Bankers like to say that where there's volatility, there's opportunity.

Following that maxim, U.S. banks have headed back to South Africa, a country they largely abandoned in the 1980s after intense international pressure on the former South African government to repeal racially restrictive laws.

Since South Africa gained majority rule in 1994 under the leadership of President Nelson Mandela, a host of U.S. banks - including Citicorp, J.P. Morgan & Co., BankAmerica Corp., Bankers Trust New York Corp., and First Union Corp. - have flocked back to pursue a wide variety of businesses. Other financial firms, including credit card associations Visa and MasterCard, have followed in their wake.

What they discovered is that South Africa is an unusually sophisticated emerging market with an economy that resembles that of an industrialized nation.

"Both the economy and the financial infrastructure are extremely well developed compared to other emerging markets," noted Ray O'Leary, managing director responsible for South Africa at Bankers Trust New York Corp. in London. "You've had sophisticated burgeoning debt and equity markets for a long time.

In keeping with their own strategic priorities, U.S. banks have moved in different directions in South Africa.

J.P. Morgan & Co. and Bankers Trust, for example, have opted to develop capital-markets-related businesses, including underwriting public and private issues, as well as asset management.

BankAmerica has focused on providing structured trade finance, global payment services, and capital markets to multinational corporations.

Other banks, like First Union, are pursuing trade finance and correspondent banking through South African banks, while Citicorp has gone after a broad range of wholesale banking activities and Bank of New York Co. is targeting the growing number of South African companies hoping to launch American depositary receipt programs.

"We're rather happy with the way business has been growing," said Andrew Oleksiw, senior vice president and managing director for international banking at First Union Corp.

He noted that South Africa is viewed by many banks and companies as a springboard for doing business with other countries in Africa's southern tier.

"South African banks have had long-standing relations with neighboring countries," Mr. Oleksiw pointed out.

"As South Africa's economy continues to do better, it will also help the economies of Zimbabwe, Namibia, and Botswana."

Banking in South Africa, however, remains very much under the thumb of foreign exchange restrictions that the South African government has kept on the books in order to prevent capital from leaving the country too quickly.

Bankers Trust, for example, has specialized in exploiting loopholes in foreign exchange restrictions.

The bank has also focused on arranging currency swaps between companies issuing South African rand-denominated debt on the Euromarkets, arranged international loans for South African companies from London, and expanded its custodial and asset management operations.

Next on the list, said Mr. O'Leary, is helping South African companies sell off part of their holdings as part of a government plan to develop broader public ownership of industrial corporations.

The renewed interest among banks and other investors in South Africa comes despite a large measure of political and economic uncertainty.

"South Africa has encountered a number of economic and social challenges that have slightly dented the success of its three-year National Unity government," observed Thomson BankWatch Inc., the New York based credit rating agency and affiliate of American Banker.

"Overall economic progress has slowed in recent months, hindered by the downward spiral of the rand."

Among the reasons for the slowdown: a decline in domestic savings, a widening current account and budget deficit, and a slow moving privatization program.

"There's been a lot of disappointment on the macroeconomic side, and growth has been flat," said Gary Kleiman, president of the Washington-based Kleiman International Consultants Inc.

"There's been talk of privatization but they've moved very slowly and have disappointed international investors."

Betty J. Starkey, director of sovereign risk analysis at Thomson BankWatch in New York, said politics, economic issues, currency restrictions, and foreign exchange volatility were among the main reasons why the rating agency gives South Africa only a BB-plus rating, or one notch below investment grade.

"South Africa has a relatively short track record, political uncertainties have continued to slow economic policy reforms in some areas, and there has been continued volatility in the currency markets, " Ms. Starkey observed.

But she also said that the agency would consider an upgrade "if we see encouraging signs where the political and economic and financial climate improves."

Economic uncertainty has had a major impact on the South African rand, which declined 28% against the dollar last year. As the rand has declined, so has foreign investment, further diminishing hopes that South Africa will reach its target of an annual growth in gross domestic product of 6% by the year 2000.

Bankers also pointed out South Africa's government under Mr. Mandela remains committed to economic reform, including further liberalization of the banking and financial sectors.

They also pointed out that much of the volatility is a natural outcome of deregulation.

"There's always a trade-off between stability and market openness," Mr. Oleksiw noted.

"Most people would probably prefer an open economy that's less stable than a rigid economy that's predictable until the situation gets so bad it can't adjust anymore."

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