High levels of South African investment in other African countries are raising fears that this country is becoming the continent’s newest coloniser.
Representatives of South African firms and managers of parastatals have streamed into the continent since 1994. But mention South African investment to Tanzanian opposition politicians, say, and you will get an edgy smile as they enquire politely which piece of family silver is being sold off to the Southern carpetbaggers.
Economic nationalism sometimes confuses national pride with national interest. Complaints about a hugely unbalanced trade with South Africa, for example, while true, make little economic sense. A country’s overall trade balance is important — not that with any particular country.
What was not expected, perhaps, was the growth of South African investment in Southern Africa and the continent as a whole. Between 1994 and 2002 South Africa’s announced direct investment in Southern African Development Community (SADC) was 32% (in US dollar terms) of total foreign direct investment (FDI) in the region.
Clearly, African countries need the investment. And South African companies have embraced with relish the role envisaged by President Thabo Mbeki in helping the continent to economic self-sufficiency, spurred by good profits and the relaxing of exchange controls.
South African firms began by investing close to home. Recently they have been investing further afield, again helped by easing of exchange controls.
Last week Minister of Public Enterprises Jeff Radebe released a booklet detailing the operations of state-owned enterprises (SOEs) in Africa. Spoornet, Eskom Enterprises and arivia.kom all have extensive interests in Africa, sometimes taking advantage of privatisations they themselves are not subject to. SOEs, however, tend to be involved in management contracts or concessions rather than investment.
South Africa’s SOEs may be driven as much by continental loyalty as by profit. But there is no such ambiguity in South Africa’s private sector: a BusinessMap researcher came across an “Africa exploitation desk” at one South African firm.
The speed with which South Africa has become an important, perhaps the most important, source of FDI in Africa is astonishing. South Africans are keen to conquer under-explored markets. In Mozambique, for instance, South African investment is the biggest role-player in economic development. BHP Billiton has invested huge amounts there via the Mozal aluminium project. BHP is Mozal’s 47% holding partner, along with the South African SOE the Industrial Development Corporation (IDC) with 24%. Mitsubishi has 25% and the Mozambican government 4%. South African investment was 31% of the total announced FDI in Mozambique (in dollar terms) between 1994 and 2003. Since 1995 South Africa has surpassed Portugal’s investment in its former colony.
But what of the growing resentment of South African economic dominance? South Africa may have failed in Zimbabwe, but elsewhere its marketing and diplomacy seem adequate. More could be made, though, of the positive role South African investment has played — in job creation, for instance. Also, reciprocal investment needs to be encouraged. African countries have invested about R627-million in South Africa, in a handful of investments since 1994. Yet billions have gone from South Africa into the rest of Africa.
South Africa can be an unfriendly place to invest. Domestic companies are entrenched in dominance in certain industries — for instance, no one has contemplated challenging SA Breweries, now SABMiller, for decades. A start has been made by allowing foreign companies to list on the JSE Securities Exchange. An African company taking advantage of this would get good exposure to South African business, and be subject to the kind of scrutiny that brings with it confidence.
But the real trick to encouraging FDI, from Africa and elsewhere, is proper and sensible regulation to ensure that competition thrives.
Reg Rumney is the executive director of The BusinessMap Foundation. Statistics are from BusinessMap which records FDI on the date of announcement, including intentions and expressions of interest, later filtering out unrealised investments. Over time these figures should coincide with official flows.