A great trek of companies from South Africa is under way, even as the government talks of “reindustrialising” the economy.
Multinational companies increasingly view their South African operations as “orphan assets”, says Investment Solutions economist Chris Hart, pointing to plans by mining behemoth BHP Billiton to “demerge” most of its local mines into a separate company.
Billiton is not alone. Furniture giant Steinhoff International got the go-ahead from the Reserve Bank in July to move its primary listing to Frankfurt, the first major corporate move abroad since those by Anglo American, Old Mutual and SABMiller 15 years ago.
Since Steinhoff got the nod other companies have approached the Reserve Bank to do similar deals.
Sasfin economist David Shapiro says companies are “silently leaving”, seeking better projects and opportunities elsewhere.
The manufacturing sector has in the past six years shrunk from 16.4% of the economy to 11.1%.
In the same period “general government services” have swelled from 12.4% of GDP to 17.2%.
“The government has been pushing the private sector out of the economy for the past five years,” says Hart.
It is not only feeble economic growth – forecast by most economists to reach only about 1.5% this year – that is convincing big corporations to move.
A policy analyst at the South African Chamber of Commerce, and Industry, Pietman Roos, says the high cost of doing business here and general unpredictability of policy changes are major reasons.
“Several policy suggestions, including the investment bill, the Private Security Industry Regulations Amendment Bill and the agricultural property policy, contain direct threats to property rights. It is understandable if investors feel wary of even expanding their footprint,” says Roos.
Hart calls it “hedging against South Africa”.
Other big moves include:
- Gold Fields last year unbundled Sibanye Gold;
- Logistics company Bidvest plans to list its food business, one of its most lucrative divisions, in London;
- Sasol, the largest industrial company in the country, is making one of this decade’s largest foreign investments in the US; and
- AngloGold Ashanti, the third-largest gold miner in the world, tried to split its assets into a South African bundle and the rest. Shareholders were not keen to fork out more than R20-billion to ensure that the entity would be debt-free, a condition set by the Reserve Bank.
ANC secretary-general Gwede Mantashe last week accused business of being on an “investment strike”.
Roos says this not a fair portrayal and blames the regulatory framework for failing to ensure an environment friendly to business.
“The reality is that any business wants to expand, but the regulatory cost and policy uncertainty does not make it worthwhile,” he says.
Hart calls Mantashe’s comments “utter rubbish”.
“If you look at the latest Reserve Bank quarterly bulletin you’ll see that about two-thirds of the investment in this country comes from the private sector,” he says.
Greener pastures are not necessarily over the ocean. The Automotive Leather Company, a manufacturer based in Pretoria, is relocating to Lesotho to cut costs, it was reported last week. The move could result in the loss of as many as 600 jobs.
“We are the ‘sick man of the emerging markets’,” says Hart.
South Africa used to be attractive as an emerging market because of its good capital markets and because it was big enough to form a critical mass for investors.
“It has been a slow puncture,” says Hart.
South Africa slips a few places down the World Economic Forum’s global competitiveness report every year, dropping to 56th in 2014.
“When you are attractive, you attract capital easily. You don’t have to do all sorts of peculiar things,” says Hart.
Source: [timeslive]
