Described as “one of the biggest economic phenomena of the last decade”, the astonishing speed at which South Africa has become the largest investor in the rest of Africa has eclipsed even the recent surge in interest from non-African investors such as China.
Following a gradual increase on the continent after 1994, investment opportunities have taken off in the past five years, helped in part by the South African government’s relaxation of foreign exchange controls for businesses investing in Africa.
In just more than a decade of transition from apartheid pariah to legitimate player, South Africa has asserted its presence on the continent through corporate and parastatal investments and become a fulcrum in the flow of capital, goods and people.
Several South African companies are earning profits two to three times higher than those earned in their home operations, with reported average returns of between 30% on equity in the banking sector and up to 60% in other sectors.
South African Reserve Bank figures show that the country’s investment in the continent grew threefold, from R8-billion in 1996 to R26-billion in 2001. BusinessMap estimates that South African companies invested an average of $435-million a year in Southern Africa between 1994 and 2003.
In addition to light industry such as breweries and bottling plants, and the banking and finance sectors, South African firms have expanded their mining operations into Zimbabwe, Mozambique and Zambia, with Mvelaphanda Holdings, one of South Africa’s most promising black-managed and black-owned investments groups, being a new entrant.
Well-known brand chains that have joined the foray into Africa include Shoprite Checkers, Nando’s, Steers, Engen, Kwikserve, Woolworths and Game, as well as major retailers Pep Stores, Truworths, Metro Cash and Carry and Massmart.
Significantly, South Africa’s economic expansion is actively government-promoted, primarily in the form of the Industrial Development Corporation (IDC).
South African corporate investment into the rest of Africa is driven by two key factors: the South African market of 47-million consumers is too small to absorb its products, while South African companies are usually too small to compete in the industrialised world.
Local companies are assumed generally to have greater familiarity with conditions on the continent than investors from elsewhere outside Africa, which has proved to be fertile ground for investors. But the risks are high and it has not always been plain sailing for South African firms.
For example, SABMiller lost the “beer wars” in Kenya, where Metro Cash and Carry closed its doors in March 2005 after eight profitless years, while Shoprite Checkers failed to launch in the country because of strong competition. In Nigeria South African Airways’s acquisition of a 30% stake in the revamped Nigerian national carrier was cancelled abruptly in favour of Virgin Atlantic.
Blatantly anti-South African sentiment is also increasingly evident in many countries, where South African businesspeople — both black and white — have been described variously as “brash, arrogant, insensitive, selfish … the Americans of the continent”.
There is a Jekyll-and-Hyde quality to South Africa’s economic expansion: rather than pushing “the little guys” out of business, South African companies argue that they are breaking up local monopolies, driving down prices and creating jobs.
Yet the discomfort within Africa about the country’s perceived economic dominance — particularly in tourism, boosting consumer choice and the transference of skills and technology to local workers — has deepened as South Africa has become a favoured “emerging market” for institutional investors abroad. Recent interviews in a Zambian shopping mall that revealed a deeply dissatisfied workforce at a South African store there may well point to room for improvement in how South African companies manage local sensitivities.
Many Southern Africans have attested to the brusque forthrightness of urban South Africans, especially in white management, that likely offend the cultural sensibilities of workers who may feel demeaned in their work environments. The lack of local procurement has fuelled persistent complaints of crippling market distortions caused by the dumping of South African goods on to neighbouring markets.
Moreover, 12 South African companies — including “blue-chip” giants Anglo American, Anglovaal mining, De Beers and Iscor — were accused in a United Nations report in 2002 of involvement in illicit dealings in mineral resources in the conflict-ridden Democratic Republic of the Congo.
Increasing calls are therefore being made in South Africa to regulate corporate behaviour and promote responsible ethical corporate citizenship. A number of initiatives exist already that may guide South African companies operating in Africa, namely the King II report, the UN Global Compact and the JSE Social Responsibility Index.
If such actions are not taken, South Africa could find itself saddled with the “ugly American” image of Uncle Sam in Latin America and the Caribbean.
Judi Hudson is an independent consultant who holds a master’s degree in Political Science from the University of Natal