Big-name companies are beating a path to South Africa’s door contradicting the notion that investment into the emerging South African market economy has gone flat.

While many maintain that investment into South Africa is stagnant, interest in manufacturing, mining, retail and renewables paint a different picture. In the last year alone, globally-recognised entities such as Tronnox, Faw, Zara and Gap have arrived in South Africa to stake their respective claims on an ever-growing market.

On the east coast of South Africa, Tronox has completed a share-swap deal with South African mining conglomerate, Exxaro. KwaZulu-Natal-based Defy has been bought out by a Turkish appliance company. And a Chinese truck manufacturer has just begun construction on a Eastern Cape assembly plant.

In retail, Gap and Zara opened two stores apiece in recent months. Gap entered with a bang after selling in Stuttafords for the last five years (that relationship is set to continue) by opening two stores, one in Johannesburg and one in Cape Town. Zara landed in Johannesburg late last year and recently opened a store in Gateway. Massmart’s sale to Walmart was met with mixed emotions by South African consumers 

Mining
‘Investor drought hits SA mines’. ‘Regulatory uncertainty puts investors off SA mine assets’. These are two headlines that ran in newspapers in early 2011 that don’t portray mining in South Africa in a particularly great light. However, Susan Shabangu, minister of Mineral Resources has been instrumental in changing the blemished view of South Africa as a mining investment destination. 

In September 2011, US-based pigment-producing Tronox announced a deal with SA-based diversified miner Exxaro to acquire Exxaro’s mineral sands operation which include which include Exxaro’s 50% stake in the Tiwest joint venture with Tronox in Western Australia, along with 74% of Exxaro’s KZN Sands and 74% of its Namakwa Sands operations in South Africa. This was in exchange for approximately 38.5% of Tronox’s equity. The ‘share exchange’ between the two has been valued by Exxaro at R10.7-billion.

This deal came amid whisperings of mine nationalisation in South Africa. However, Tronox CEO Dennis Wanlass claimed that due to the 20-year relationship with Exxaro, the decision was a ‘comfortable’ one. Moreover, the deal speaks volumes about the climate for enabling business in South Africa.

This deal allows Exxaro to turn its attention more to its primary, coal production, while maintaining a 26% share in both the mineral sands operations of KZN Sands and Namakwa Sands.

In early 2012, the Fraser Institute releases an annual poll on the attractiveness of mining in different jurisdictions. South Africa ranked 54 out of 93 countries and provinces, a noteworthy improvement from being 67th out of 79 jurisdictions in 2011.

Manufacturing
In July 2011, South Africa’s household appliance manufacturer Defy was sold to a Turkish appliance company. Arçelik, the third-largest appliance maker in Europe paid $327-million dollars for the Durban-based company. Defy posted 2010 sales of about R2.5-billion and exports to other African countries. Defy is well-positioned to serve the growing African consumer demand. As a result, Arçelik’s purchase of the South African giant makes sense in the context of their expansion plan. ‘Through this acquisition Arçelik will strategically position itself on the African continent, which I believe offers high growth potential. Koç Holding will continue to support acquisition opportunities for Arçelik in the framework of its global growth plans,’ said the chairman of Arçelik’s parent company Koç Holding, Mustafa Koç.

Automobiles
In February 2012, FAW Trucks broke ground on their Coego assembly plant. The plant is set to have an production capacity of 5 000 medium to heavy trucks per annum and will service the local market as well as some of the other African states – Angola as one of them. The Chinese truck company is investing R600-million into the plant which is expected to be operational by the end of 2013.

Retail

In November 2011, Spanish clothing store chain giant, Zara, opened its first South African store (and one of its largest), in Sandton City, Johannesburg. In March 2012, it opened its second store in Gateway, just outside Durban. Further expansion is planned into Cape Town’s metropolitan Waterfront where it will join European luxury brands Louis Vuitton (France), Burberry (UK), Armani (Italy) and Boss (Germany). Inditex is the world’s largest apparel retailer followed by another entrant into the South African market, Gap Inc.

Building on the already existing relationship between Stuttafords department stores and Gap, the two opened another two stores in March. The first store joins Zara at Sandton City while the other was opened in Tyger Valley just outside of Cape Town.

The well-known case of Walmart’s continued global expansion into South Africa through its majority purchase of Massmart Holdings is another example of the business world’s positive view of business in South Africa. There was concern about that local small and medium suppliers would be overlooked causing an even larger job problem in South Africa. However, the verdict from the Competition Appeal Court has been largely celebrated as it both presents South Africa as investor friendly while looking to protect small businesses and create jobs.

Renewable Energy

South African firms are not missing out on investment opportunities in the country either. Earlier in March, I reported on the unveiling of the first-ever rotor blade to be manufactured in South Africa which began construction in December 2011. DCD Wind Energy, a South African specialised engineering conglomerate, owns a majority stake in Isivunguvungu, and is largely responsible for the project which is manufacturing 2.5MW wind turbines for a wind farm in Saldanha Bay on the west coast. The project has created 32 direct jobs so far and foresees hundreds more as the project expands.

South Africa, the gateway to Africa
Overwhelmingly, investors are seeing South Africa as the springboard from which to reach Africa. (Walmart, mentioned above, has been very upfront with its strategy of using South Africa as a way to spread through the rest of the continent.) Moreover, many are looking to partner with South African firms who better understand the African culture and market. One of the major points that came to the fore at a recent Africa Frontiers Forum panel featuring Wesgro CEO Nils Flaatten was that South Africa is seen as a gateway through which other countries (both developed and developing) can do business with the rest of Africa. 

International business is taking South Africa seriously.

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