Shawn Hattingh, 2007, “BHP Billiton and SAB: Outward Capital Movement and the International. Expansion of South African Corporate Giants”

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Citation details: HATTINGH, S. 2007. BHP Billiton and SAB: Outward capital movement and the international expansion of South African corporate giants. Available at: http://www.taxjustice.net/cms/upload/pdf/Ilrig0809South African giants.pdf [accessed 2014-02-18].        

Shawn Hattingh (ILRIG), 2007, “BHP Billiton and SAB: Outward Capital Movement and the International Expansion of South African Corporate Giants”

Abstract
From the 1940s until the mid-1970s, the largest South African corporations, including the South African Breweries (SAB) and Gencor (forerunner to BHP Billiton) thrived under apartheid and its social and economic policies. Indeed, corporations such as Gencor and SAB benefited from the migrant labour system that the apartheid state strengthened and bolstered. Added to this, corporations, such as SAB and Gencor, received various tax incentives for the apartheid state, which included tax breaks for establishing operations in the apartheid homelands. This situation dramatically altered, however, with the global economic crisis that struck in the mid-1970s, which revolved around a crisis of capital over-accumulation and over-production. In this context, South African corporations began to experience problems of profitability under an increasingly ailing economy. In response, South African corporations, like their international counterparts, began expanding internationally in a bid to restore profits. By the 1980s, however, South African corporations faced various barriers such as sanctions and stringent exchange controls. Nonetheless, they implemented various mechanisms to circumvent exchange controls, including transfer pricing. In the case of SAB, they established various paper companies in the Netherlands and ceded their trademarks in South Africa to these companies. Through this, and the royalty payments they made on these trademarks, they were able to move massive amounts of capital out of South Africa to the Netherlands and, thereby, avoid exchange controls and reduce their tax rate in South Africa. Indeed, they also used this capital to expand internationally and avoid sanctions.

Nonetheless, avoiding both sanctions and exchange controls was cumbersome and South African companies began to feel disadvantaged when compared to their international competitors, who did not face political barriers. In this context, many South African corporations began favouring a political settlement in South Africa. Indeed, with a successful political settlement, South African corporations ensured that the post-apartheid state implemented neoliberal policies that would favour their international expansion. In hindsight, the South African state has served the largest South African corporations well. It was the South African state that allowed the likes of SAB and Gencor/ Biliton to restructure and ultimately shift their primary listings to the financial centre of London. With this, the post-apartheid state enabled SAB and Billiton to become massive global players. This was done even though it meant these corporations could, from that point on, freely repatriate their profits out of South Africa and that these corporation’s entities in South Africa, ceased to be South African owned.