SA companies still edgy about Africa

Neuma Grobbelaar

Posted to the web on: 30 May 2006

SOUTH African companies are not less risk-averse than some of their European and American counterparts when doing business in Africa. This is one of the many surprising findings of the South African Institute of International Affairs’ three-year Business in Africa project, presented at an international conference on African private-sector development last week.

T[b]he research, which was conducted in nine countries across the continent — Botswana, Egypt, Ghana, Kenya, Mali, Mozambique, Nigeria, Senegal and Zimbabwe — found that despite the perception that South African companies were moving aggressively into Africa, the percentage of foreign direct investment in the region was still marginal in comparison with overall South African investment going to Europe, the Americas and Asia. More than 80% of SA’s total foreign investment was still directed at these three markets.[/b]

Analysis presented by Andrea Goldstein of the Organisation for Economic Co-operation and Development corroborated this finding. South African multinationals tend to invest much less in their immediate region than multinationals from other emerging markets.

Taking SA’s foreign assets in Africa as the benchmark for measuring interest in Africa, in 2004 the region attracted only 4,9% of total South African investment (both stocks and flows).

South African firms’ risk perception of doing business in Africa is thus quite closely aligned with that of the rest of the world.

However, where South African companies do distinguish themselves is in their willingness to invest in a broad range of sectors, unlike Africa’s traditional investment partners who have focused on oil and mining. SA’s entry into telecommunications and retail in the region as the most visible manifestation of SA’s corporate presence has fuelled the perception that South Africans are everywhere and that the rest of Africa is a profitable outpost for South African business.

Shoprite Checkers is now the largest retailer in Africa with more than 600 outlets in 16 countries. But because of Africa’s small markets and low disposable income, revenue earnings from Africa are still modest in comparison with its operations in SA. It is a mistake to assume that high returns on investments, up to 30% in some sectors in Africa, automatically translate into high earnings. For companies, one of Africa’s biggest hurdles in growing the market is the high level of poverty in individual markets and the small size of the formal sector.

The case of telecoms is slightly different. MTN’s expansion into the region has been very profitable. The telecoms sector demonstrates the importance of innovation and adaptability and points to the underlying purchasing power that is present in the informal sector but is rarely reflected in the official economic data generated by African economies.

However, the size of the informal sector, up to 60% and more in some economies, is also one of the biggest indicators of the constraints hampering the more robust development of Africa’s private sector. [/b]Informal trading and subsistence agriculture are often presented as the most appropriate solution to ensure the livelihood of many African families. But the reasons for the absence of a formal sector deserve closer scrutiny.

The institute found that government played an important role in private-sector development, especially because of its dominance in many African countries. Government was also a significant source of formal employment. Herein lies the rub.

[b]Red tape is one of the biggest hindrances to the development of a more enabling business environment in most countries studied. Overbearing bureaucracy and outdated rules and regulations hamper business activities, and open numerous avenues for bribes and rents.

The harm is most strongly felt by domestic businesses that lack the resources and clout of foreign players in dealing with the government.

From SA’s own experience, it is clear that foreign investors cannot be expected to demonstrate confidence in an economy if no domestic investment is taking place.

The news is not all bad, however. South African companies have invested more than R200bn in the rest of Africa since 1994. But for Africa to attract a larger share of the investment necessary to boost economic growth and development, governments have to work harder to make it attractive for the private sector (both local and foreign) to invest.

Two of the most striking findings of the report are, first, that political and economic governance are hugely important if the goal is a more diversified, mature and growing economy. Second, engagement between the public and private sector is essential in enabling the private sector to play a stronger role in the sustainable development of the continent.

While there are many complex factors contributing to the weak state of Africa’s private sector, some low-cost interventions can reap immediate benefits. Governments providing a supportive framework will attract more investment into the economy from foreigners, and local players.

It will also ensure that South African companies will be more confident in the continent’s prospects.

‖Grobbelaar heads the Business in Africa Programme of the South African Institute of International Affairs, based at Wits University.

Source:http://www.businessday.co.za/articles/topstories.aspx?ID=BD4A208023


I ALMOST CRIED WHEN I READ THIS ARTICLE WHEN WILL AFRICA EVER CHANGE, OOOOO?

The reason: The SA multinationals are owned by white SAns.

Very interesting article.

Constantin:


From SA’s own experience, it is clear that foreign investors cannot be expected to demonstrate confidence in an economy if no domestic investment is taking place.

Very key point.