Talk about foreign direct investment (FDI) in Africa has become the mode du jour and the South African private sector appears to be putting its money where its mouth is.
Last year South Africa invested in more new FDI projects in Africa than any other country in the world, and the number of projects from the country has increased by almost 536% in the past decade, according to a 2013 report by FDI Intelligence, a company which provides insights into, and advice on, cross-border investment.
Ernst & Young's 2013 Attractiveness Survey found that South Africa has created almost 46 000 cumulative jobs through foreign direct investment in Africa since 2003.
Last year alone, the number of South African FDI projects increased by 23%. This happened despite 2012's grim global numbers, showing the second-biggest decline in FDI since the start of the recession, according to the FDI Intelligence report.
Last year South Africa accounted for 75 projects, said Charlie Pistorius, an analyst at the Africa Business Centre at Ernst & Young. This made up over 12% of the rest of Africa's FDI total. The capital committed for these projects was about $1.4-billion (R14-billion).
The country's Number 1 position, however, is based on the number of projects committed to rather than the amount of capital invested. If measured strictly by capital invested, India, the United States, the United Kingdom, Canada and China had committed more capital than South Africa to the rest of Africa during 2012, said Pistorius.
Project activity"But these countries had far less project activity," he added. "For instance, India's capital amount was more than four times more, but for only 35 projects; and Canada's 12 projects and China's 28 projects saw capital allocations of $2.8-billion and $2.2-billion respectively."
There is a similar division with regard to FDI activity deployed from the country: the number of projects in a certain sector is not representative of the capital allocated to it.
According to Pistorius, most investments (by project activity) are taking place in the broader service sector, mostly in financial and business services and communication.
These are followed by consumer product groups such as beverages, food and tobacco, and then resource-related projects.
The means of economic activity towards which these investments are deployed reflect internal activity.
"Overall, the trend into Africa follows South Africa's economic activity footprint: manufacturing, support services (sales and marketing and business services), infrastructure-related activities, then extraction and retail," said Pistorius.
Capital allocationHowever, even though half of all projects are in the broader service economy, they have only received 4% of capital allocation.
On the other side of the spectrum, infrastructure-related projects have counted for only 13% of all project investment activity since 2003, but have the largest chunk of capital allocation, at nearly 40%.
The most equally representative sector is manufacturing. Since 2003 manufacturing projects have made up one-quarter of all project investment activity, and they have received a similar amount (about 30%) of capital allocation.
In 2012, this amount increased to 43% capital investment. Of the groups making new investments, Pistorius said that the corporate private sector seemed to be leading the pack.
"In my opinion … the corporate private sector is undertaking far more new project investments into Africa relative to its SOC [state-owned counterparts]."
Ernst & Young's database did not specify which corporations the investments were coming from.
However, the companies "more actively" investing in new projects in the rest of Africa fell into three main categories, said Pistorius.
These were telecommunications, with MTN being the most active; financial services, including banks such as Standard Bank, First Rand, Sanlam and Liberty Life, and retailers such as Shoprite, Pick n Pay, Woolworths and Massmart.
"More active" companiesMark Tunmer, group chief executive of asset management company Imara, agreed. "On the ground, companies like Shoprite, MTN and Standard Bank seem to be the most active," he said.
From a retail perspective, Shoprite had been extremely successful in establishing itself on the continent, said Tunmer. The group currently has 131 stores in 16 countries throughout Africa (excluding South Africa). It employs 11 000 people in these operations.
Last year, turnover in non-South African Shoprite stores increased by almost 20%, using constant currencies. The increasing disposable income on the continent was marked by an increase in the number of customer transactions and the fact that the average consumer bought about 10% more each time he or she shopped.
Despite the growth in sales however, infrastructure expansion was difficult, said Shoprite in its annual financial report, ended June 2012. "Obtaining suitable sites remained the major impediment to growth," it said.
Nevertheless, the group opened 18 new stores during the year and is scheduled to open 30 more by the end of June 2013. One of the new stores was located in Kinshasa in the Democratic Republic of Congo.
"Shoprite is the first South African retailer to open its doors in that country," wrote chief executive Whitey Basson.
Cutting operations in emerging marketsStandard Bank has the biggest banking footprint in Africa, with operations in 17 countries. It is consolidating its focus on the continent by cutting its operations in other emerging markets such as Latin America. Nonetheless, the other retail banks have joined the race for market share.
Late last year Absa spent R18-billion buying up the Africa business of its parent company, Barclays, which has a presence in 12 countries, including Kenya, Ghana and Uganda, the Mail & Guardian reported in March.
First Rand recently acquired the Merchant Bank of Ghana and Nedbank has now taken a 20% stake in Ecobank, which set it back over $200-million but gave it access to 35 African countries.
In the telecommunications field MTN had seized the window of opportunity to expand into Africa when the time was right, said Tunmer.
"You know what they say: if you own the distribution channel, you own the market. If MTN had not expanded into Nigeria, it would not be the company it is today."
According to MTN group chief executive Sifiso Dabengwa, this expansion had involved significant capital investment.
"MTN has invested approximately R98-billion through capital expenditure in the past four years, with a further R28-billion allocated for the 2013 financial year," he said.
"A significant portion of this goes towards expanding and improving network coverage and quality across operations in Africa and the Middle East … notably in South Africa and Nigeria."
Funding African operationsThe company aimed to fund its African operations through its cash flow and by raising capital in the host country as the market became more mature, said Dabengwa.
"In Nigeria, for example, investments are funded locally, as the operation is able to raise third-party funding," he said. "However, in less mature markets, the operating companies still benefit more from group funding."
According to Pistorius, the burgeoning Nigerian market is South Africa's top destination for FDI. It is followed by Ghana, Namibia, Zambia Angola, Kenya and Mozambique.
South African investors favour these markets for a combination of reasons: "high growth, high opportunity, relative sophistication (whether financial market development in Ghana or ICT in Kenya), regional importance and resource richness," said Pistorius.
While each of the markets has its own merits, they also all boast "an attractive and growing demographic dividend and consumer dynamic".
Investment in other African markets is a difficult undertaking that requires toughness and a long-term perspective, said Tunmer.
Brian Mugabe, head of African research for Imara, which recently developed a platform from which to invest in other African countries, agreed. "Investing into Africa is a long-term gain," he said.
