South Africa rushes in where Europe fears to invest
FOREIGN FORAYS by MARK ASHURST
SOUTH AFRICA's blue-chip companies can longer afford the luxury of staying at home. The demise of the siege economy fostered during isolation, rising competition in local markets, and the dismantling of protective tariffs at home have forced the biggest local companies to look abroad.
The trend is evident throughout most sectors of the economy. But the most spectacular transformation has been Gencor, formerly the country's second largest mining house before it emerged in precious metals into Billiton and listed it in London, raising £1-billion (around R8.5-billion) and lifting it into the top 100 of companies listed on the London Stock Exchange. Much of the proceeds will flow back to South Africa, where Billiton is poised to build a new aluminium smelter in Maputo and participate in a possible zinc smelter in the Eastern Cape.
In the financial sector, local institutions have scrambled to acquire exposure to foreign markets via the system of asset swaps introduced in 1995. Although current regulations limit the proportion of assets a local institution can hold offshore to 10%, most have found it difficult to find foreign institutions willing to accept SA assets at market value.
The stumbling block is that asset swaps are highly inflexible, and the foreign party must undertake not to abandon its SA holding. Of the R70-billion which institutions are legally entitled to swap, the total value of asset swaps finalised is about R30-billion.
The most innovative expansion has come from local manufacturing industries seeking new markets in Africa for their fledgling export businesses.
Helped by the weaker rand, the sharp growth in non-mining exports this year has further inflated the trade deficit between South Africa and its principal African trading partners.
This trend has been compounded by Pretoria's failure - after three years of talks - to win significant concessions in trade negotiations with Europe. Although South Africa last month ratified admission to the Lomé convention, it has been excluded from preferential trading terms with the European Union.
Closer to home, brisk trade and creeping privatisation across much of the region have enabled many local companies to acquire assets elsewhere in Africa.
"South Africans are gradually displacing European investors in Central and East Africa," says Christopher Hartland-Peel, African equities analyst at Standard Bank in London.
South African Breweries, the world's fourth largest brewer, has been in the vanguard of this process, with supermarket chain Shoprite, furniture retailer Profurn and state -owned rail group Spoornet, close on its heel.
Local mining houses have been the most zealous pursuers of mining rights across the continent and are the least deterred by the huge losses caused be the scandal of Bre-X Minerals, the Canadian company whose Busang gold deposit in Indonesia was a fraud. But the greatest impetus for local companies to spread their wings has come from consolidation in global industries such as car manufacturing and oil and gas distribution.
As international parents have brought up the SA subsidiaries left behind during the sanctions era, they have set their sights well beyond the local market. Both Nissan and Toyota have invested in longer production lines to enhance economies of scale, and establish distribution channels across the sub-Sahara region. - Financial Times