Go well: David Masondo, the deputy finance minister, says the treasury will look into why firms such as Shell are pulling out of South Africa.
The treasury is conducting research on why there has been an exodus of foreign investment from South Africa, its extent and how to deal with it, the deputy finance minister, David Masondo, says.
In recent months, a series of high-profile corporates have exited South Africa, in one form or another, and others plan to leave.
The uncertainty around the outcome of next week’s general elections poses the risk of scaring off more foreign investors, analysts say.
Petrochemical giant Shell plans to sell its downstream business in South Africa, which includes 600 petrol stations and a refinery in Durban.
One of the reasons is the company’s energy transition strategy — under which it plans to reduce carbon emissions and focus on its more profitable upstream businesses.
But the exit also comes after media reports of a dispute between Shell and its black economic empowerment partner.
BNP Paribas and Rolex have also called it quits, the latter saying this was because the local markets and conjuncture have changed, no longer warranting the presence of an official affiliate for the luxury watchmaker.
More recently, streaming service BritBox has said it was leaving South Africa in August, only three years after it launched in the country, saying it was refocusing on its more established markets and the areas of the business with the highest opportunities for growth.
This week, Anglo American left the door open for BHP to come up with a more compelling offer after rejecting three of the Australian mining giant’s unsolicited takeover bids. If the transaction goes through, this would mean Anglo would leave South African shores.
“Capital will always move outside of South Africa — that is the nature of it,” Masondo told the Mail & Guardian in a wide-ranging interview this week.
“The [treasury’s] research will empirically answer that question [as to why] and will look at the scale in which it is leaving,” he added, declining to give more details.
Masondo’s cabinet colleague, Mineral Resources and Energy Minister Gwede Mantashe, recently sounded a defiant note on the pending Shell exit, saying other companies would be waiting in the wings to take over its operations.
“Engen left, Vitol took that over. Caltex left and that is why Caltex garages are … Astron now.
“Shell is going to leave and, I can tell you with my eyes closed, that there will be a company or a consortium that will take over that business,” Mantashe said.
In its October monetary policy review, the South African Reserve Bank said the country had experienced significant outflows of foreign investors in the first half of last year.
The central bank’s quarterly bulletin showed that foreign investors had sold R21.6 billion of the country’s equities in the fourth quarter of last year, while portfolio investment liabilities recorded an outflow of R9 billion.
More broadly, investors are adopting a “wait and see” approach to South Africa ahead of the elections, given the uncertainty about the result, the head of corporate and commercial practice at Cliffe Dekker Hofmeyr, Ian Hayes, recently told the M&G.
Masondo concurred that many investors were signalling that their decisions were going to be informed by the electoral outcome.
Several polls suggest the governing ANC’s vote share could dip below 50% for the first time in 30 years.
A recent tracking poll by the Social Research Foundation showed the ANC’s support at 45%, the Democratic Alliance’s at 23% and the Inkatha Freedom Party’s at 5%.
“I think it’s a question of — what will the post 29 May election mean for their investment? Do they retain their investment here? Do they increase their investment here?
“And that will be determined by the policy context within which the constituted government will be offering,” he said.
“If it is the ANC government, the sense I am getting is that there will be policy certainty.
“The ANC government — they understand that it appreciates the issues that are important for investor confidence which are necessary for the economy to grow.”
Masondo acknowledged that investor confidence was key to reviving South Africa’s sluggish economy and creating jobs in a country with a high unemployment rate.
Earlier this month, Statistics South Africa said joblessness had increased by 0.8% in the first quarter of this year, pushing the official unemployment rate up to 32.9%, and 41.9% by the extended definition, which includes people who have given up looking for work.
“For our economy to grow and create more jobs, we need to sort out the supply-side constraints,” Masondo said, listing electricity and water supply; transport logistics and telecommunications as examples.
“We need to liberalise the energy sector so that we don’t rely on Eskom for energy. We need to bring in the private sector. The president should be signing the Electricity Regulation Amendment Bill soon.
“It means any person or business can generate their own energy. The lack of supply of electricity has had a huge impact on our ability to grow the economy. So, we’ve removed the legal constraints which made it difficult for people to generate energy,” Masondo added.
Like other government officials, he rubbished claims that the country had not been subjected to load-shedding because the government fears this would hurt the ANC’s chances in the elections.
“We are not seeing load-shedding because the demand on Eskom has significantly reduced as households and businesses are generating their own electricity.
“Not only that, the power plant performance has increased and that is why there has been no load-shedding in the last few days. It has nothing to do with elections,” the deputy finance minister said.
According to data platform The Outlier, South Africa last had load-shedding 57 days ago. This is the longest stretch without the rolling blackouts since the period from 5 December 2021 to 2 February 2022.
The power utility recently reported that it had achieved an energy availability factor of 70.78%, last seen nearly three years ago.
Apart from energy constraints, the economy has not been growing partly because of the poor performance of Transnet, Masondo told the M&G.
The troubled state logistics and freight rail company reported a R5.7 billion loss in the financial year that ended in March last year, compared with a R5 billion profit the previous year, citing rail constraints which had affected the volumes moved by Transnet Freight Rail. “It cannot be Transnet only that transports goods on the freight rail,” Masondo said.
“We need to bring private sector operators to also operate on that infrastructure, just like our national roads. It’s not only City To City, which is owned by Prasa [the Passenger Rail Agency of South Africa], that transports people — there is Greyhound as well, which is competing with them.
“A similar thing must be introduced in the rail sector.”
The International Monetary Fund (IMF) recently cut South Africa’s 2024 growth prospects to 0.9% and this bleak forecast runs the risk of being worsened by negative post-election sentiment.
The IMF said that South Africa’s logistical challenges were constraining activity and were a drag on the entire region.
“If the ANC government continues with its reforms in energy, water, logistics and telecommunications, the modelling that the national treasury has done is that the economy should be growing at 3% this year. That is what the electoral victory of the ANC would mean,” Masondo said.