted in February 1983. The result was a

D. W. Goedhuys

107

net inflow of capital, stimulated by the higher gold price, and this in turn
helped to fuel the demand for assets - real and financial. The Rand's
exchange rate appreciated until July 1983, despite the sharp fall of the
gold price since February, but then entered upon an almost continuous
descent.
The worrisome tendencies that took shape in 1983 worsened as the
year 1984 progressed. The drought intensified and became more
damaging to the economy. It transformed maize exports into maize
imports. The gold price continued its slide throughout 1984. With
domestic demand, including the demand for imports, remaining
buoyant, 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. The Rand's exchange value
fell back rapidly. By July 1984, the effective rate was 27 per cent below
the level of September 1983.
As in 1983, the government's finances in 1984 aggravated the effects
of the external accounts. In spite of the correctly designed Budget of
March 1984, unforeseen and heavy outlays on drought relief, defence,
sharply increased salaries and other items swelled government
spending at a high rate, particularly as from the second quarter of 1984.
An increase in the General Sales Tax in February and again in July 1984
failed to stem the government deficit.
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. Undeterred by the drought and the declining
gold price, consumer spending was rising, in the second quarter of 1984,
at an annual rate of 12 per cent. Inflation advanced from an annual rate
of 10 per cent in February to 12.4 per cent in July 1984. In view of the
country's much reduced export earnings, it became clear that the rising
trend of government and personal spending had to be arrested firmly.
THE RESTRICTIVE 'PACKAGE' OF 2 AUGUST 1984
In an unusual procedure, a joint annoucement was made by the
Ministers of Finance and of Industries, Commerce and Tourism, and
the Governor of the Reserve Bank. It comprised the following remedial
measures:
1. The Reserve Bank raised its discount rate for Treasury bills from
18314 per cent to 21314 per cent; for Land Bank bills from 19 per

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cent to 22 per cent; and for bankers' acceptances from 19 1/2 per
cent to 221f4 per cent.
2. 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, according
to the amount involved; the minimum deposit on delivery of the
merchandise was raised by varying amounts, but for most goods
from 10 per cent to 25 per cent of the purchase price; and the
maximum repayment period shortened, in the case of most goods,
from twenty-four months to twelve months.
3. The Minister of Finance promised renewed efforts to curb public
sector spending. Though it was not part of the statement, it was
understood to be impracticable to adopt an adequately restrictive
stance before the March 1985 Budget. (The General Sales Tax had
meanwhile been increased from 10 per cent to 12 per cent in July
1984).
There was debate at the time whether the seriousness of the
situation did not warrant the Reserve Bank's closing the discount
window entirely, that is, 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. Had the Bank done so, however, 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. The ensuing disruption of business and sharp increase in
interest rates would have done much more harm and little good to the
economy. A more even, yet powerful effect was achieved by raising
the official discount rates by a record 3 percentage points.
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. In a
seeming paradox, money market rates (for interbank loans, call
money, bankers' acceptances and negotiable certificates of deposit)
entered on a slow downward trend, having already reached peak levels
of between 18 and 18314 per cent at the end of July, in response to the
strong demand for credit in the inflationary and overstrained conditions of the proceeding months. Because the August action was

D. W. Goedhuys

109

rightly expected to depress business activity and, with it, the demand
for credit, money market rates eased off from then onwards.
These depressive effects were exacerbated by the capital outflow as
from September 1984. It consisted mainly of shifts in the placing of
trade credit from overseas to local sources, as the Rand was expected
to depreciate further, and of substantial repayments of other
short-term foreign debt.
The policy actions did succeed in checking, albeit temporarily, the
depreciation of the Rand. Measured against the currencies of our
trading partners, the Rand depreciated by 13 per cent in the fourth
quarter of 1984, but then gained 5 per cent in the following quarter.
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 two main objects of the intervention.
Gross Domestic Expenditure registered a sharp decline as from the
last quarter of 1984 and remained at a low level right through 1985. As
an unhappy, but unavoidable corollary, employment also contracted
from late 1984. By the time of the Reserve Bank's annual report of
August 1985, the governor was able to state that overspending had
been eliminated, that personal savings had recovered from the earlier
dissaving, 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 balance of payments on current account showed an even more
dramatic improvement: a surplus reappeared soon after August 1984
and mounted throughout 1985, in spite of the gold price averaging only
$311 in the first half of 1985. The amount of the current account
surplus, stated at an annual rate, was RO.6 billion in the fourth quarter
of 1984, followed by R4.3 billion and R5.4 billion in the two
succeeding quarters, respectively. The factors contributing to this
remarkable turnaround were the falling-off in imports as domestic
demand contracted and growing exports, both in volume and
particularly in Rand value, as the Rand depreciated.
The government deficit remained high at approximately 4 per cent
of GDP during the rest of the 1984/5 fiscal year, but thanks to
effective public debt management it was financed without resort to
bank credit. In the Budget Speech of March 1985, the government
provided for a reduced growth of public sector spending and a lower
deficit.
Given the long lag in the monetary transmission mechanism, the
rate of inflation inevitably continued rising during the remainder of

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The South African Reserve Bank

1984 and the first half of 1985, before it responded to the throttling of
aggregate spending and began to moderate as from June 1985.
REFLECTIONS
The successful intervention by the Reserve Bank in August 1984,
followed later (as from May 1985) by a gradual easing of the pressure
applied, 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. It came none
too soon, nor did the accelerated repayment of foreign banking debt,
for less than a year later certain socio-political developments severely
shook confidence in the South African economy. Without the earlier
corrective action, the economy would not have been able to weather
the storm well enough to have a chance of revival in 1986.
The adaptation of policy from mid-1983 onwards, culminating in the
August 1984 statement, can indeed be regarded as a classic instance of
central bank intervention to alter the course of the economy. The
policy achieved what was required and what it set out to do. 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.
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. No recourse was had to import control, ceilings on
bank credit or other interference with the working of the economy.
Depressive the action needs had to be, but disruptive of the economic
system it was not. The tightening of hire purchase conditions is in a
different category; consumer credit sales are regulated for the
protection of the poor, and varying the terms can be a useful assistant
to general credit policy, even though consumer credit is the minor part
of total credit outstanding in the economy ..
In the interest of optimal economic growth - not to be confused with
stable growth, which is unattainable - the central bank is at times
called upon to loosen the reins and stimulate, and in other circumstances to depress economic activity temporarily in order to prevent
runaway inflation and economic breakdown. The concurrence of fiscal
policy is a great help, but more often in practice an adverse fiscal trend
is one additional problem for monetary policy. The appropriateness or
otherwise of monetary action must always be seen, therefore, in the

D. W. Goedhuys

111

context of fiscal and all other economic developments at the time, as

the August 1984 intervention illustrates. The action then taken,
principally the raising by 3 percentage points at once of the Reserve
Bank's discount rates, was certainly severe, but well short of the
'overkill' that some critics charged it was, 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.
Flanked by transactions in government stock and foreign exchange
market intervention, the centrepiece of central bank action is its rate
of discount for eligible bills, also known as Bank rate, which, jointly
with market forces, helps to determine all other short-term rates of
interest. 3 The effectiveness of this instrument for regulating aggregate
spending in the economy was strikingly demonstrated by the August
1984 initiative.
Precisely how interest rates affect spending decisions is a recurring
subject of debate. Some see the connection as operating through the
cost and availability of bank credit and the money it creates, and from
there to spending decisions based on money holdings. On that view,
targets for the money supply become an important directive or
guideline for the central bank. Others, among them the present writer,
postulate a direct impact of the rate of interest on spending decisions,
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. This approach lacks
the statistical guidance of a monetary target and must rely on a broad
perception of spending trends in the economy.
Not in dispute, at least among those who have some experience of
the matter, is the requirement for monetary stability of keeping
aggregate spending aligned with current output, and the crucial
significance of the conditions of credit to such alignment. The Reserve
Bank has always regarded that as its special responsibility. As early as
1923, 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,. 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.

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112
Notes

1.
2.
3.

4.

Paper read before the Banking and Business History Conference at

Randse Afrikaanse Universiteit on 9 April 1986.
Final Report of the Commission of Inquiry into the Monetary System
and Monetary Policy in South Africa, pp. 148-50.
Long-term interest rates, i.e. the yields on fixed-interest obligations of,
say, three-year and longer maturity, are principally determined by
supply and demand in the market for (longer-term) loanable funds, on
which the central bank has only a marginal influence through its
operations in that market - these being designed to affect bank liquidity
first of all.
G. de Kock, A History of the South African Reserve Bank, p. 63.

References

DE KOCK, G., A History of the South African Reserve Bank, 1920-1952,

Pretoria, 1954.
RSA (1985), Final Report of the Commission of Inquiry into the Monetary
System and Monetary Policy in Soth Africa, RP 70711984, Pretoria, 1985.
SOUTH AFRICAN RESERVE BANK, 'A Short Historical Review' issued
in commemoration ofthe bank's fiftieth anniversary, Pretoria, 1971.
SOUTH AFRICAN RESERVE BANK, Governor's Addresses, Annual
Economic Reports and Quarterly Bulletins, 1983, 1984, 1985.

7 Monetary Policy,
Commercial Banking and
the Political Imperative,
1965-85
1

Katherine Munro

INTRODUCTION
This paper focuses on the relationship between monetary policy,
economic and political conditions, and commercial banking functions
and practices in South Africa over the period 1965 to 1985. Changes in
banking functions have been numerous and have occurred at a rapid
rate, but these changes have not been solely the result of market
forces. Instead monetary policy distorted market forces significantly
because monetary policy over the period considered was not politically
neutral. Thus the shape of commercial banking was a response to and a
reaction against monetary policy and distortions in market forces.

Frequently the consequences of an active interventionist monetary

policy have been undesirable and unforeseen. Over the years, 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. Discussion
has focused on whether the principal target of monetary policy should
be the quantity or the cost of money, how the supply of money can be
controlled and at an even more basic level, who is responsible for
monetary creation. In recent years, official thinking has shown a
greater awareness of the importance of the market, and now considers
that policy changes are more likely to succeed when attempted through
and via the market, if market conditions are normal. However, 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.
113

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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. 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. In the nineteenth century, the
banking sector grew out of the needs of the agricultural sector, but
the modern diversified financial system has been shaped by the
demands of the mining, commercial and manufacturing sectors. The
financial system continues to provide facilities required by the
modern sector of the economy. The South African economy is a dual
one, exhibiting both First and Third World characteristics, but the
financial system caters for the First World components.
The commercial banking structure is highly concentrated. At the
end of 1981 there were eleven registered commercial banks, but in
effect the structure is oligopolistic, for the commercial banking scene
is dominated by Barclays National Bank, the Standard Bank of South
Africa, Nedbank, Bankorp and Volkskas (listed in order of the size
of total assets). These five groups control 97 per cent of the total
assets of commercial banks and hold 98 per cent of commercial bank
deposits. All these banks do business on a nation-wide scale via an
extensive branch banking network, based upon a British model, thus
possessing a total of 2938 branches and agencies in 1983.1 A further
consequence of the imperial origins of the two largest commercial
banks, Barclays and Standard, is the strong direct link with overseas
banks. As late as June 1970 the Franszen Commission reported that
foreign controlled commercial banks were entrusted with 73.4 per
cent of all South African commercial bank deposits, and until very
recently the majority of the share holdings of Standard and Barclays
was held by the British parent company, the latter continuing to be
the largest, albeit minority shareholder, in both banks. 3 All groups
have at least one major local shareholder: Anglo-American, Old
Mutual, Sanlam and Rembrandt have traditionally held large shareholdings in one of the five banking groups and have recently
expanded their holdings. Old Mutual, the insurance giant, is a
major shareholder in Standard and Nedbank and Liberty Life,
another insurance company, has acquired a sizeable stake in StandardBank.

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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'. A
commercial bank is thus a financial intermediary, facilitating the
provision and transfer of money fron sources of savings into channels
for investment, and providing an efficient and fast clearing system.
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. In addition to current
account deposits, the commercial bank also accepts notice, term and
savings deposits. Income is also derived from fees earned on a variety
of services and commissions. Traditionally the commercial bank
concentrated on the provision of retail services for the individual
client. During the 1970s emphasis switched to the corporate sector
with the provision of specialist wholesale services. Recently, there has
been a revived interest in retail banking, in part the consequence of the
revolution in technology and in part the response to increased
competition from other types offinancial institutions. The credit card,
automatic teller machines (ATMs) and networked computers are
radically changing consumer banking.
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, but at the same time a reason for concern on the part of
the monetary authorities at the Reserve Bank in Pretoria. For it is the
job of the latter to coordinate economic growth and economic
stability. Monetary policy is the total complex of measures applied by
the monetary authorities, aimed at influencing the money stock and its
rate of growth and/or the cost and availability of credit in the
economy. This is part of the broader goal of a consistent and coherent
macroeconomic policy enunciated by the State. 4 Credit creation by the
banking sector can influence money supply and can and has on
occasion disrupted government monetary policy. 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. For these
reasons a symbiotic relationship has developed between the commercial banks and the Reserve Bank. In addition, the official Registrar of

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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, and has the
authority to inspect bank books and requires the banks to submit
highly detailed monthly and quarterly returns on their business.
However, 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, particularly in times of crisis. For
example, the commercial banks are substantially exempt from the
disclosure requirements laid down by the Companies Act and this has
been a mixed blessing, for while shareholders may wish to have all
information available to them on earnings, debt provisions and the
valuations of investments, such information does not have to be
published by the banks and is not strictly necessary to prove the more,
or even less efficient functioning of a particular commercial bank. One
of the declared functions of the Reserve Bank is to act as 'lender of last
resort' , and this in effect means that it will provide accommodation for
a commercial bank in a crisis situation. For instance, in 1977 when
Trust Bank (part of Bankorp) had overinvested in property, the
Reserve Bank provided the extraordinary finance (thought to be a
large, 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, subscribed by the five
biggest banks in the same year. No major commercial bank is likely to
go out of business because of the 'safety net' and support guaranteed
by the Reserve Bank.
The Reserve Bank never objected to the existence of ROCO (the
Register of Cooperation), which was an effective cartel-type arrangement that started life as a 'gentleman's agreement' between the major
banks in the 1920s. ROCO determined minimum charges for various
bank services such as ledger fees, cheque collections, transfers,
advances and some foreign exchange commissions. 5 ROCO was only
abolished in February 1983, a casualty of intensifying competition
between the commercial banks. It is beyond the scope of this chapter
to explain why the banking cartel survived until that date and was
abandoned at this point, 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. In addition, there are close
communication channels between Pretoria and Johannesburg. New
ideas are frequently sounded out when still on the drawing board.
Thus the shared responsibility for creating stable monetary conditions
has resulted in a mutually supportive relationship, with coercion being

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117

muted by cooperation and supervision underpinned by a support

network in a crisis 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
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. The Act
recognised the existence not only of 'money' but also 'near-money',
i.e: deposits or other financial assets which served as close substitutes
for money and which could be converted into money readily and
rapidly. Furthermore, the Act also recognised that other kinds of
deposit-taking institutions in South Africa, such as merchant banks,
discount houses, hire purchase and general banks could and did create
money and near-money.6 Thus the Act extended the concept of the
banking sector to incorporate other banking institutions with monetary significance, for it stipulated that all banking institutions had to
comply with certain variable liquid asset and cash reserve requirements, differentiated only with respect to the banks' 'short-',
'medium-', and 'long-term' liabilities. 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. 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. In effect the Act created a network of direct
controls over a total 'monetary banking system'.
Unfortunately, the 'model' Act was defeated by the timing and
circumstances in its application and loopholes were soon obvious. The
second half of the 1960s was a period that ushered in a rising level of
inflation, the consequence of an exceptional increase in the supply of
liquid assets. The monetary authorities found the Act inadequate in
containing the excess liquidity in the system. Banks continued to hold
excess liquid assets and were thus able to expand their lending.
Open-market operations and other forms of active market intervention were not used by the Reserve Bank to contain the situation. The
massive programme of government spending embarked upon in this
decade added to the bankers' liquidity. Monetary and fiscal policy did
not coincide. In addition, there were still financial institutions that fell

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Monetary Policy and Commercial Banking

outside the strict definitions and these escaped the network of

controls.
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 banks circumvented the
ceilings by increasing their investments with the private sector, as
opposed to lending. Further controls were then necessary in the form
of Proclamation R184 of 1967. The reaction was a further growth in
non-monetary bank financial activities. In 1970, direct controls went
even further when the credit ceilings were extended to all banks. In
addition, 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.
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. But the 1972
amending legislation to the Bank Act reinforced the direct control or
non-market oriented method of the monetary authorities. 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. The new legislation also
limited the use of private sector securities for liquid asset purposes.
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, and deposit
interest rates rose. In April 1973, the monetary authorities tightened
deposit rate controls, but once again entreprepeurial banking skills
appear to have been applied to exploiting loopholes in the rules and
regulations. In February 1976, credit ceilings were reintroduced to
curb credit.
During the last two decades the banking system has chafed against
the tightening chains of these restrictive, specific and direct controls.
The banks played a cat and mouse game with the monetary
authorities. The bankers argued that under a system of direct controls
their ability to lend was determined arbitrarily.7 Direct controls could
never be comprehensive and so distorted the working of the financial
system. Careful, strategic monetary planning was lacking and instead
the authorities relied on a series of ad hoc reactions in response to
situations as they arose. Admittedly their ability to cope was limited by

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119

the pressures of fiscal needs and the onset of an inflationary era. But at
the same time, it can be arged that these very controls provided a
ready, easy and cheap means of finance for the burgeoning public
sector, and in particular provided the financial underpinning for such
sacred 'White cows' as the Land Bank and the parastatal institutions.
Cash and liquid asset reserve requirements adversely affected the
cost structure of the banks. The primary responsibility of the banks
was to their shareholders, 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. On the other hand, the monetary authorities had few
alternatives to direct control networks, in view of Treasury dominance
and comparatively underdeveloped financial markets in South Africa.
But the Reserve Bank saw itself as a neutral body, 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. Dr
M. H. de Kock, in a paper to the Economics Society of South Africa,
as long ago as 1957, 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, but should extend to
'general economic stability in the sense of orderly and balanced
economic progress'. 8 This was a fine objective in an ideal world. 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. The
ideological divide between government and business remained a
chasm.
THE DE KOCK COMMISSION AND MONETARY REFORM
However, it was not until 1978 that the government initiated moves to
dismantle the 1965 banking framework, when it cautiously appointed
the Commission of Inquiry into the Monetary System and Monetary
Policy in South Africa under the chairmanship of Dr G. P. C. de Kock,
then Deputy Governor of the Reserve Bank. In the event the
Commission sat for eight years, producing a first interim report in 1979
and a second interim report in 1982. But it was not until the middle of
1985 that the third and final report of the de Kock Commission was
published. 9 The Commission ranged widely in its investigations; its
first report on exchange rates in South Africa set the stage for the

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Monetary Policy and Commercial Banking

anticipated freeing of South Africa's foreign exchange markets,

particularly the working of the spot market. The second report
concentrated on building societies, the financial markets and monetary policy. The third and final report spelt out the shape of a future
monetary policy for South Africa within a consistent market-related
financial framework. 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. The twin aims of the
new monetary policy are to create a more competitive financial
system, 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 report led to the
promulgation of the Financial Institutions Amendment Act at the end
of July 1985 and, despite the title, this legislation is the most significant
statute on banking in twenty years. 10 The Act gives expression to the
Commission's espousal of the ideal of untrammelled free enterprise
capitalism, which gives the market paramountcy in determining the
price of any commodity, including money. 11
KEY QUESTIONS

What had changed between 1965 and 1985? The goal of a rational
monetary policy remained, 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. By the 1980s
monetary policy was seen to extend not only to money supply and
interest rates but also to exchange rates, the financing of the State
budget and total spending, thus having a crucial impact on income,
output, prices and the balance of payments. Stable price levels and
balanced economic growth remain the ultimate goals. 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 question is why? Can we
answer in simple terms and reply that we are all 'monetarists' these
days, that is, far more conscious of the importance and role of money
and that the need for flexible and market-related interest and

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121

exchange rates is self-evident. Or were there deeper influences at

work, factors that grew out of the events and developments of the last
two decades.
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.
Secondly, I wish to argue that in as much as the 1965 Act became
instantly obsolete the moment it was on the statute books, so too the
1985 Amending Act is of historic interest because of the political
developments of 1985, and indeed the crisis that developed during
the latter part of 1985 completely aborted and overshadowed the
significance of the new Act, and makes its implementations in the
long run extremely problematic. 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.
ENDOGENOUS FACTORS AND CHANGE IN
COMMERCIAL BANKING
Let us deal with internal endogenous factors first. Since the Second
World War, three broad interrelated developments have shaped
commercial banking:
1. a relative (though obviously not absolute) decline in the
dominance by the commercial banking sector of the financial
system;
2. the sharp reduction in non-interest bearing demand deposits
relative to interest bearing savings and time deposits;
3. the consequent attempt on the part of the commercial banks to
diversify their activities. 12
These developments point to the growing sophistication of the
financial system in South Africa, to the distorting influence of
legislation, to the competitive response of institutionalised entrepreneurship, and finally to an inflationary environment that has both
created opportunities for greater profitability and, at the same time,
led to a reassessment of the financial needs and financial services. I
would like to discuss each development in turn.

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During the 1950s and 1960s the dominant position of the commercial
banks was challenged by the entrepreneurial innovations on the part of
merchant banks, discount houses, building societies, hire purchase
and general banks. All these newer institutions responded more
energetically and actively to the growing demand for new financial
services in a buoyant economic environment. It has been argued, for
example, 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. 13 During this period this conservative
attitude meant that new approaches to finance (hire purchase,
personal loans, leasing and credit card facilities) were launched by
institutions not directly connected with the commercial banks. Thus
the total assets of commercial banks, 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, although in absolute
terms commercial bank assets increased from R726 million to
R19487 million over the same period. 14 Furthermore, 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 1965 Act broadened the definition
of banks or bank-like institutions subject to credit controls, but by the
very nature of such specific regulations, the network of controls could
not be comprehensive, and hence the stimulus to what has been called
'the grey market' and the process of 'disintermediation'. Disintermediation took several different forms. One was increased intercompany
borrowing and lending. Another method was the selling by banks of
assets on repurchase agreements to the private non-banking sector.
Another technique was the increased utilisation of acceptance
facilities and their rediscounting outside the banking system by
companies seeking to invest their liquid funds. Similarly, the
discounting of bank endorsed trade bills outside the banks was another
form of disintermediation. It is not surprising that as a result direct
control measures were largely ineffective. 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. The share of this category of deposit declined from
89.1 per cent in 1950 to 39.2 per cent in 1980. In contrast,
interest-bearing time deposits increased sharply, from 11 per cent of
total deposits to 50 per cent by 1973. 16 The cost of deposits placed
within the commercial banking sector rose. This development was the

Katherine Munro

123

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.

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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.
EXOGENOUS FACTORS - GOLD AND MONETARY POLICY
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

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125

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

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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. This was implemented.
THE RESERVE BANK AND THE FOREIGN EXCHANGE
MARKET
During the last decade, the Reserve Bank has increasingly been drawn
into stabilising the foreign exchange market, for the Bank, acting on
behalf of the Treasury, 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. For
example, in the year ended in March 1983 forward exchange losses
amounted to R892 millions, and in the year ended March 1984 losses
amounted to R654 million. 21 The crucial question was how forward
exchange rates could be determined by the market without the
Reserve Bank serving as a backstop. 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. In 1979, 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. This has proved to be a far more difficult goal to implement.
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. What then were the major developments in
commercial banking in the 1980s? The competitive environment has
been sharpened. The oligopolistic structure of banking has not
reduced competition but has rather accelerated it. (A parallel might be
in the performance of the zaibatsu in Japan.) Diversification and the
provision of a comprehensive range of financial services has
broadened competition from merchant banking to general banking,
from leasing to hire purchase, from factoring to credit cards, from fleet
management to instant cash. The emphasis on banking in the 1980s

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127

switched from lending and borrowing money to the most efficient

marketing of the most efficient financial services. Financial services
which provided new sources of profit to the banks and thus countered
the dampening and restrictive effects of monetary policy. The
banking sector has become increasingly conscious of new opportunities to diversify outside traditional banking forms and even beyond
the financial sector. The banks themselves participated in the process
of 'disintermediation'. The demise of the Register of Cooperation in
February 1983 removed the last inhibitions on competition. Its
collapse was itself a function of competitive challenges from within
and outside the cartel, a consequence of the electronic transfer
revolution.
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. Image and slogan (Standard's 'We'd like
to be your bank'; Barclay's 'We'll get you going' and more recently
'The Bank' series of advertisements; and Nedbank's 'If you're serious
about money') are sophisticated techniques designed to promote a
banking group as a whole, offering a variety of services to specific
markets.
The principal competitive challenge outside the banking sector
came from the building societies during the 1970s. It appeared that
they could offer similar services to the commercial banking sector but
at a far lower cost and in a protected environment. Special provisions
for White housing was another 'White sacred cow'. Building societies
have low reserve requirements, 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. During the seventies,
building societies competed aggressively with the banks for funds,
both long-and short-term varieties, and offered clients convenience,
credit, electronic transfers of funds and debit order facilities.
Between 1978 and 1980, building societies overextended themselves
in conditions of easy liquidity. The nemesis came between 1980 and
1982 when domestic liquidity dried up, the rates on government
stock rose to market-related levels, and by March 1982 the five
largest societies showed a loss of almost R300 million over the
previous two-year period. By February 1982 mortgage rates had
risen to 15.25 per cent. 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

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Monetary Policy and Commercial Banking

housing finance, 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. 22
Computerisation, electronic transfer networks, automatic teller
machine systems constitute the information revolution of the eighties.
These are all information systems designed to speed up the transfer of
information, reduce costs and provide a more efficient service - speed,
accuracy, efficiency and throughput or volume spell profits. Again it
offers a competitive technique to those who are either first in the field
or who offer the most efficient transfer mechanism. However,
sophsiticated equipment of this type costs money and the larger the
branch network put on line, the higher the costs of the system. Thus it
is not surprising that Nedbank was the first bank to introduce
computers and so over the years this development, together with a
tight network, definitely contributed to the greater profitability of the
group.
Standard Bank pioneered automatic telling machines in the banking
sector. By 1983 Standard Bank had invested R13 million in 278
Autobanks and 14.4 million transactions were processed in 1983. In
the year ended 31 December 1984, 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. 23
FOREIGN INDEBTEDNESS IN THE 1980s
Finally, I now turn to the most vexed question of the decade to date,
namely, the foreign debt situation and crisis of short-term indebtedness. Obviously all this is very contemporary and the picture is
incomplete. 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, as on
the statute books (the situation that led to the ongoing search for new
sources of profitability), 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), a lack of constraints
on banking operations by South African banks abroad, the readiness
of the part of overseas banks to lend to South Africa and the fluid,
volatile state of the forex markets. Anyone of these factors viewed in

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129

isolation did not constitute a problem or a threat to the economy, 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.
What then was the background to the short-term debt problem?
We are back at the question of the dependence on gold, 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.
When the balance on current account moved into a deficit situation in
1981 (the consequence of a declining gold price after 1980), short-term
borrowing aboard was used as a palliative. The Reserve Bank
encouraged companies to borrow abroad, thus minimising the
negative movement on current account. It also limited domestic bank
lending and hence money supply and interest rates. At this stage dollar
interest rates were as much as 10 to 12 per cent lower than Rand rates.
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), and
offered forward cover at rates better than the pure market rate. This is
obviously a controversial point now denied by the Reserve Bank (with
hindsight?). 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, temporarily at least, without the same constraints on
capital adequacy and liquidity that applied to their domestic
business. ,25 A classical potential pitfall situation developed with
South African banks 'borrowing short and lending long', but what
made the situation potentially explosive was that the money was
borrowed abroad and lent at home. By September 1985 the
provisional total of foreign debt stood at $24 billion, of which $14
billion fell due within twelve months. Charles Grant in Euromoney,
December 1985 lists the largest foreign currency borrowers, as at
September 1985, as Standard Bank with $2.5 to 3 billion, Barclays
National Bank with about $2 billion and Nedbank with $1.6
billion. 26 In normal circumstances it can be argued, as de Kock has
done, that South Africa was not overborrowed. He said: 'Twenty four
billion is low by international standards - that is 40 per cent of our
exports, compared with around 280 per cent for most developing

130

Monetary Policy and Commercial Banking

countries.' 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,
being the first of the overseas banks to 'reassess their credit risk' as it is
euphemistically put, followed by Security Pacific and other American
banks. American banks were responsible for $4.2 billion of the
short-term debt. The disinvestment campaign had begun in earnest. It
is interesting to note that in mid-1985 a report on South African
borrowing was published. The author is Eva Militz and the report was
funded by the World Council of Churches Programme to Combat
Racism, 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, on 2
September 1985, South Africa unilaterally applied a freeze on
repayments of foreign debts for four months. It was unprecedented, it
was a defeat, it was an admission of virtual bankruptcy. Immediately
thereafter the recriminations set in. Who was to blame, could the
situation have been handled in another way, had certain banks been
more exposed than others and hence been more responsible for
bringing down a shaky financial edifice, etc? The controversy raged
and today I do not even wish to attempt to answer any of these
questions. I shall leave them to the business historians of the next
generation.
CONCLUSIONS
The year 1985 was traumatic for the financial sector. The Rand
collapsed, American banks cut off credit to the country, 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, the continuing recession produced an
unprecedented total in internal bad debts, the rate of inflation soared
to over 20 per cent, and the final financial blow was the end of the
year unilateral announcement of the four-month debt standstill. These
disastrous developments were not unrelated to one another and
indeed one can link them in a sequence of cause and effect. Nor were
financial problems unrelated to the political crisis, the declaration
of a state of emergency, the international media's perception of
internal affairs, the flood of external pressure for disinvestment,
economic recession, unemployment and the high level of violence and

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131

unrest. A high-risk environment suddenly developed and the vulnerability of the financial sector was evident.
These developments, though, were also a function of deeper
perhaps even more basic trends at work over a period of time. The
financial crisis has highlighted the continuing importance of the
commercial banking sector and has underlined its vulnerability.
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, others might say bad luck) to undermine and threaten both
the overall stability of the economy and monetary policy. The political
crisis has thrown up questions about priorities and it appears that the
government is currently opting in favour of expansion, reflation and
job creation. The inflationary consequences are rapidly sliding into
second place. Have the monetarists again been forced to become
neo-Keynesians? The financial crisis has thrown up questions about
future monetary policy. Despite the recent enthusiasm for free market
philosophies and approaches, the realities of changing priorities in
politics appears to thwart much movement in that direction at the
moment. 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. Perhaps other sacred cows are being nurtured in the
stable.

Notes and References

1.

2.
3.
4.

5.
6.

I wish to thank the Standard Bank librarian and her staff for their help
and my husband, Keith Munro, for his comments. All opinions and
errors remain my own.
H. B. Falkena, L. J. Fourie and W. J. Kok, The Mechanics of the South
African Financial System, Financial Institutions Instruments, Markets.
London, Macmillan, 1984. p. 64.
The third Report of the Commission of Enquiry into Fiscal and
Monetary Policy in South Africa: RP 87/1970, November 1970, p.
185.
D. J. Wilson, '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', unpublished MBA Research
Paper. The Graduate School of Business, University of Cape Town, p.
14.
Ibid., p. 31-4.
Gerhard de Kock, 'New Developments in Monetary Policy in South
Africa', South African Journal of Economics, December 1981 vol. 49,
no4, p. 324.

132
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.

Monetary Policy and Commercial Banking

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

8 The Visible Hand and the

Top 100 Companies in
South Africa, 1964-84
StuartJones

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

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The Top 100 Companies in South Africa

economics pioneered by D. C. North and Oliver Williamson; to

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

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,
and which in little more than a decade transformed business practice
permanently. The great break with the past, therefore, 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,
and economically oriented historians such as Hartwell, and historically
oriented economists such as Rostow. This modern business enterprise
that emerged in the 1880s possessed two main characteristics. It
contained many distinct operating units and it was managed by a
hierarchy of salaried executives.
Rational economic forces determined the timing and place of the
modern multiunit business enterprise. 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. 8 Administrative coordination permitted greater
productivity, lower costs and higher profits than coordination by the
market mechanism. In effect hitherto separate and independent
services, such as wholesaling and the provision of an adequate supply
of the necessary raw materials to keep the production unit going, were
internalised within a single enterprise; but the advantages to be
obtained from this development could not be realised until a
managerial hierarchy had been created. However, once a managerial
hierarchy had been formed and had successfully carried out its
function of administrative coordination, the hierarchy itself became a
source of permanent power and continued growth. As this multiunit
business enterprise grew and its managers became more professional,
management of the enterprise became separated from ownership and
the era of managerial capitalism had arrived. There were, of course,
exceptions that proved the rule, Fords in America, Oppenheimers in
South Africa, but in general salaried professional managers were not
the owners of the new large enterprises that developed in the 1880s.
Moreover, these salaried managers preferred policies that favoured
long-term stability and growth rather than those that maximised
current profits. 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. One
hundred years later the enterprises that emerged in these sectors in the
1880s were still dominant and their names had become household
words. By the second half of the twentieth century managerial
capitalism had become the norm throughout the developed world,

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The Top 100 Companies in South Africa

though in the West, where it was subjected to the ultimate test of the
market, it was far more efficient than in the East, where managerial
capitalism was subject only to the control of a centralised political party.
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. This centralised functionally departmentalised structure
dominated big business for about three-quarters of a century. Then the
increasing complexity of modern business led to decreasing efficiency
and reduced profitability, creating the need for new structures to
coordinate the expanding volume of goods involved. The type of
structure developed in the 1880s, 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. In these newer industries, using more complex
technology, the mass producer, not the mass marketer, took over the
role of coordinating the flow of goods through the economy. Their
coming, like that of the mass marketers who preceded them, depended
upon the completion of the railway and telegraph network; but unlike
the mass marketers (department stores, mail order firms, chain stores
such as A & P and variety stores such as F. W. Woolworth) who
remained essentially entrepreneurial capitalists in which ownership was
not separated from control, the new mass producers were the pioneers
of managerial capitalism. They adopted the continuous process
machinery and built the factories in which material flowed continuously
from one stage to another, with enormous increases in productivity.
The Bonsack cigarette-making machine revolutionised the making of
cigarettes and the two firms that first adopted it, Duke in the USA and
Wills in England, very quickly dominated the industry in their
respective countries. Procter & Gamble's crusher for soap-making led
to their having the same impact on the soap industry, and Eastman's
photographic negatives led to his dominance of the photographic
industry. 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. In the process cost, capital and financial accounting were
perfected.

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, costs were massively
reduced, enterprises grew very large very quickly, and a pattern of
reduced competition by two or three oligopolistic producers became
established. This coming of the visible hand made possible a threefold
reduction in costs. It reduced transaction and information costs, 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. 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, such as the bulk storage and movements of petroleum
products, refrigeration facilities or specialised servicing facilities for
machines. Rockefeller in oil, Armours and Swifts in meat packing,
Singer in sewing machines and McCormick in harvesting machines
dominated their industries within a decade and became household
names in America. '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.' 11
The continuous process technology, the needs of perishable goods
and machinery requiring specialised marketing services had led to the
creation of huge enterprises, nearly all of which had adopted a
centralised functionally departmentalised structure - the U form - to
manage their enterprise. This type of structure brought great profits and
efficiency for about three-quarters of a century. In the 1950s these old
centralised firms experienced drastic declines in their profits, as a result
of growth creating such complexities that it began to overwhelm their
managers. These administrative problems occurred when the original
enterprise either (i) entered new markets or (ii) diversified into new
products. According to Chandler, a 10 per cent increase in business
resulting from diversification led to more administrative problems than
a 100 per cent expansion of the existing business. 12 With diversification, 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. Having neither
sufficient time nor information, they were unable to carry out their
essential managerial functions, the allocation of resources for future
production and distribution. Unless a change in strategy was accompanied by a change in structure inefficiency followed.

138

The Top 100 Companies in South Africa

This change in structure was the adoption of the M form, the

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

Stuart Jones

139

machinery, oil, chemicals, foodstuffs, they emerged in the 1880s and

very quickly became dominant. One hundred years later in the 1980s
such firms have tended to cluster in the same industries.
These new large firms came into being by integrating mass
production with mass distribution for the first time in history. They
internalised the wholesale function within the enterprise and financed
their expansion out of their large cash flows. 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. 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; 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. 13 For
example, by the 1880s American tobacco was producing 6000 million
cigarettes a year and Armour and Swift were butchering 7 million
cattle, and Singer producing 20000 sewing machines a week. Volume
distribution of meat, beer, fruit, and so on required massive
investment in refrigeration facilities, volume distribution of oils and
chemicals required massive investment in specialised tankers and
storage depots, and volume distribution of machines required massive
investment in trained personnel to market and service them. In all
these cases the mass manufacturer had nore incentive and more
resources to make this investment than had the traditional wholesaler.
In the science-based industries specialised knowledge was required
that was unlikely to be possessed by ordinary wholesalers. In these
large firms that emerged, 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.
In barely a generation these large firms had come to dominate a
significant portion of the American economy. Often, too, they were
multinational and were able to transfer abroad the skills they had
learned in America. Anti-trust campaigns by populist politicians had
little effect upon their progress because of their competitiveness and
efficiency. The oil and tobacco semi-monopolies were broken up but
the vask bulk of the large firms survived and, with the progress of
technology, they steadily embraced an increasing proportion of the
American economy. Xerox, in the second half of the twentieth

140

The Top 100 Companies in South Africa

century, merely reproduced the success of Eastman Kodak

three-quarters of a century earlier. Ultimately it has been technological progress that has been the driving force behind the emergence of
the very large industrial enterprise. 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, though a number of new industries, such as photocopying,
computers or aircraft, has joined their ranks.
NATIONAL COMPARISONS
The very large firm that emerged at the end of the nineteenth century
quickly extended its horizons beyond national boundaries. 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. 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, the modern
industrial corporation has nevertheless reflected national differences.
The United Kingdom, for instance, had shown pronounced strength in
consumer goods and Germany in producer goods, with American
strength in both. American subsidiaries have tended to dominate
certain industries throughout the world; agricultural machinery, office
machinery, sewing machines, telephone equipment, lifts and printing
presses, in all of which the United States was the pace setter in the
1880s. Establishing a head start was clearly a major factor in
determining the pattern of world industrialisation in the twentieth
century.
Chandler has deduced four major general conclusions about these
large industrial corporations, which need to be emphasised. 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.
2. 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.
3. Such non-manufacturing investment initially appeared when new
technologies permitted manufacturing establishments to produce
an unprecedented volume of goods for distribution, which occurred

Stuart Jones

141

in the 1880s with the completion of modern transport and

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

142

The Top 100 Companies in South Africa

firms, but it was the internalisation of the functions of the former that
was one of the major characteristics of the multiunit, very large firm
that emerged in the 1880s. Nevertheless, we can obtain some idea of
relative similarities and the major contrasts by looking at the pattern of
the largest enterprises in South Africa, Britain, Germany and
America.
The outstanding feature of the 200 largest firms in the United
States in 1973 is how little change there has been since 1917. The very
large firms have clustered in food, chemicals, petroleum, metals and
machinery (Table 8.1). Within these categories some small changes
have occurred as a result of mergers and take-overs among the very
large firms. In this way, for instance, the number of firms in primary
metal working and fabricated metal working has been reduced, but
Table 8.1

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, 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

10

Source: A. D. Chandler, Jr, 'Comparative Business History', in D. C.

Coleman and P. Mathias (eds) , Enterprise and History (Cambridge:
Cambridge University Press, 1984), p. 17.

Stuart Jones

143

against that can be set the increase in the number of firms making
electrical machinery. The only persistent decline has been among
industries processing the products of American fields, in food and
tobacco production, as a result of mergers; and in leather and textiles,
as a result of not growing as swiftly as the newer more technologically
oriented industries.
Table 8.2 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, 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

18
3

o
o

24
3

4
5
11
3
3

5
10
9

2
35

3
3

6
7

15
3
2

7
18
14
1
4

5
28
8
7
13
22
4
3

200

200

200

8
11
20

o
o

18

4
10

o
7
7

21
8
6

16

14
7
26
14
16

3
1
2

200

Source: A. D. Chandler, Jr, 'Comparative Business History', in D. C.

Coleman and P. Mathias (eds) , Enterprise and History (Cambridge:
Cambridge University Press, 1984), p. 22.

By comparison with the United States, the largest firms in Britain

(Table 8.2) 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. During the half
century after the First World War, the number of very large firms in

144

The Top 100 Companies in South Africa

food processing almost halved and in textiles they more than halved.
In primary metal processing a similar reduction occurred, though most
of this took place in the depressed 1920s. The modernisation of the
British economy revealed itself in the doubling of the number of firms
in the chemical and petroleum industries, and in the trebling of the
number of very large firms fabricating metal and making machinery.
Compared with the United States and Germany, Britain was dragging
her feet in the electrical industry and was possibly overcommitted to
transportation equipment. The relative decline in the dominance of
food processing firms in Britain has been a feature of the second half of
the century.
Germany has traditionally been strong in producer goods and this is
at once apparent in Table 8.3. Primary metal working, machinery,
electrical machinery and fabricating metal accounted for half the very
large firms in 1913. Sixty years later the number in the last three
categories had increased, reflecting the post Second World War
economic expansion in Germany, with its great strength in mechanical
and electrical engineering. Consumer goods of the perishable variety
held their own, but in textiles there was a sharp drop in the second half
of the century. Neither Germany nor the United States show
comparable strength to Britain in printing and publishing before 1953,
but since then this particular industry has made great strides in
Germany, where six of the largest 200 firms now fall into that
category. No printing and publishing firm has ever reached the top
200 in the United States, 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.
South Africa's industrial base is much younger than those of Britain,
Germany and the United States and, as yet, much narrower. This no
doubt reflects the small size of the market and the prevalence of an
open economy until the 1960s. South Africa is unusual, too, in the
degree of foreign ownership of large portions of secondary and tertiary
sectors of the economy. In particular, South Africa has been unique in
permitting foreign ownership of financial institutions. This is now
ending, as the banks and insurance companies pass into South African
ownership. Along with this development an increasing proportion of
the secondary sector is now subject to local control. However, while
the old order persisted, the drive to industrialisation was retarded, as
so many of the vested economic interests stood to gain more from the
continuance of the open economy. Only in the 1930s, and then for
nationalistic reasons, did the country seriously embark upon a policy

Stuart Jones

145

Table 8.3 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, 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. D. Chandler, Jr, 'Comparative Business History', in D. C.

Coleman and P. Mathias (eds), Enterprise and History (Cambridge:
Cambridge University Press, 1984), p. 23.

of sustained industrialisation. This was further boosted by the Second

World War and the need for import substitution and then actively
promoted by Nationalist governments since 1948. Some time,
therefore, in the second half of the twentieth century, South Africa
arrived at the stage where its secondary manufacturing sector placed it
among the industrial countries of the world.
Unlike America, though, 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, 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. In this respect, with its over-large

146

The Top 100 Companies in South Africa

primary sector the South African economy has remained structurally

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

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. 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. Such enterprises have been
put into the diversified/conglomerate category in Table 8.4, even
though by international standards their size is often very small. Also
because the South African Top 100 includes stores and building and
construction firms I have added these, together with sundry transport
undertakings, varying from car and lorry distribution and sale to Cape
Table 8.4 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, clay, 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
1
1
8
2

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

4
2
7

Source: Financial Mail 29 October 1965, 6 June 1975 and 24 May 1985; and
Stock Exchange Handbooks 1967-1984.

148

The Top 100 Companies in South Africa

Tramways and Putco as categories 22, 23 and 24, following the

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

Stuart Jones

149

no significant change had yet takes place in the production of building

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

150

The Top 100 Companies in South Africa

firms, which had numbered twenty-two in 1964 had fallen to fifteen in

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

Stuart Jones

151

and a reduction in the number of firms competing with one another.

This trend has occurred because of the continued growth of very
large multiunit or multidivisional firms, which from its very first
appearance in the last quarter of the nineteenth century looked
beyond narrow national frontiers to a world market. Britain,
Germany, France and South Africa have all been following in the
steps of the United States, 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 development of managerial capitalism, with all the key
decisions being made by trained top and middle management, marks,
on the one hand, the final separation of ownership from control and,
on the other, the death knell of old-fashioned Marxist views from the
nineteenth century about the inevitability of revolution and increasing misery, because managerial capitalism has introduced a new level
of efficiency into the economy. 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, and has made possible the
conquest of poverty on a global scale. Ownership of the capital
involved is not yet irrelevant, but it may become so in the future, for
the decisions of middle and top managers in very large multidivisional firms will not differ according to ownership, save when
short-sighted politicians interfere. 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.
In South Africa, the progress of managerial capitalism has been
impeded by a number of different factors. Among these are the small
size of the market, 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, leading to the misuse
of land, the blocking of capital within the country and rigidities in the
labour market. 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, Germany or the United States.

152

The Top 100 Companies in South Africa

Yet within these very obvious and very serious limitations, the
progress of industrial concentration is following a similar path to that
of the large corporations in America, Britain and Germany. In 1984,
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. To an extent, therefore, the two decades
after 1964 in South Africa seem to resemble the two decades after 1880
in the United States. 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. America
historically impeded the movement of capital by its peculiar banking
laws, but the emergence of three or four large banks has been a feature
of Britain, Germany and South Africa; and in all four countries large
insurance companies have emerged, though it is only in South Africa
that these have become major shareholders in banks and owners of
huge industrial enterprises. 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. Between 1964
and 1984 the number of food firms in the Top Ten was reduced by one
and department stores were eliminated, while the number of firms
working with metal rose from two to three of which two, Barlows and
C. G. Smith, were new entrants since 1964, and one, Stewarts and
Lloyds, dropped out; and two of the Top Ten are now in chemicals and
oils, Sasol and AECI, neither of which existed in 1964. Food
processing, tobacco, engineering and chemicals were the same
industries that experienced transformation in the United States in the
decades after 1880. There is, therefore, every reason to think that
general economic laws are at work here and that, notwithstanding all
the political ideology masquerading as scholarship, the South African
experience is not so very different from that of other market
economies in the late twentieth century.

Notes and References

1.

2.
3.

Alfred D. Chandler, J r, 'Comparative Business History', in D. C.

Coleman & Peter Mathias (eds), Enterprise and History: Essays in
Honour of Charles Wilson, Cambridge, 1984, p. 3.
Ibid., p. 4.
Alfred D Chandler, Jr, The Visible Hand: The Managerial Revolution in
American Business, Cambridge, Mass., 1977.

Stuart Jones
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.

153

Alfred D. Chandler, Jr, 'Comparative Business History', p. 20.

Ibid.
Ibid., p. 26.
Alfred D. Chandler, Jr, The Visible Hand, p. 16.
Ibid., p. 8. Most of the material for this section is taken from the
Introduction to this seminal work.
Ibid., chapter 8.
Ibid., p. 286.
Ibid., p. 289.
Alfred D. Chandler, Jr, 'Comparative Business History', p. 14.
Ibid.
Ibid., p. 25.
Ibid., pp. 24-5.
Ibid., p. 25.

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

155

156

Multinational Corporations in SADCC

in South Africa have already been widely documented, I particularly in

the context of Codes of Employment and international sanctions.
Thus it was decided to limit the framework of this paper to SADCC
countries, which can all be described as developing countries.
SADCC is well known as a relatively new organisation, established
in 1979, 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. There are at present nine members, each
of which has been assigned an area of development and research.
These are:
Angola - energy
Botswana - animal disease control and crops research
Lesotho - soil conservation, land utilization and tourism
Malawi - fisheries, wildlife and forestry
Mozambique - transport and communication
Swaziland - manpower training
Tanzania - industrialisation
Zambia - foreign aid and a Southern African Development Fund
Zimbabwe - food production and distribution
All these countries are signatories of the Lome Convention, the trade
and aid agreement between the European Economic Community
(EEC) and sixty-five African Caribbean and Pacific countries (ACP),
and of the Preferential Trade Area (PTA) with nine East African
countries. Moreover, Botswana, Lesotho and Swaziland are members
of the Southern African Customs Union together with South Africa.
Although it appears unlikely that SADCC will succeed, in the
foreseeable future, in decreasing their dependence on South Africa,
their economies will undoubtedly benefit from cooperation in trade,
transport and research, provided that South Africa's policy of
destabilisation ceases in the new climate of political reform. 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. 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 countries.
With regard to South Africa's position vis-a-vis SADCC, it would
be to her advantage to encourage such an organisation, knowing that

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. Unfortunately, strong pressure groups within the country resent
foreign competition and may well influence the public into regarding
SADCC as a threat. These groups forget the beneficial effects of 'the
cold wind of competition' as it has been called, in other words,
competition could lead to an increase in the efficiency of local producers
and an improvement in consumers' choice. If Spain and Portugal had
been inordinately afraid of competition, they would not have entered
the EEC in January 1986.
MULTINATIONAL CORPORATIONS
Terminology

The terms 'multinationals' and 'transnationals' are used widely and will
be used here synonymously. Current literature favours the former
whilst the United Nations Centre for Transnational Corporations
prefers the latter. Some authors argue that there is an important
difference between the two: that while transnationals have their parent
company in a specific home country, multinationals have no such base,
but operate equally in many countries. This is indeed a rare occurrence.
Characteristics of MTN

MTN will be defined here in a broad sense to include any enterprise with
production locations in more than one country. Production includes
goods and services. In the current literature, more stringent definitions
are sometimes used, for instance regarding the size of the company, its
ownership pattern and so on.
The foreign subsidiary is owned (either wholly or in a large part) by
the parent company which has its headquarters in the home country.
Moreover, 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. A MTN must not be confused with international
portfolio investment, where individuals or financial institutions simply
buy shares in foreign companies.
There are great variations in the characteristics of MTNs, their
development, modes of operations, amplitude and activities. Ownership arrangements also vary and the parent company may share the

158

Multinational Corporations in SADCC

ownership of the subsidiary with local residents, corporations or the

foreign government. Increasingly, host governments in Third World
countries favour joint ventures. Under the Third Lome Convention
of 1985, 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.
The long-term aim of companies which expand into foreign
countries and thus become multinational is profit maximisation and
investments security. Many factors will influence large corporations
into going abroad: cheap land or labour, closer contact with valuable
customers, sources of supply, low taxation rates or transport costs, the
need to avoid new trade restrictions, etc. In most cases, companies
that become MTN already have an export branch and overseas
contacts. Although all businesses carry risks, MTNs undertake greater
risks (although at the same time they diversify these risks), and a
careful examination of all aspects of the venture is normally carried out
before taking such a decision. Partly because of these risks, and partly
because a corporation requires large resources in order to become a
MTN, they tend to be large organisations.
Table 9.1 illustrates the importance of some of the largest MTNs.
Although it is debatable whether Gross National Product is comparable to MTN sales, it is nevertheless interesting to consider these data.
Other comparisons such as employment, are more likely to be
misleading.
Problems

The most controversial aspect of MTNs is probably that of their effect

on developing host countries. Broadly speaking, they may benefit or
damage the host country's output and employment, balance of
payments and government revenue. Other problem areas are the
transfer of technology and labour organisations. It is risky to
generalise. If MTNs establish subsidiaries where there is a gap, i.e.
where it is impossible or difficult for local nationals to set up a
profitable enterprise, then it can be assumed that the host country's
output and employment will be enhanced. On the other hand, if the
MTN displaces local companies, the opposite will be the case.
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. Many host countries' governments
welcome MTNs in the hope that through taxation, there will be a

159

Jacqueline Matthews
Table 9.1

Ranking of countries and multinational corporations according to

size of annual product, 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)

2639.1
1208.0
1053.9
758.5
601.5
476.9
359.2
267.8
255.1
243.8
195.7
155.7
153.3
147.1
139.6
137.6
121.3
114.3
110.4
109.6
101.4
89.0
77.3
73.5
71.8
71.6
70.6
66.3
63.7
61.6
61.5
58.4
57.7
56.9

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;aise des
Petroles
ITT
VEBA
Portugal
Hungary
Petroles
de
Venezuela
All other developing
countries: less
than

56.6
52.2
51.2
50.9
48.1
46.3
40.5
39.9
37.3
37.2
37.1
32.5
31.6
28.4
27.8
26.2
25.5
25.5
24.5
24.2
24.1
23.9
23.8
23.1
22.4
20.6
19.7
19.7

Source: Gross national product figures from the World Bank Atlas
(Washington, DC: World Bank, 1983). Corporate sales figures from United
Nations, Department of Economic and Social Affairs, Transnational
Corporations in World Development; Third Survey (New York): United
Nations, 1983) Annex table 11.31; and World Development Report 1980.

160

Multinational Corporations in SADCC

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

Jacqueline Matthews

161

according to MTN policies and the definition of 'the best managerial

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

162

Multinational Corporations in SADCC

chapter will therefore be limited to the geographical distribution of

MTNs in the region.
In the current literature, attention is generally focused on MTNs in
developing countries, probably because of the widespread interest in
North-South relationships. However, Table 9.2 shows that MTNs
operate far more extensively in developed areas. Only about a quarter
of some 98000 affiliates were situated in Third World countries in
1980. Although not noticeable in this table, another development is
the growth of Third World MTNs, i.e. MTNs with parent companies
situated in developing countries. Only Hong Kong, Malaysia and
Singapore feature in Table 9.2, but increasingly countries such as India
are home countries to MTNs.
Table 9.3 lists the main home countries with MTNs operating in
Africa. It may be noticed that South Africa is not listed although in the
publication from which the data was taken,4 South Africa is considered
a Developed Market Economy. Since South African investment in
neighbouring countries is well known,s it is therefore surprising that it
does not appear in Tables 9.3,9.4,9.5 and 9.7.
One of the reasons may be as follows. It is not always easy to
determine the country of origin of a MTN because of the complexity of
financial arrangements. This is explained by D. G. Clarke when he
considers 'the problematic definition of country of origin' in a study of
MTNs in Zimbabwe. 6 He writes:
the largest number of foreign firms was of UK origin (184 of the 293
noted) whilst 62 were American, 6 Canadian, and only 43 South
African. 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. A further aspect is that there were large numbers of
British firms with South African subsidiaries and/or associates.
Consequently, the definition British or South African is neither
clear nor in all instances a correct or useful one to draw.
Table 9.4 shows MTNs subsidiaries in SADCC countries, relative to
all developing countries. The absence of data for British MTNs
operating is Lesotho may be puzzling at first, but this is explained by
the fact that these will be negligible compared to British MTNs in the
Third World as a whole.
Table 9.5 clarifies this point: considering foreign subsidiaries in
SADCC countries, 0.1 per cent of British MTNs operating in African

Jacqueline Matthews

163

developing countries, are in Lesotho. Zimbabwe has the largest

share, 19.3 per cent of British MTNs operating in African developing
countries are in this country. Let us bear in mind the point made
earlier about the difficulty of establishing the country of origin of an
MTN.
Table 9.6 shows the distribution of foreign affiliates of MTNs from
selected home countries among host developed market economies.
Data for South Africa have been underlined. The high figure for
Australian MTNs in the Republic has been attributed to an insurance
company, National Mutual.
Finally, Table 9.7 looks at each of the SADCC countries and the
relative importance of the home countries from which MTNs operate. MTN in Lesotho being relatively negligible, this State was not
included.
ATTITUDE OF SADCC COUNTRIES TO PRIVATE
FOREIGN INVESTMENT
Considering the problems inherent in the establishment of MTNs in
developing countries, it is of interest to consider the reaction of
SADCC countries to MTNs.
A recent Economist Intelligence Unit ReporC states that all
SADCC countries encourage private foreign investment, whether
they are labelled capitalist or Marxist, and they have both private and
public sectors operating in the economy. Several of the SADCC
members offer incentives to attract MTNs from abroad, and most of
them have signed agreements with the US Overseas Private Investment Corporation (OPIC) mentioned above, to give protection to
MTNs against nationalisation and non-convertibility of dividends.
According to this report, most States prefer joint ventures and
favour the involvement of the dominant parastatal company. If
advanced technology is involved, a greater degree of foreign control
is allowed. Preference is given to firms using local resources and
which export their products, 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.
The control of SADCC countries on foreign MTNs are farreaching on remittances of profits, dividends, wages and prices.
There are, of course, taxes and import tariffs, and some decisions
require government sanctions.

19.8
72.2
74.4
39.7
73.3

80.5
58.0

68.2
63.0
19.5

8.7
6.2
5.2
34.9
7.3

11.4
8.2

9.0
7.4
17.1

Australia
Austria
Belgium
Canada
Denmark

Finland
France
Germany, Fed.
Rep. of
Italy
Japan

Home country

Europe

5.2
3.5
5.2

1.2
3.3

27.9
2.8
2.2
8.1
4.9

Other
a

82.4
73.9
41.8

93.1
69.5

56.5
81.2
81.8
82.7
85.5

9.2
15.0
13.4

3.2
7.7

1.7
9.8
6.1
12.6
4.9

Latin
America

Host region

Subtotal

Developed market economies

1.3

3.0
6.7
2.2

1.6
18.7

3.5

0.7
1.2
9.7

Africa

0.8
1.1
0.8

1.2
1.1

0.7
3.5
0.6
0.4
1.0

West
Asia

4.4
2.6
41.7

0.8
2.9

40.5
3.5
1.5
2.8
4.9

0.2
0.7

0.1

0.8
0.2
0.2
0.2

South and
East Asia Europe

Developing countries

17.6
26.1
58.2

6.9
30.5

43.5
18.8
18.2
17.3
14.5

100.0
100.0
100.0

100.0
100.0

100.0
100.0
100.0
100.0
100.0

Subtotal Total

Distribution among regions of foreign affiliates of companies from selected home countries (percentage)

North
America

Table 9.2

.s:..

a-,

1.0
4.5
5.6
26.5
9.7
9.1

24.9
10.9
6.2

62.1
73.1
72.7
35.2
42.6

56.9

16.3
29.1
8.7

2.4
9.4
8.1
14.1
12.9

Spain
Sweden
Switzerland
United Kingdom
United States

Average (Developed
Market Economies) 9.2

Hong Kong
Malaysia
Singapore

44.8
40.0
16.8

76.1

75.8
65.3

65.5
87.0
86.5

90.8
82.2
76.7
86.2
57.2

4.3
2.3
1.2

9.6

27.7
7.1
6.9
4.7
21.4

7.9
6.7
0.9
3.6
21.4

19.5
2.3
0.5

4.9

7.7
2.3

4.8
1.3
1.7

0.7
5.0
0.4
3.0
21.4

0.3

0.9

0.5
0.8
0.9
0.9

0.2
1.9

1.1

31.0
55.4
81.5

8.4

2.1
4.0
4.0
10.4
10.0

0.7
5.3
21.5
5.3

23.9

55.2
60.0
83.2

0.1

24.2
34.7

34.5
13.0
13.5

9.2
17.8
23.3
13.8
42.8

0.2

0.1
0.1
0.5
0.1

0.3
0.2

100.0
100.0
100.0

100.0

100.0
100.0
100.0
100.0
100.0

100.0
100.0
100.0
100.0
100.0

Source: Transnational Corporations in World Development; Third Survey (New York: United Nations, 1980), table 11.8.
aAustralia, Japan and New Zealand.

1.9

3.6

0.6
5.0
61.7
2.8

88.8
70.9
10.8
74.6
57.2

1.4
6.3
4.2
8.8

Luxembourg
Netherlands
New Zealand
Norway
Portugal

0\

......

U1

0.3
0.1
3.5
0.8
0.6
0.1
IB.l
4.6
2.2
1.4

5.9
3.1
5.9
2.0
3.5

Finland
France
Germany, F.R.
Italy
Japan

Africa

0.3
0.2
0.9
3.2
0.4

Latin
America

0.4
6.2
7.0
2.1
3.0

0.7
1.1
1.3
1.4
1.1

West
Asia

1.3
3.2
0.4
12.6

7.2
0.1
0.3
0.8
0.4

South and
East Asia

Developing host region

3.2
8.2
5.0

0.4
0.9
1.4
2.7
0.9

Europe

Total

0.1
5.2
4.7
1.5
6.4

2.8
0.2
1.2
1.9
0.5

0.3
4.6
8.6
1.6
1.8

1.4
0.3
2.0
3.5
1.1

0.2
4.8
7.5
1.6
3.1

1.8
0.3
1.8
3.1
0.9

Developed
market Grand
economies total

Distribution of affiliates of transnational corporations by home country within regions, 1980 (percentage)

Australia
Austria
Belgium
Canada
Denmark

Home country

Table 9.3

g;

......

100.0

Total

100.0

100.0

2.0
3.7
26.3
36.6
0.5

5.5
0.1
1.1

100.0

l.3
1.6
25.6
33.5
8.0

2.3
1.0
0.3

100.0

1.4
1.4
56.4
10.9
0.4

6.4
0.4

100.0

1.6
2.0
21.9
42.4
4.0

2.8
0.4
0.2
*
0.3

100.0

3.4
4.2
25.4
34.3
1.9

3.4
5.0
26.8
31.2
1.0
100.0

0.2

4.5
0.5
0.5

5.1
0.5
0.6
*
0.2

Source: Transnational Corporations in World Development; Third Survey (New York: United Nations, 1980), table II 9.
*Less than 0.1.
aHong Kong, Luxembourg, Malaysia and Singapore.

2.1
2.4
10.1
62.2
0.6

0.9
1.5
40.2
15.9
4.7

0.3
0.1
0.2

0.1

0.5

4.6

2.3

Sweden
Switzerland
United Kingdom
United States
Other countries a

Netherlands
New Zealand
Norway
Portugal
Spain

-.]

0\

97.4

100%

96.9

100%

99.7

100%

Total

94.0

100%
100%

98.3

1.7

0.6
0.6

0.7
0.7

6.0

0.3

0.2

0.7

3.9

GER'

DEN*

100%

99.7

0.3

0.1

0.2

FRA*

100%

99.0

1.0

0.1
0.7
0.2

ITA'

100%

99.9

0.1

0.1

JAP'

100%

95.8

4.2

1.1

0.2
0.1
0.3
0.8
0.2
0.6
0.3
0.6

NET'

100%

95.5

4.5

3.0

1.5

NOR'

100%

98.5

1.5

1.1

0.2

0.2

SWE*

100%

99.8

0.2

0.1

0.1

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, 1980) Annex table 11.17. pp. 318-9.

2.6

0.1
2.1

3.1

0.3

0.1

0.3

CAN*

0.3

0.2
0.1

0.3
0.3

2.2

BEL*

Total
SADCC
Affiliates
in other
LDCs

Angola
Botswana
Lesotho
Malawi
Mozambique
Swaziland
Tanzania
Zambia
Zimbabwe

A US'

UK
US

100%

86.0

14.0

1.4
0.3
0.7
1.5
3.1
6.2

0.4
0.4

UK'

100%

96.1

3.9

0.4
0.1
0.2
0.4
0.9
1.6

0.2
0.1

All
countries

Britain
United States

100%

99.5

0.5

0.3
0.2

USA'

Table 9.4 Distribution of foreign affiliates of MTNs from selected home countries in host SADCC countries, among all
developing countries, 1980

......

0\
00

60.7

74.3

100%

100%

88.9

11.1

3.6
4.0

3.2
3.2

25.7

2.2

1.3

GER

16.1

3.2

DEN

100%

99.2

0.8

0.3
0.1
0.2

0.1

0.1

FRA

100%

94.4

5.6

1.9
2.8
0.9

ITA

100%

94.0

6.0

1.5

4.5

lAP

100%

83.7

16.3

2.2

1.3

3.1
0.9
2.2

1.3

4.0
0.9
0.4

NET

100%

NOR

100%

84.5

15.5

2.2
11.1

2.2

SWE

100%

97.2

2.8

1.4

1.4

SWI

100%

55.1

44.9

0.1
4.6
1.0
2.4
4.7
9.9
19.3

1.5

1.4

UK

1.3

76.0
100%

85.9
100%

24.0

1.3
0.8
0.1
2.4
0.7
1.1
2.7
5.6
9.3

All
countries

14.1

5.2
4.0

1.1
0.3
0.5
0.7
0.7
0.3

USA

Source: Extracted from Transnational Corporations (New York: United Nations, 1980) Annex table 11.18. pp. 323-6.
*% omitted because companies from home country concerned have a total of less than 25 foreign affiliates in African developing countries.

100%

94.4

100%

Total

2.6
28.9

0.5

39.3

2.6

5.2

CAN

0.5
0.5

4.1

BEL

5.6

100%

AUS'

Distribution of foreign affiliates of MTNs from selected home countries in host SADCC countries, within African
developing countries, 1980

Total
SADCC
Other
African
LDCs

Angola
Botswana
Lesotho
Malawi
Mozambique
Swaziland
Tanzania
Zambia
Zimbabwe

Table 9.5

\0

,.....

0\

5.2

0.7

1.2
41.9
0.1
0.1
5.1

Netherlands
New Zealand
Norway
Portugal
South Africa

1.9

0.9

0.9
8.6
0.4
0.4
3.3

0.4
5.2
14.1
2.4

0.9
0.4
0.4

0.8
0.9
2.4

0.0
1.1

0.4
5.2

0.9

Ireland
Italy
Japan
Liechtsten
Luxembourg

Finland
France
Germany, F.R.
Greece
Iceland

Australia
Austria
Belgium
Canada
Denmark

11.4
0.2
0.7
1.9
0.9
0.4

5.2

2.1

2.1

2.2
8.0
0.1
0.9
0.8
3.0

1.3

5.0
0.3
7.2
0.6
1.5

3.7
0.8
0.8
0.1
1.6

1.1

1.7
0.4

6.9
11.7

0.4
2.6
2.1
3.9
4.8

0.5
6.0
1.5

1.1

0.4
14.9

1.5
11.4
6.4
2.8
2.0

0.6
2.9

0.3
3.9
0.3
0.3
6.7

4.4
6.0
12.4
0.2

2.6
1.9
3.7
1.7

1.7
1.3
1.0
0.2
0.2

2.5
3.0

0.6

6.2
0.4
1.2

0.2
26.5
14.6
1.2

1.1
1.6

1.1
1.6

AUS AUT BEL CAN DNK DEU FIN

0.7
1.2
1.2

4.7

1.6

1.1

0.6
9.0

14.7
1.0

0.2

2.2
1.5
13.6
3.7
0.8

FRA

3.0
0.1
0.5
0.9
1.1

0.6
0.4
8.0
4.6
1.5
0.2
0.5

1.8

0.4
2.6

0.1
3.3
13.8
0.3

0.1
20.8
13.1
1.5
0.5

10.9
0.4
5.6
6.9
0.3

0.2
1.4

1.8

0.2

1.1

0.2
0.2

0.2
0.2

1.4

77.8

0.7
0.5
1.1

0.6

1.1

1.1

2.3

0.2
10.8
19.9
0.5

2.2
1.5
22.3
1.3
1.3

0.7
0.9

1.7
0.2

1.7

0.7

1.2

0.7

1.7
3.9
8.6
0.4
0.2

1.2

1.7
2.9
2.2
15.8

8.1
1.4

4.4

3.7

0.7
6.6

20.0
13.3

8.1
0.7
3.7

6.0
0.2
9.6
0.9
0.8

0.5

0.5
2.8
1.3

6.6
8.4
11.5
0.2

2.7
2.6
4.0
2.8
10.4

4.5
0.5
0.7
0.8
1.6

8.2
3.8
0.5
0.6
14.7

6.6
1.9
0.6
0.2
0.4

0.2
7.6
6.8
0.3

0.4
12.0
24.1
0.4
0.4
6.8
1.7
0.5
2.8

15.6
0
3.8
8.1
1.2
2.4
5.3
9.1
2.3
1.5

1.2

0.9
0.5
2.5

5.0

1.2
4.2
4.3
0.2
0.5

0.4
7.7
8.5
0.4

4.3
19.7
1.0

1.1

6.7

0.7
5.5

1.2

1.1

5.8
2.2

2.4
3.6
2.1
0.2

0.6
8.5
9.1
0.5

8.1
2.2
5.7
9.4
1.6

All
JPN NLD NZL NOR ESP SWE CHE GBR USA countries

2.8
2.4
5.3
2.3
1.1

ITA

Home country"

Distribution of foreign affiliates of MTNs from selected home countries in host developed market economies, 1980

Developed market economies

Host country

Table 9.6

--.J
0

.......

1428

2474

756

6087

229

3326 1136

7.6
1265

33.9
3591

6.2

Source: Transnational Corporation (New York: United Nations, 1980) Annex table 11.18.
aThe following codes are used to identify home countries:
AUT Austria
BEL
AUS
Australia
FIN
DNK
Denmark
DEU Germany, Fed. Rep.
ITA
Italy
JPN
Japan
NLD
PRT
Portugal
ESP
NOR
Norway
USA
CHE
Switzerland
GBR United Kingdom

208

8.0

2.2
3.1
3.9
14.1

404

7.9

1.4
23.7
2.9
16.5

Belgium
Finland
Netherlands
Spain
United States

348

4.0

12.0

0.2

135

2.9

3.7
22.2

2932

7.9

4.5
12.6

1.9

10.5

1.8
1.8
3.0

2.8
2.0
4.0
19.9

100.0

7.6

3.1
2.2
4.2
11.7

CAN
FRA
NZL
SWE

Canada
France
New Zealand
Sweden

3526 18895 21959 70423g1

7.0

9.1

3.3
1.6

1104

8.2

1.6
0.6
1.8
7.6

100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

8.0

7.5
1.3
10.4
7.4

No. of cases

6.7

9.9
1.3
7.7
14.2

Total

42.1

0.8
27.5
3.4
14.8

5.3

6.0
2.8
10.3
8.3

7.2

1.8
15.4
5.2
16.2

10.2

1.2
0.8
1.4
27.8

7.8
1.1
4.4
5.9

1.4
3.8
14.9
5.2

0.6
0.3
0.8
25.7

Spain
Sweden
Switzerland
United
Kingdom
United States

....-...l
....

'100%

46.6
15.0

3.3

15.0

100%

2.5

76.9
7.6
100%

78.0
5.2

0.8

2.6

0.8

4.3

1.6

5.0

100%

2.7

56.7
16.2

2.7

18.9

2.7

Host countries
Malawi
Moz.
0.8

5.1
2.5

Botsw.

11.6

Angola

100%

100%

100%

73.0
15.2

1.9

0.7

1.1

0.3

1.1

0.3

0.2

0.7
0.3
0.3
0.3
3.4

100%

1.1

0.2
86.8
7.1

1.1

0.4
0.2

2.5

Zimbabwe

Zambia

0.6

73.6
8.0

0.8

2.4
1.6
2.4
4.0

0.8
6.4

Tanz.

1.8

1.8
87.0
5.5

3.7

Swaz.

Source: Extracted from Transnational Corporations (New York: United Nations, 1980) Annex table II.19.
'Because of the rounding-off procedure, the figures given do not always add up to 100%.

Total

Other home countries

Portugal
Sweden
Switzerland
Britain
USA

France
Italy
Japan
Netherlands
Norway

Australia
Belgium
Canada
Denmark
w. Germany

Home countries

Table 9.7 Distribution of foreign affiliates of MTNs from selected home countries in SADCC host countries (except
Lesotho), 1980

......

-.I
N

Jacqueline Matthews

173

Each SADCC country has its own investment rules. For instance,
Angola enacted a law to encourage foreign investment in 1979, and
foreign investments are guaranteed against nationalisation for ten to
fifteen years; there may be tax holidays and exemptions from import
duties. In Botswana, investments of over Pula 10 000 are eligible for
grants under a scheme which began in 1982; where new projects do
not harm local firms in the manufacturing sector, there is a five-year
tax holiday and grants for up to five years for employing unskilled
labour and for training. Licences are required in Swaziland and joint
ventures with local firms are preferred to purely foreign firms. These
few examples illustrate the variety of arrangements which exist in
SADCC with regard to 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'. 8 There are more than 300 foreign firms in the country, and
half of the total capital stock in Zimbabwe is foreign owned: half by
South Africa and about a third by Britain. This casts some doubts on
the data in Table 9.7, but may be explained by the point made by D. G.
Clarke, quoted earlier. In 1981, the Zimbabwe government recognised the vital role foreign investment can play in development and, in
1982, a national development plan was published, assuming that
almost half of all capital flowing into the country would come from the
private sector. However, there remained uneasiness about the
'exploitative nature' of private capital. Since independence, there
have been twenty-three new agreements with foreign firms from a
dozen countries; there has been particular interest in food processing
and assembly of electric motors, bicycles and typewriters.
CONCLUSION
It appears, from the available evidence, that SADCC countries have a
positive attitude towards foreign MTNs and it can be safely assumed
that foreign investment will generally contribute towards development. This does not mean, however, that it will improve income
distribution, which depends on government policies. Thus there can
be no claim that MTN will assist in increasing the welfare of the
people. But the rejection of foreign investment and MTNS, is even less
likely to improve people's welfare. As it appears that SADCC's

174

Multinational Corporations in SADCC

economic situation has recently been causing some concern, it is to be

hoped that SADCC countries will continue to welcome MTNs, since a
reversal of this policy could only hinder further economic development.

Notes and References

1.

2.
3.
4.
5.
6.
7.
8.

For example, C. M. Rogerson, 'Multinational Corporations in

Southern Africa: A Spatial Perspective', ch. 10 in M. J. Taylor and N.
Thrift (eds), The Geography of Multinationals, London, Croom Helm,
1982, pp. 179-220; G. A. Muller, 'Multinational Companies in
South Africa', ch. 8 in J. Matthews (ed.), South Africa in the World
Economy, Johannesburg, McGraw-Hill 1983, pp. 207-35.
Sunday Times, Johannesburg and Sunday Times, Durban, 9 March
1986.
Report published by Pan Books, London, 1980, under the title:
North-South: A Programme for Survival; follow-up: Common Crisis:
North-South: Cooperation for World Recovery, 1983.
United Nations. Centre for Transnational Corporations (CTC).
Transnational Corporations in World Development. Third Survey, New
York,1980.
C. M. Rogerson and G. A. Muller, ibid.
Duncan G. Clarke, Foreign Companies and International Investment in
Zimbabwe, London, Catholic Institute for International Relations,
1980, p. 3.
J. Hanlon, SADCC: Progress, Projects and Prospects, The Economist
Intelligence Unit. Special Report, no. 182. London, 1984, pp. 85 ff.
J. Hanlon, ibid., p. 86.

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. They were
unable to raise sufficient capital in South Africa and sent a deputation
to England to raise the necessary money. The capital was luckily
forthcoming and on 13 October 1862 the Standard Bank of British
South Africa was born.
As the Board of Directors was situated in London, that was where the
new bank's headquarters were. The actual banking activities were,
however, exclusively within Southern Africa. Although the original
idea had been to limit the Bank's activities to Port Elizabeth, the
introduction of the British interest necessitated a wider sphere of
influence. In the Articles of Association the Bank was granted
permission to open branches in Southern Africa in areas under British
rule. This included the whole Cape Colony and Natal.
The first branch was opened at Port Elizabeth in January 1863 and
thereafter Durban and various centres in the Eastern Cape Province.
From 1864 the Western Cape also fell under the Bank's sphere of
influence. Initially each branch acted totally independently, each with
its own board of directors, etc. The records created in this initial stage
are unfortunately very few and far between - primarily as a result of a
shortage of duplicating facilities. There was also really little need to
put too much on paper as a result ofthe autonomy of each office.
The lack of control inevitably led to mismanagement and a number
of managers granted themselves and their friends large unsecured
overdrafts, etc. In 1864, 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.
The first General Manager, Robert Stewart, was an experienced
banker and on his arrival in South Africa made major changes and
tightened the controls considerably. Local boards of directors were
abolished and all branches were henceforth responsible to the South
175

176

The Standard Bank

African General Manager who made Port Elizabeth his headquarters.

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

Barbara Conradie

177

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

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.
These reports increase in volume as the economic activity in South
Africa increases and in 1927 become annual rather than half-yearly.
They were discontinued in 1962 when the South African arm of the
Standard broke away from the London company and acquired greater
administrative autonomy.
The Standard's interests were not confined to the Cape and Natal
only. Even before extending its influence to other areas it had, through
customers, an active interest in events in the Transvaal and Orange
Free State. The minute the Bank heard that the Transvaal had been
annexed as a British territory in 1877, it opened branches there as well.
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. This is when the 'British' was
dropped from the name of the Bank. This move meant that the Bank
could remain in the Transvaal even after independence. Although
local legislation kept the Bank out of the OFS until 1900, the Bank
cooperated closely with the National Bank of the OFS and kept a close
watch on developments in that quarter.
The Standard was the biggest and most influential bank in South
Africa during the last century. It was conservative in its dealings and
stable. It remained while other banks fell by the wayside. Its role in the
economy was substantial. It not only served a wide geographic area,
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.
With improved communications and better public media coverage
on events in South Africa after the First World War, the records
created by the Bank became more and more bank oriented, as general
events are taken more and more as known. The General Manager's
weekly correspondence with England, although continuing until the
1960s, ceases to give details of general economic interest around the
1940s. Telephonic communication, to a certain extent, also limits the
amount of background to the Bank's own reasons for doing things.
For the period 1865 to around the outbreak of the Second World
War, however, the Standard Bank's records undoubtedly provide
valuable, 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.

Barbara Conradie

179

Note

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

Index
AECI (African Explosives and
Chemical Industries), 152
A & P (Great Atlantic and Pacific
Tea Company), 136
accounting, cost, capital and
financial, 136
African, Caribbean and Pacific
countries, 156, 158
Afrikanerdom,16
agency houses, see investment trusts
agriculture
farm incomes, 14
drought, 106, 107
Marketing Act 1932, 14
productivity of, 7, 13, 14,23
Albany District, 48, 51, 56
Algoa Bay, 47,48
Aliwal North, 62
American Celanese, 39
American Tobacco, 139
Amsterdam, 28, 69, 70, 81, 85, 99
Anglo-African Shipping Co., 88
Anglo-American Corporation, 12,
22, 87, 114, 151
Anglo-American Industrial, 148
Anglo-Persian Oil Co., 39
Angola, 156, 168-9, 173
Apartheid, 18
Argentina, 159
Armaments Corporation, 146
Armour & Swift, 137, 139
Armscor,30
Asbestos, 95
Atlantic Richfield, 159
Australia, 159, 163, 164-5, 166-7,
170-1,172
Austria, 159, 164-5, 166-7, 170-1
automatic tellers, 128
bank
definition by 1965 Act, 115
definition of by Bob Hope, 27
bank rate (official discount rate),
106,107,108,111

bankers
Continental, 29
Jewish, 29, 30
private, 4
banking
amalgamation movement, 15
in Cape Colony, 5
changing functions, 115, 121-128
classic functions, 4
commercial, 113-131
marketing of, 127
networks, 4
origins, 114
statutes relating to banking: 1942
Bank Act, 122; 1965 Bank
Act, 115, 116, 117, 120, 122;
1968 Bank Act, Limitation
and Disclosure of Finance
Charges Act 1968LADOFCA, 118123; 1972
Amendment to Bank Act,
118; 1979 Bank ActAmendment to 1968 Act,
123; 1985 Bank Act, Financial
Institutions Amendment Act
1985, 120, 121
structure, 114
banks
central banks: Bank of England,
22,29; Netherlands Bank, 69;
South African Reserve Bank,
16,22,88,94-5,105-11,115,
116,117,118,119,120,
125-6, 128, 129
commercial banks, alphabetically:
Algemene Bank, 75, 76, 78;
Bankorp (see also Trust
Bank), 114, 124; Barclays, 16,
18,77,98,114,124,127,129;
British Kaffrarian Bank, 58;
Cape of good Hope, 5, 50;
Chase Manhattan, 130;
Commercial Bank of Zambia
Ltd, 74, 86; Continental

181

182

Index
Illinois, 74; Cradock Union
Bank, 58-9, 62-4; De
Haagsche Commissiebank,
72; in Eastern Cape in 1860,
58; Eastern Province, 5, 47;
Eastern Province Bank
Foundation, 50-1; Eastern
Province Bank, early
dependence upon
shareholders, 54; Eastern
Province Bank, early years,
1839-50,51-5; Eastern
Province Bank, assets, and
liabilities in the 1840s, 52;
Eastern Province Bank in the
1850s, 55-8; Eastern Province
Bank, assets and liabilities in
the 1850s, 57; Eastern
Province Bank in the 1860s,
59-65; Eastern Province
Alliance Bank, 62-3;
Frontier, Commercial and
Agricultural Bank, 55, 62,
64-5; GraaffReinet Bank,
56; Hongkong & Shanghai,
31,44; Imperial Banks, 10,
61-2,66; London and
Westminster Bank, 51;
Morgan Guaranty, 74, 76;
Natal Bank, 11; National
Bank of South African
Republic, 11; Nedbank, 22,
69-103, 124, 127-9; Nedbank,
acceptance business, 88-9,
93-4,98; Nedbank, advances,
87-8, 93, 98; Nedbank,
assets, 70-1, 83,114;
Nedbank, balance sheet,
71-3; Nedbank, becomes a
South African corporation,
71; Nedbank, branches, 83;
Nedbank, capital, 71-3, 75,
79,81-2; Nedbank, deposits,
84, 144; Nedbank, discounts,
88-9,92,94,98; Nedbank,
letters of credit, 88-9, 98;
Nedbank, liabilities, 83;
Nedbank, opening in
Pretoria, 69; Nedbank

International, 85;
Netherlands Bank of
Rhodesia, 74, 86;
Netherlands Bank in South
Africa, see Nedbank above;
Oriental Bank, 58, 65; Port
Elizabeth Bank, 55, 58, 62;
Port Elizabeth Commercial
Bank, 58; Security Pacific,
130; Societe Hollandaise de
Banque S.A., 72; South
African Central Bank, 58;
Standard, 8,10,61-4,77,98,
114,124,127-9,175-8;
Standard Bank, General
Manager's weekly letters and
half yearly and Annual
Reports to England, 176--8;
Standard Bank, separation
from London, 178; Standard
Bank, Inspectors' Reports
1866--1910, 176--7; Standard
Chartered, 22; Transvaalsche
Handelsbank, 69; Trust
Bank, 77,116,124; Volkskas,
18,22,70,77,114
Commercial banks, business;
acceptances, 93, 122;
advances, 93; assets, 92, 114,
122; branches, 114; capital,
51, 60-2, 81; credit controls,
94,117-18; deposits, 52, 55,
57-8, 114, 121-3; discounts,
53-5,58,60,63,65,92,122;
excess liquidity, 117;
liabilities, 92; note issues,
52-4,57,61-2
general banks; Credcor Bank,
124; Lease Plan
International, 124; Nedfin,
124; Nefic, 124; Neficrho, 86;
Western Bank, 124;
Santambank, 124; Stannic,
124; Syfrets, 124;
Hire purchase, 117, 122
merchant banks, 117, 121, 124,
126: Amsterdamsche
Goederen-bank NV, 72;
Bank Handlowy, 98;

Index
Bankierscompagnie NV, 74;
Barings, 28-9, 31, 34-5; Bank
en Assurantie Associate NV,
74; British, 28; German, 42;
Goldschmitts, 30; Hambros,
30--1,34-5; Heine, 30;
Mathesons, 31, 34; Mees en
Hope Groep NV, 74-6, 78;
Mees, R. en Zoonen, 74;
Mesdag en Groeneveld, 72;
Morgan Grenfell, 31, 35;
Nardoni Banka
Ceskolslovensla, 98;
Nederlandse Overzee Bank
NV, 72-4; Nedeurope, 75;
Netherlandsche Bank voor
Zuid-Afrika NV, 72;
Nederlandsche Handel
Maatschappij, 75; Nefic, 89;
Nefic Acceptances Ltd, 89;
Parish, 28; Rothchilds, 30, 34;
Schroders, 31, 44;
Slovenskatatra Bank, 98;
Statni Banka, 98; Steiglitz,
28,30; Theodoor Gilissen
NV, 72; Twentsche Bank, 75;
Union Acceptances, 87, 89;
Zivnostenska Banka, 98
mortgage banks; Eastern Province
Guardian Loan and
Investment Company, 58
Barberton, 34
Baring, Sir Francis, 28-9
Barlows (see also Barlow Rand), 148
Barlow Rand, 149-50, 152
Barnato, B., 7
Bedford,62
Beit, A., 7
Belgium, 85,159,164-7,170--2
Benson, Robert (see also
investment),36-9
Black, James, 51
Black socialism, 17
Boer Republics, 6-7
Boesak, A., 23
Bonsack cigarette machine, 136
Botswana, 156, 168-9, 173
Brandt Commission, 161
Brazil,159

183

Bretton Woods System, 125

Britain, 140-4, 146, 151-2, 159,162,
164-7,170--2,176
British
Celanese, 39
Petroleum, 159
Portland Cement, 38
Thomson, Houston, 38
Westing House, 38
Brugger, c., 85
BSA (Birmingham Small Arms), 38
Buenos Aires, 40
building societies, 122-3, 127-8
great expansion, 1978-80, 127
Bulgaria, 159
butter, 47
Calcutta, 39
Canada, 159, 162, 164-7, 170--2
canned fruit, 95
Cape Colony, British occupation, 2
Cape Town, 3, 47, 50--1, 69
Cape Tramways, 146
capital, formation, 7, 9-10,12
capital, venture, 27-8, 31-2
capitalism
Afrikaner, 16-17
commercial, 134
entrepreneurial, 136
managerial, 8, 134-6, 151
market, 14,47, 106, 110--11, 120
modern, 2
private, 6, 19-20
state, 6, 16, 19-22, 141
Western, 1,2
capitalist
economic development, four
phases, 2, 3
economic organisation, 1
enterprise, 7, 11, 19,25
entrepreneurs, 7
Carnegie, Andrew, 136
Carter, E., 73
cash crops, see wool, butter, hides,
skins, canned fruit
Caucasian Company, 35
Chadwicks, Adamson & Collier, 31
Chandler, Alfred D. Jr, 8,133-4,
137-8, 140, 142-3, 145

184

Index

China, 159
Clarke, D. G., 162, 173
Cock, William, 50
codes of employment (see also
Sullivan Principles), 156, 161
Columbia, 159
Combined Shipping, 87
Compagnie Francaise des Petroles
159
'
Compagnie d'Importation de Laine
95
'
Companies Act, 116
computerisation, 128
confirming houses, 88
conglomerates (see also holding
companies, investment groups),
147-50, 152
consumer boom, 1984, 107
copper mining, 35
Cradock, 56-7
Credit cards, 122, 126
credit control, 108-110,117,123-4
credit creation, 115
Credit Guarantee Insurance
Corporation, 87
Cronje, DrF. J. c., 73, 76
Cullinan Holdings, 148
currency
convertibility, 125
coins, 49, 50, 53
bills of exchange, 49, 60
promissory notes, 49, 52-4, 56,
60-1
Rix Dollar, 49
Czechoslovakia, 159
Datsun-Nissan, 148-150
De Beers Industrial, 148
debenture issues, 124
decentralisation, 17
de Kock, G., 120, 129
de Kock, M. H., 119
de Kock Commission, 105, 119,
125-6, 128
Denmark, 159, 164-7, 170-2
Dewavrin A., Fils, 95
diamonds
capital formation, 7
discovery of, 4, 5, 176

as a product, 95
discount houses, 117 121
disintermediation, 122
disinvestment, 130
diversification, of banking functions
124
'
Dommisse, J., 81
Duke, J. B., 136
Du Pont, Pierre, 138
Durban, 3,175
Dutch East India Company, 1
East, the 136,
Eastern Cape, 50
banking in, 54, 58, 175
Eastern Europe, 141
Eastern Province (see also Eastern
Cape),prosperityin, 48-9, 55
East Germany, 159
East London, 6
Eastman, George, 136
Eastman-Kodak, 140
Eckstein, Frederick 41
Eckstein, H., 7
economic growth, 23, 65, 110
economic organisation efficient 1 4
23-4
' , ,
Economist, The, 32
education
in Natal, 18
national structure, inadequate, 17
electronic transfer networks 128
ENI,159
'
entrepreneurship, 122-4
Escom, see infrastructure
Esso (see also Exxon), 138
Euromoney, 129
European Economic Community,
73,85,156-7
code of employment, 161
exchange control, 86, 94, 106, 113
125,147
'
exports, of South Africa, 84, 90, 176
Exxon, 159

factoring, 124, 126

F~derale Volksbelegging, 149
Flat, 159

Index
financial crisis of the 1860s, 59
Finland, 159, 164-7, 170-1
firm
structure of, M form, 138
structure of, U form 136--7
first industrial revolution, 135
First World, 141
fiscal policy, 107-8, 110-11
Fleming, Robert (see also
investment trusts), 36, 38-9, 43
Ford, Henry, 135
Ford Motor, 159
foreign investment, 23
Fort Beaufort, 57,62
Fortrade Group, 87
forward exchange rate market, 126,
129
France, 151, 159, 164-7, 170-2
Frankel, S. H., 10
Franszen Commission, 77,114,124
Frontier Wars
sixth, 50
seventh, 52-3
eighth, 56
General Electric, 159
General Mining, 87
General Motors, 138, 159
General Sales Tax, 107-8
Ghana, 17
Godlonton, R., 62
gold mining
booms, 8, 32
early company formation, 8
East Rand, 12, 18
exploration companies, 9
Free State Gold Fields, 13, 18
investment in (see also investment
groups), 2, 7,10,12,18-20,
32,41-3
MacArthur cyanide process, 8
output, 8,9, 19,37
at Pilgrim's Rest, 31
Rand, 32, 176
taxation and contribution to
government revenue, 12
West Rand, 12
Western Deep Levels, 2

185

gold price
fall, 106--7, 129
rise, 19, 129
Goldschmidt, H. & Co., 88
Gold Standard, abandonment by
South Africa, 12
Gooch, A. R. & Co., 65
Gottheimer, Albert, 31, 42
Graaff Reinet, 56--7
Grahamstown, 47, 50-1, 56--7, 61-3
Graham's Town Journal, 50, 58, 62
Grant, Baron, see under
Gottheimer, Albert
Grant, Charles, 129
Gras, N. S. B., 133
Greece, 159
grey market, 122-3
Griqualand West, 4, 33,176
Gulf Oil, 159
Hamburg, 69, 85, 99
Hamilton Smith, 34
Hammond, John Hayes, 35
Hartwell, R. M., 135
Harvard, 133
hides, 95
Highveld Steel, 150-1
hire purchase, 122, 124, 126
Hirschmann, A. E., 4
holding companies (see also
investment groups, oligopoly),
150
Holsboer, B. H., 70, 73, 76, 86
Hong Kong, 39,162,164-5
Hope & Co., 28
Hulett's Sugar, 148-9
Hungary, 159
IBM, 159
IMEX,87
IMF,124
imperial banks (see also banks,
commercial, imperial), 55-6
import substitution, 145
incomes, per capita, 23
India, 159, 164-5
Indonesia, 159
Industrial Development
Corporation, 82,146

186

Index

Industrial Revolution, 4
industry
aircraft, 140
building and construction, 147,
148,149,150
carbide, 95
cement, 148
chemicals, 139, 142, 143, 144, 145,
147,150,152
clothing, 138, 142, 143, 145, 147
computers, 140
consumer industries, 12, 140, 143,
144, 148, 152
dynamite, 12
early developments, 11-12, 86--7
fishmeal,95
foodstuffs, 139, 142, 143, 144, 145,
147,148,149-50,152
furniture, 138, 142, 143, 145, 147
iron and steel (see also ISCOR),
12,87
Japanese, 150
leather, 138, 142, 143, 145, 147
lumber, 138, 142, 143, 145, 147
machinery, 139, 140, 142, 144, 152
machinery, agricultural, 140
machinery, electrical, 142, 143,
144, 145, 147, 148
machinery, lifts, 140
machinery, office, 140
machinery, printing presses, 140
machinery, sewing machines, 140
machinery, telephone equipment,
140
measuring instruments, 142, 143,
145,147
meat packing, 137, 139
metal, 142, 143, 144, 145, 147,
148,150,152
output, 14,20,21
paper-making, 142, 143, 145, 147,
148,150
petroleum, 137, 139,142,143,
144,145,147,150,152
photocopying, 140
printing, 138, 140, 142, 143, 145,
147
producer goods, 140, 144,148,
150, 152

progress of, after 1948, 18, 19,20

publishing, 138
rubber, 142, 143, 145, 147
soap making, 136
stone, clay and glass, 142, 143,
145,147
textiles, 140, 142, 143, 144, 145,
147,148
tobacco, 139, 142, 143, 145, 147,
148,150,152
transport equipment, 142, 143,
145, 147, 148
wagon and cart building, 56
wool washing, 48
inflation, 107, 109-10, 117, 121, 123,
130,149
influx control, 17
information revolution, 128
infrastructure
capital need, 3, 5,19,20-1
electricity, ESCOM, 19,21
harbour development at Port
Elizabeth, 49
railways, 5-6, 18, 49
roads, 2, 3, 5,49
Insull, Sam, 39
insurance, mov~ into by banks, 124
insurance companies, ownership of
banks, 152,
interest rates, 106, 111, 129
International Chamber of
Commerce, 87
international sanctions, 156
investment
in Australia, 27, 34, 35, 36
in exploration companies, 33, 35
foreign, private, 163, 173
in gold mining, see gold mining
Scottish overseas, 36
in United Kingdom, 37
in United States railroads, 37, 38
investment groups, 39-43
G. & L. Albu, 41, 42
Consolidated Gold Fields, 41, 42
Farrer, 42
Finlays,40
A. Goerz, 41, 42
F. W. Heilgers, & Co., 40
Neumann, 42

Index
V. B. Robinson 42
E. D. Sassoon &, Co., 42
Wallace Bros., 40
Werner, Beit, 41 42
investment trusts, 35-9, 42-3
Bird & Co., 40, 41
Exploration Co., 34-5
Kuhn, Loeb & Co., 38
London and South African
Exploration Co., 33
Merchants Trust, 36-8
South African Goldfields
Exploration Co. 1870, 33
Transvaal, Gold, Exploration and
Land Co., 34
ISCOR, 12, 87,146,150,151
Italy, 159, 164-5, 166-7, 170--1 172
'
ITT, 159
Japan,159,164-5,166-7 170--1 172
job reservation 11 17'
,
Johannesburg,}, 7:8,9,17,22,40,
85,116
land values, 8
population, 8, 9
Stock Exchange, crash 1895, 8
Stock Exchange, early years, 8
Johannesburg Stock Exchange, 75
Kaffir ?~oms (see also under gold
mmmg, booms), trade 52
Kakabeeke,J.P.,70
Keuning, J., 70, 71, 72, 77
Kimberley, 5, 6, 34
Koeberg Nuclear Power Station, 21
Korsten, Frederick, 42
Korthals Altes, J. P., 73
Kreglinger & Fernau, 97
Kubicek, R. U., 10, 32
labour, restrictions on mobility 11
17
' ,
Land Bank, 119
leasing, 124, 126
Lesotho, 156, 162, 168-9, 174
Lever Bros, 38
Lewis, Arthur, 2
Liberty Life, 23, 114
Lome Convention, 156, 158

187

London, 27,28,29, 30,31,32,33,

34,36,37,39,42,51,69,70,81,
85,87,88,90,94-5,97 98 102
175
' ,
,
Luxembourg, 164-5, 166-7, 170--1
McCormack, C., 137
McKinsey & Co., 138
Malawi, 156,168-9
Malaysia, 162, 164-5
Manschot, H. J., 71, 73
Marxists, 135, 151
mass manufacturer, 136, 137, 138,
139,140--1,151
mass marketing, 135, 136, 137, 151
Masurel Fils, 95
Mathesons, 31
Maynard, Charles, 50
Mazda, 150
merchant banks, see under banks
Mexico, 159
Militz, Eva, 130
mining finance house (see also
investment groups), 195
Mining Journal, 32
Mobil Oil, 159
Mondi 150
monetary policy, 105, 106; 107-9,
110--11, 113-31
monetary supply, growth of, 106,
107,109
money market, 88,105,108-9
Montagu, John, Colonial Secretary
in the Cape 1842-52,5
Mosenthal Brothers, 7, 33
Mosenthal, Sons & Co., capital of
34
'
Mozambique, 156, 168-9
multinational corporations, 138, 139,
140,155,157-74
multi-unit enterprises, 135, 136 137
138
'
,
Namibia, 161
National Finance Corporation 105
116
'
,
National Mutual Insurance Co., 163
near-money, 117

188

Index

negotiable certificates of deposit,

124
Nigeria, 159
neo-Keynesians,131
Netherlands, 159,164-5,166-7,
170-1,172
Netherlandsche Handel
Maatschappi,70-1
New York, 85, 91, 98
New Zealand, 164-5, 166-7,170-1
Nineteenth Century, 32
North, D. C., 134
north-south relations, 162
North-Thomas Thesis, 3-4
Norton, John, 50
Norway, 159, 164-5, 166-7, 170-1,
172
O'Hagan, H. 0.,31,32
Old Mutual, 22, 114
oligopoly, 137, 141, 148, 150, 152
open-market operations, 117
Oppenheimer, Sir Ernest, 12, 133
Oppenheimer, H., 135
Orange Free State, 176, 178

railway bonds, 27
railways, see under infrastructure
Rand Revolt, 12
Rand, value of, 107, 109
Randle Bros. & Hudson, 149
Register of Cooperation, 127
Registrar of Banks, 71, 115
Reid, C. B. & Co., 97
Rembrandt, Group of Companies,
22,114
Renault, 151
retailing stores, 136, 147, 148,149,
152
Rhodes, C. J., 7
Rhodesia, 74, 91
Rhodesia and Nyasaland,
Federation of, 72
roads, see under infrastructure
Rockefeller, J. D., 137
ROCO,116
Rostow, W. W., 4,135
Rotterdam, 85
Royal Dutch Shell, 159
Rumania, 159
Rupert, Anton, 22

Pakistan, 159
Paris, 85-6
personal loans, 122, 124
Petroles de Venezuela, 159
Peugeot, 151
Plate Glass, 150
Poland, 159
poor white problem, 14
Poppe-Schunhoff and Stiicken, 97
population, of Eastern Province, 51,
52
economically active, 23
Port Elizabeth, 3, 49, 51,55,56,59,
61,175,176
Portugal, 157, 159, 164-5, 166-7,
170-1,172
preferential trade area, 156
Pretoria, 81,116
Proclamation R184, 1967, 118
Procter & Gamble, 136
promissory notes, see currency
Pruissen, J. D. D., 71, 73
PUTCO,146

St Petersburg, 40
Salisbury, 86
Sanlam, 22,114
SAPPI,150
SASOL, 146, 149, 150, 152
Schiff, Jacob, 38
Schroder,J. Henry, 95
Scottish-Rhodesian Finance, 86
Sears Roebuck, 138
secondary sector, see industry
second industrial revolution, 135
Second World War, 145
Sharpeville,72
Singapore, 162, 164-5
Singer, I. M., 137, 139
skins, 95
Sloan, Alfred, 138
Smith, C. G., 149, 152
social welfare, constraints on, 23
Somerset, 51
Somerset East, 62
South Africa
balance of payments, 107, 109, 129

Index
budget 1984,107
budget 1985, 108, 109
economy's dual characteristics,
114
exports, 84, 90, 98-9
foreign debt, 110, 113, 128-30
gross domestic expenditure, 109
gross domestic product, 89, 90
imports, 84, 90, 98-9
industrialisation in, 144-52
investment in Zimbabwe, 162
national income, 16, 23
national product, 159
top 10 companies, 1984, 152
top 100 companies, 146-50
South African Breweries, 149
South African Foreign Trade
Organisation, 87
Southern African Customs Union,
156
Southern African Development
Coordination Conference
(SADCC), 155, 156, 162, 163
South Korea, 159
Soweto,17
Spain, 157, 159, 164-5, 166-7, 170-1
Stafford Meyer, 149
Standard Oil, 133, 137
Standard Oil of California, 159
Standard Oil of Indiana, 159
tatist, The, 32, 37
Stewarts and Lloyds, 152
Stewart, Robert, 175
Stock Exchange, see Johannesburg
Strauss, Conrad, 129
Sullivan Principles, 161
Swaziland, 156, 168-9, 173
Sweden, 159
Switzerland, 159, 164-5, 166-7,
170-1,172
Tambo, 0., 23
Tanzania, 17, 156, 168-9
Technical Committee on Banking
and Building Society
Legislation, 117
Texaco, 159
Thailand, 159
Third World, 129, 141, 158, 160, 162

189

Thirion Commission, 161

Thompson, William Rowland, 50, 64
Tiger Oats, 95
Toyota, 148, 150
transfer pricing, 160
transnational corporations, see
multinational corporations
Transvaal, 176, 178
Trek, 150
Turkey, 159
Tutu, D., 23
two-tier gold market, 125
Uganda, 17
Uitenhage, 47, 49
Unilever, 159
United Building Society, 22
United Nations Centre for
Transnational Corporations,
157,161
urbanisation, 2, 3
USA, 98, 134-46, 149, 150, 152, 159,
162,164-5,166-7,170-1,172
US Overseas Private Investment
Corporation (OPIC), 161, 163
USSR, 97, 159
van Aggelen, H. P., 85
van Riebeeck, 1
VEBA,159
Venezuela, 159
venture capital, see under capital
Venture Corporation, 35
vertical integration, 137
Verwoerd, H., 17, 18
Walker Bros, 87
Wattine, H., 95
West, the 136
rise of, 1
Western Cape, 175
Western Europe, 141, 150
West Germany, 140, 141, 144, 145,
146,151,152,159,164-5,
166-7,170-1,172
West Rand Bantu Affairs Board, 17
wholesaling, internalised, 139, 140,
151
Williamson, Oliver, 134

190
Wills, W. D. & H. 0., 136
Wilson, Charles, 133, 134
Witwatersrand, gold discovery, 2
Wolmaatschappij, NV, 95
Wood, George Jr, 64, 65
Wood, George Sr, 58, 63
wool, 48, 49, 95-8
boom of 1850s, 57
cash crop, 3, 5,7,95
exports, destination of, 95-6
exports, quantity, 4, 59,176
wool production, 1830s and 1840s,
52,158-9
wool trade, with interior, 61

Index
Woolworth, F. W., 136
World Bank, 156
World Council of Churches, 130
Xerox, 139
Xhosa, 48, 52
Yugoslavia, 159
Zaibatsu, 126
Zambia, 74,86,91,156,168-9
Zimbabwe, 156, 162, 163, 168-9, 173
Zurich,86