South Africa - the leading economy in the world?
Thématique :
RSA
Since the end of apartheid South Africa has become a world economic powerhouse. But how are the country's businesses placed to deal with the global recession? Janice Warman reports
Time was, not long ago, when South Africa was a pariah, isolated from the world and cut off from international sport, theatre, music and business. Even the Boeing 747s of its national airline were banned from African airspace and had to skirt the continent's coastline on their long journeys north.
Fifteen years into its new era of democracy, it is back in the fold of the international community. Singers and actors for whom visiting South Africa could have meant career suicide during the apartheid era flock to the country. The 2010 FIFA World Cup is eagerly awaited. And later this month Johannesburg is hosting a world summit on arts and culture, which could as well have been held in Munich, Vienna or Paris.
The same is true for the country's role in the wider business world. Multinational investors are back; but more and more, South Africa is becoming a net exporter of its own companies.
This trend has not been halted by the current recession. Although the economy is forecast to contract by 1.8% in 2009, it is still expected to expand by 2.1% next year. Africa's largest economy has been protected from the worst effects of the global recession by stringent banking regulations and exchange controls, leaving it well placed to make further inroads into international markets.
According to African Business magazine, 15 out of the top 16 companies on the continent are South African, as are 54 out of the top 90. And the companies in the former apartheid state are flexing their muscles and finding new markets in Africa and across the world.
"South Africa is probably the leading economy in the world," says Dr Martyn Davies, chief executive of Frontier Advisory, a research and strategy company working in frontier and emerging markets and director of the Centre for Chinese Studies at Stellenbosch University. "No other country of our size and economic ranking has produced as many globally successful Fortune 500 companies as we have. The only comparable country is South Korea. There is a phenomenal ability for South African companies to grow and go global from South Africa. No other comparably sized emerging market has been able to succeed in doing that; not even the Chinese, not even the Indians."
Many South African companies, particularly when the post-apartheid era dawned in 1994, turned their attention first to Africa. "We see Africa as a business opportunity. Sure it's risky, sure it's tough, but we have a saying: Africa's not for sissies," says Davies. "And the ability of the South African businesses to adapt to a challenging environment in Africa is extremely good, probably better than anyone else."
Current success stories include Standard Bank, presently in 17 African countries and in a further 19 worldwide; SAB Miller, which dominates the continent's beer brewing industry and is number two brewer in the world; Naspers, South Africa's largest media company; Shoprite Holdings, Africa's largest food retailer; fellow food retailer Nasmart; mobile phone operators MTN and Vodacom; and ABSA Bank.
All are seeing annual growth of around 40% year-on-year despite the economic crisis, a phenomenon Davies attributes to the rise of the African consumer, which, he says, "used to be an oxymoron; now it's a reality".
Jacko Maree, chief executive of Standard Bank, points out that South Africa represents 0.6% of the world's GDP, yet there have been times when the market capitalisation of the Johannesburg Stock Exchange was in the top 10 in the world; it now ranks at between 13 and 14. South Africa, he says, has "always had a sophisticated market system and has punched above its weight".
Standard Bank expanded first into Africa, including Nigeria, Uganda and Botswana, and then turned its attention to emerging markets worldwide, including China. "It was the cherry on the cake when the biggest bank in the world, ICBC, decided to take a strategic 20% investment in our bank," says Maree. It was the biggest investment ever taken by a Chinese bank outside China and signalled clearly that China was interested in Africa. Standard Bank has also announced a strategic partnership with Troika Dialog, the largest independent investment bank in Russia.
One of South Africa's most successful companies is Media24, the print media arm of its oldest publisher Naspers, whose best-known newspaper is the once infamous national daily Die Burger, mouthpiece of the apartheid regime. Naspers has reinvented itself and now, in addition to the print business, has a pay TV arm and wide-ranging global internet interests. Like Standard Bank, it has bought into the world's biggest market, via a stake in Tencent, China's largest instant messaging platform, which has 230 million users. It has also acquired Tradus, the Eastern European equivalent of the online auction company eBay.
Francois Groepe, chief executive of Media24, says there are two reasons to expand into Africa and worldwide: "Much of the growth will be in developing countries, where the underlying economic growth is typically higher than the rest of the world." Equally important, he says, is that advertising spend as a percentage of GDP is often lower in developing countries: "Over time, one would assume that the gap would narrow; therefore we find the developing countries very attractive – the markets we focus on are African countries, sub-Saharan Africa, the BRIC countries – Brazil, India, Russia, China – where we focus on not only the print media but also on the technological side."
So is South Africa especially entrepreneurial? "South African business, because of the sanctions era, had to become very inventive," says Groepe. "There is a can-do attitude, particularly with rolling out into Africa, that stands us in good stead."
And there's another benefit, he adds: "We are seen as far less of a threat. We don't come with the geopolitical baggage that other players would come with."
The initial move abroad for South African companies came after sanctions ended and was born out of a need to diversify currency risk. Moving money into Africa was easier than abroad as it was encouraged by the Reserve Bank. Most companies pushed into several countries, working at higher operating margins in order to balance the operational and currency risks.
Retail expansion across Africa has been particularly successful. As Investec portfolio manager Rob Forsyth says: "The African continent is very brand loyal; with low disposable income, you need a high degree of certainty that the product will deliver what it says."
It's not that South Africa has been without its rivals. China and India have swept into Africa; and now homegrown African companies are taking back some market share.
Nevertheless, "the fact that South Africa's GDP, at an estimated $239bn (€168bn), is nearly 40 times that of the average African country makes it no surprise that South Africa has become one of the biggest investors on the continent in a decade," says African business specialist Dianna Games.
Meanwhile, at home, despite the prevailing economic climate – which has led to some agitation spilling onto the streets – the planning minister Trevor Manuel recently reaffirmed that the government's five-year infrastructure investment programme announced in 2006 is still on target to halve poverty and unemployment by 2014. Manuel, formerly the ANC government's popular finance minister, said the far-reaching programme would help to pull the country out of its first recession in 17 years.
Time was, not long ago, when South Africa was a pariah, isolated from the world and cut off from international sport, theatre, music and business. Even the Boeing 747s of its national airline were banned from African airspace and had to skirt the continent's coastline on their long journeys north.
Fifteen years into its new era of democracy, it is back in the fold of the international community. Singers and actors for whom visiting South Africa could have meant career suicide during the apartheid era flock to the country. The 2010 FIFA World Cup is eagerly awaited. And later this month Johannesburg is hosting a world summit on arts and culture, which could as well have been held in Munich, Vienna or Paris.
The same is true for the country's role in the wider business world. Multinational investors are back; but more and more, South Africa is becoming a net exporter of its own companies.
This trend has not been halted by the current recession. Although the economy is forecast to contract by 1.8% in 2009, it is still expected to expand by 2.1% next year. Africa's largest economy has been protected from the worst effects of the global recession by stringent banking regulations and exchange controls, leaving it well placed to make further inroads into international markets.
According to African Business magazine, 15 out of the top 16 companies on the continent are South African, as are 54 out of the top 90. And the companies in the former apartheid state are flexing their muscles and finding new markets in Africa and across the world.
"South Africa is probably the leading economy in the world," says Dr Martyn Davies, chief executive of Frontier Advisory, a research and strategy company working in frontier and emerging markets and director of the Centre for Chinese Studies at Stellenbosch University. "No other country of our size and economic ranking has produced as many globally successful Fortune 500 companies as we have. The only comparable country is South Korea. There is a phenomenal ability for South African companies to grow and go global from South Africa. No other comparably sized emerging market has been able to succeed in doing that; not even the Chinese, not even the Indians."
Many South African companies, particularly when the post-apartheid era dawned in 1994, turned their attention first to Africa. "We see Africa as a business opportunity. Sure it's risky, sure it's tough, but we have a saying: Africa's not for sissies," says Davies. "And the ability of the South African businesses to adapt to a challenging environment in Africa is extremely good, probably better than anyone else."
Current success stories include Standard Bank, presently in 17 African countries and in a further 19 worldwide; SAB Miller, which dominates the continent's beer brewing industry and is number two brewer in the world; Naspers, South Africa's largest media company; Shoprite Holdings, Africa's largest food retailer; fellow food retailer Nasmart; mobile phone operators MTN and Vodacom; and ABSA Bank.
All are seeing annual growth of around 40% year-on-year despite the economic crisis, a phenomenon Davies attributes to the rise of the African consumer, which, he says, "used to be an oxymoron; now it's a reality".
Jacko Maree, chief executive of Standard Bank, points out that South Africa represents 0.6% of the world's GDP, yet there have been times when the market capitalisation of the Johannesburg Stock Exchange was in the top 10 in the world; it now ranks at between 13 and 14. South Africa, he says, has "always had a sophisticated market system and has punched above its weight".
Standard Bank expanded first into Africa, including Nigeria, Uganda and Botswana, and then turned its attention to emerging markets worldwide, including China. "It was the cherry on the cake when the biggest bank in the world, ICBC, decided to take a strategic 20% investment in our bank," says Maree. It was the biggest investment ever taken by a Chinese bank outside China and signalled clearly that China was interested in Africa. Standard Bank has also announced a strategic partnership with Troika Dialog, the largest independent investment bank in Russia.
One of South Africa's most successful companies is Media24, the print media arm of its oldest publisher Naspers, whose best-known newspaper is the once infamous national daily Die Burger, mouthpiece of the apartheid regime. Naspers has reinvented itself and now, in addition to the print business, has a pay TV arm and wide-ranging global internet interests. Like Standard Bank, it has bought into the world's biggest market, via a stake in Tencent, China's largest instant messaging platform, which has 230 million users. It has also acquired Tradus, the Eastern European equivalent of the online auction company eBay.
Francois Groepe, chief executive of Media24, says there are two reasons to expand into Africa and worldwide: "Much of the growth will be in developing countries, where the underlying economic growth is typically higher than the rest of the world." Equally important, he says, is that advertising spend as a percentage of GDP is often lower in developing countries: "Over time, one would assume that the gap would narrow; therefore we find the developing countries very attractive – the markets we focus on are African countries, sub-Saharan Africa, the BRIC countries – Brazil, India, Russia, China – where we focus on not only the print media but also on the technological side."
So is South Africa especially entrepreneurial? "South African business, because of the sanctions era, had to become very inventive," says Groepe. "There is a can-do attitude, particularly with rolling out into Africa, that stands us in good stead."
And there's another benefit, he adds: "We are seen as far less of a threat. We don't come with the geopolitical baggage that other players would come with."
The initial move abroad for South African companies came after sanctions ended and was born out of a need to diversify currency risk. Moving money into Africa was easier than abroad as it was encouraged by the Reserve Bank. Most companies pushed into several countries, working at higher operating margins in order to balance the operational and currency risks.
Retail expansion across Africa has been particularly successful. As Investec portfolio manager Rob Forsyth says: "The African continent is very brand loyal; with low disposable income, you need a high degree of certainty that the product will deliver what it says."
It's not that South Africa has been without its rivals. China and India have swept into Africa; and now homegrown African companies are taking back some market share.
Nevertheless, "the fact that South Africa's GDP, at an estimated $239bn (€168bn), is nearly 40 times that of the average African country makes it no surprise that South Africa has become one of the biggest investors on the continent in a decade," says African business specialist Dianna Games.
Meanwhile, at home, despite the prevailing economic climate – which has led to some agitation spilling onto the streets – the planning minister Trevor Manuel recently reaffirmed that the government's five-year infrastructure investment programme announced in 2006 is still on target to halve poverty and unemployment by 2014. Manuel, formerly the ANC government's popular finance minister, said the far-reaching programme would help to pull the country out of its first recession in 17 years.
