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South Africa in Africa: Development Partner or Investment Predator?

South Africa Foundation

Occasional paper, No 3/2004, June 2004

Posted with permission from the South Africa Foundation
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Executive Summary

South Africa’s presence in the rest of Africa has to be seen in the dual context of its relative economic size and sophistication, together with the insolation the country endured through the apartheid years. The South African economy contributes 19% to the total African economy, one-third of sub-Saharan Africa’s and nearly two-thirds of the Southern African Development Community (SADC) gross domestic product (GDP).

Trade, projects and investment are closely linked to many facets of South Africa’s expansion into the region, a factor that has assisted many South African companies in entering new markets. Much of the project work and related trade flows are linked to large capital investments in key sectors of the host countries’ economies by South African based multinational companies.

South Africa’s traditional isolation from the rest of the continent is belied by the fact that in the Southern African Customs Union (SACU), the country has had a decades old presence in virtually every sector of those economies. In addition, these countries account for the bulk of investment by South African businesses in the rest of the continent, by numbers of investments.

This scenario is changing fairly quickly as key South African companies expand into markets further afield, notably the greater Southern and East Africa region, and more recently into West Africa. North African activity is less pronounced.

South Africa is now the key investor in the rest of Africa, according to the United Nations Conference on Trade and Development (UNCTAD), with investments of roughly US$1.4bn per year in the last decade.

South African companies have often been at the forefront of investing in markets that have opened up to the global economy, in a variety of sectors, notably financial services, information communication technology (ICT), retail and mining, where South Africa has key strengths.

Investment in the ‘new economy’ sectors such as ICT and financial services has tended to follow economic liberalisation, whilst investment in the ‘old economy’ of mining, retail and related industries has followed a less predictable path, with investment often despite, rather than because of the prevailing environment.

Services sectors are becoming a larger part of the South African presence, although are far more difficult to track. Outside of the large financial, ICT, retail and mining services sectors, there are new sectors emerging such as the oil industry services cluster in Cape Town, advertising, franchising, architectural design, education and management contracts. Again, these draw in a variety of other South African companies and interests into the region.

South African state owned enterprises have become a key link in the development of the continent, whether in their own right or as levers for private sector development and investment in other markets in Africa.

Broadly speaking, South African investment in the region has competed with investment from the host countries as well as from ex-colonial powers, Europe in general, the USA, and more recently emerging global economic powers such as Brazil, China, Canada, Australia and India.

On balance, South Africa’s activity in the region appears to be neither of the two extremes, that of a partner or a dominator. Companies operating in other African markets, more often than not, are basing investment or project decisions on the merits of each case, and more importantly the desire of the host country to attract foreign direct investment into the country. South Africa should thus be seen in terms of the global dynamic – not in the region to either rescue it or dominate it, but rather to become part of the increasingly intertwined regional and global fabric.



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