Foreign companies are leaving South Africa due to a hostile business
environment, and the government’s response to recent departures
discourages future investment.
This is according to Business Leadership South Africa CEO Busi
Mavuso, who explained in her most recent newsletter that the more
attractive a country is, the more often you can expect investment to be
made than withdrawn.
“You can expect that foreign investors will come and go from South
Africa, depending on many things, including global strategies and our
links to the rest of the world,” she said.
“But while decisions are inevitably going to happen both ways, the
more attractive our country is, the more often you can expect investment
to be made than withdrawn.”
She said it feels now that the withdrawal of investment from South
Africa is dominating. Shell announced last week that it will exit its
downstream business in South Africa, mostly its 600 petrol stations.
Mavuso said this decision was made based on various factors, including Shell shifting away from downstream.
However, if South Africa had offered a predictable regulatory
environment and stronger economic growth outlook, the decision could
have been different.
Shell’s decision came weeks after mining giant BHP announced it was
interested in buying Anglo American, provided it first unbundles most of
its South African assets.
Mavuso said these two instances make it clear that global giants have lost appetite.
“People vote with their feet, capital has many addresses, and if
we’re not going to make it easy to invest here, it is going to land
somewhere else,” she warned.
Mavuso highlighted the political response to both companies’
decisions. She pointed to Mineral Resources and Energy Minister Gwede
Mantashe, who last week threatened Shell over future exploration
licenses for its upstream business.
The minister said South Africa “should be more reluctant” to grant permits and licenses to the company because of its decision.
Mantashe also described BHP as “not positive” for South Africa and said he would vote against its bid for Anglo if he could.
“This kind of rhetoric is obviously going to be noticed in global
boardrooms. It says the South African government is not one to respect
the business decisions of companies,” Mavuso said.
“While it may legally have little discretion to intervene on
companies’ licenses and to block transactions, that doesn’t mean it
doesn’t want to.”
“Any company must pause and consider whether the legal position may
change in the future, given that the government seems to be signalling
that it is not so keen on companies acting in their own commercial
interests.”
She explained the background reality is that South Africa’s mining
and manufacturing sectors have been shrinking while services have been
growing.
While this has been true for the last 20 years and reflects global
conditions and the rise of cheaper manufacturing bases, it is also due
to the impact of policy uncertainty and the collapse of important
economic infrastructure, particularly electricity supply and logistics.
“If we want to attract companies that must make big long-term
investments in fixed infrastructure, like miners and manufacturers, we
must create an investor-friendly environment,” she explained.
“Investors are aiming to maximise their returns, full stop. If we
make clear that South Africa is a good place to be able to do that,
companies will come.”
However, she said South Africa has to instil confidence that the
country is a business-friendly environment with a government that
respects the commercial realities facing companies.
“I can tell you that having a minister who loudly proclaims
displeasure and threatens investors with consequences is only going to
confirm what investors fear,” she warned.
“The better approach is to signal regret but respect commercial
decisions and redouble efforts to make South Africa attractive to
investors so that next time the decision is different.”
Some have argued that foreign companies disinvesting from South
Africa are not a major problem, as local investors or other foreign
investors will step in.
However, she said that is not true, as even domestic investors will
keep their money on the sidelines if they perceive the potential returns
to be low relative to the risks.
Foreign investors are also important in bringing international
expertise to South Africa’s economy, driving competition and ultimately
improving the quality of service that end-consumers receive.
“Thanks to our low domestic savings rate, there is simply too little
domestic capital to be able to provide all the investment that the
economy needs,” Mavuso said. “The fewer foreign investors that come, the
poorer we are.”
Mavuso highlighted that some foreign companies do choose to invest in South Africa.
For example, Amazon Web Services last year committed to invest R30
billion in South Africa over the next 10 years, having already invested
R15.6 billion and created 5,700 jobs. It is also building a R4.5 billion
head office in Cape Town.
“It does so in a welcoming environment that includes various
incentives that support call centre employment, among other benefits for
the company,” Mavuso said.
She explained that services companies are less exposed to the
efficient working of ports, and many can create their own power sources
given they are not particularly power intensive.
“There is less regulatory risk, given it is hard to threaten services
companies over licenses and other bureaucratic interventions on their
businesses,” she said.
