How South Africa is helping deliver prosperity to all Africans

Events over the past 18 months have seemed to highlights South Africa’s ambivalent relationship with the rest of the African continent. An alternative analysis of this relationship, however, reveals a far more positive interaction. One which sees South African business deeply involved in driving the continent’s growth story, very much aware of Africa’s significance to our economic future.

The business world should take the lead in demonstrating Africa’s importance to South Africa, and the extent of their vast and serious commitment to the continent. Furthermore, they need to be integrally involved in shaping South Africa’s strategy for Africa in the years to come.

Africa: the true story   

Instead of looking at South Africa as the hapless and unwilling recipient of economic migrants, we need to look the other way, at our impact on the region. The true picture is vastly different.

Certainly the numbers, from a South African perspective, are impressive. Department of Trade and Industry (DTI) figures show South African exports to the rest of the continent increased from R8.8 billion in 1994, to R300 billion in 2014, a 3309% increase in 20 years. South Africa’s exports to the rest of the world over this same period grew half as fast. The increase in imports is similarly impressive: since 1994 imports from Africa have grown 4925% (to R140.7 billion).

Currently, trade, the most visible aspect of South Africa’s involvement on the continent, covers machinery, electrical equipment, vehicles, spare parts, medicines, foods, consumer electronics, metals and construction materials. Companies like ShopRite have 131 stores in 16 countries employing over 11,000 people. MTN invested approximately R98 billion in the region between 2009 and 2012 alone, allocating a further R28 billion in 2013. Other big names include Pick n Pay, Woolworths and Massmart.

Less visible, though more significant, is South Africa’s financial involvement. Through investment in financial services, oil and gas, alternative and renewable energy, chemicals, communications, infrastructure, tourism, software and IT services, South Africa is directly involved in driving continental growth.

Investment from South Africa’s financial services sector has been prolific. South Africa’s Standard Bank has operations in 17 African countries. Absa Bank (Barclays Africa) now boasts a presence in 12 countries outside South Africa. First Rand acquired the Merchant Bank of Ghana. Nedbank has taken a 20% stake in Ecobank, costing over US$200 million, but delivering an African footprint of 35 countries.

These banks have been instrumental in raising capital and financing the debt for many of the Continent’s biggest developments and investments – such as hydro-electric schemes, railways, intra-continental water projects, massive agricultural programmes, pharmaceutical projects and renewable energy. Other South African or global financial services providers operating through South Africa, like Alexander Forbes Marsh Africa and AON, are equipping the continent to manage risk, create wealth, save, and prepare for old age. These services are laying the foundation for the region’s next growth wave by deepening continental capital markets. Further, South African investment in professional services like tax, international law, trade and financial management advisory, increases the continent’s ability and bench strength in skills and networks key to successfully navigating global markets and managing competition.

According to the DTI, South Africa is the biggest source of Foreign Direct Investment (FDI) for Mozambique and Zambia. It is the third biggest foreign investor in Nigeria, Kenya, Tanzania and Ghana, and the fourth biggest source of FDI for Angola. In fact, according to FDI Intelligence (a cross-border investment consultancy), in 2012 South Africa invested in more new FDI projects in Africa than any other country. Ernst & Young research shows Nigeria to have received the lions’ share of this, followed by Ghana, Namibia, Zambia, Angola, Kenya and Mozambique. FDI Intelligence also reported a 536% increase in the number of projects that South Africa has invested in on the continent over the last decade. Ernst & Young’s 2013 Attractiveness Survey found that this investment had created almost 46,000 jobs in Africa since 2003.

The measures described above underlines South Africa’s key role in helping to drive the African growth story.

Africa: More important than ever before

The picture for Africa, and specifically for sub-Saharan Africa is a positive one. In recent years, there has been spectacular growth, improving governance, regulation and reforms, better fiscal policies, diversification of economies, while attracting an increasing volume of FDI. Sub-Saharan Africa will grow 4.5% this year (according to the IMF) and 5.1% next year, which compares favourably with forecasted growth for the world economy of 3.5% and 3.8% respectively.

In contrast, South Africa is expected to grow at only 2% this year and 2.1% next year. Add to this, high unemployment, and our well-publicised recent problems at home, and one can appreciate why an African strategy has become, today, for many South African businesses, the principal strategy.

The South African government has taken measures to reflect the importance of Africa. For example, in 2014 Pravin Gordhan, then South Africa’s Finance Minister, announced plans to ease tax and foreign exchange frameworks for companies investing in the rest of the continent. The same budget also mentioned measures to allow intellectual property generated in South Africa to be assigned offshore, subject to appropriate tax. Permission was also included for secondary listings and depository receipt programmes to enable companies listed in South Africa to expand. Government has also attempted to simplify the tax and foreign exchange framework for companies trading and investing in the region.

The way forward

As outlined above, South Africa’s contribution has been impressive. But we need to do more. Africa is no longer merely an option, but a necessity for South Africa which needs to play its cards right at this critical juncture.

Business needs to take the lead in convincing all parties at home of the importance of Africa. They need to work to break down the ‘us-and-them’ mentality with which many South Africans view the continent while highlighting to South Africans the centrality of Africa to its own future, economic prospects and, indeed, political stability.

They need to change the continent’s perception of South Africa from that of suspicion to one of trust and respect, by demonstrating South Africa’s already vast and serious commitment.

They need to make government aware of the benefits of shaping a broadly coordinated, universally supported African investment policy, including policy initiatives to ensure global companies use South Africa as their base when they enter Africa. And they need to be integrally involved in shaping South Africa’s strategy for Africa to secure its ongoing participation in one of this century’s biggest growth stories.

How this opportunity is managed will determine South Africa’s own prosperity for decades to come. South Africa’s relationship with and reputation in Africa is too important to its own development to be left to others. Instead, South African businesses concerned about sustainable growth should unite in sending an unequivocal message about our future in Africa. The South African business community is firmly, in word and deed, on the side of partnership through investment and growth, delivering prosperity for all.

The World Economic Forum on Africa 2015 takes place in Cape Town, South Africa from 3-5 June.

Author: Rick Menell, Senior Adviser, Credit Suisse, South Africa

Image: Dusk settles over Cape Town’s business district, November 2, 2009. Cape Town is one of nine South African cities hosting the 2010 Fifa Soccer World Cup. REUTERS/Mike Hutchings