All That Glitters

South Africa has transformed itself in the past 20 years

When millions of people voted in South Africa’s general elections in April 1994, they had one thing in mind – freedom from the apartheid regime. And it was that desire for freedom that fuelled the election of Nelson Mandela to preside over Africa’s largest nation and pull it back from the brink of disaster.

Twenty years on, the country has made giant strides toward restoring political and financial stability, with tangible results. The economy has been growing at an average annual rate of 3.2 per cent, compared to only 1.5 per cent in the 1980s, while employment has soared by 60 per cent over the last two decades.

Today, Johannesburg Stock Exchange (JSE) ranks among the world’s top 20 stock exchanges in terms of market capitalisation and was worth more than $1 trillion at the end of last year. However, until three years ago, foreign companies were subject to foreign exchange rules which limited the amount of equities local investors could hold.

Having changed rules to allow locally established foreign companies to be treated as domestic listings, JSE’s regulatory shift attracted its first new member in three years. Dubai-based Arqaam Capital, JSE’s first brokerage from the GCC region, joined several heavyweights on the South African equity market, including British American Tobacco and SABMiller.

“Arqaam South Africa offers exposure to African stocks to over more than 700 mature market and Middle East and North Africa investors,” says Riad Meliti, the firm’s chief executive.

Like JSE, South Africa is widely regarded as a gateway to the continent with a multitude of international players choosing to establish their regional offices in the country, from technology pioneers like Huawei and Acer to aerospace giant Bombardier.

While Acer Africa set up its base to export to the Southern African Development Community, Angola and the islands along the Indian Ocean, Vodafone expanded into Kenya, Mozambique, Tanzania and Ghana after launching a local hub in 2009.

It is not merely geographic positioning. South Africa has stayed ahead of the game by creating 11 different incentive schemes to spur international investment.

The Headquarter Company (HQC) regime was introduced to increase the country’s appeal as a gateway for foreign multinationals, eliminating barriers such as controlled foreign company rules, dividend withholding tax and capital gains tax.

Many HQCs went further by setting up factories to benefit from the incentives offered by the country’s Special Economic Zones.

“South Africa is among the countries well known for manufacturing,” says Pumla Ncapayi, deputy director general of Trade and Investment South Africa, a unit of the Department of Trade and Industry (DTI).

“We are now focusing on the Special Economic Zone programme, where we offer 14 per cent off the tax rate for companies and benefits like the 12l tax allowance [for greenfield and brownfield projects]. We have four free zones and are looking at increasing them to 10.”

The UAE has yet to take advantage of South Africa’s new investment-friendly environment. It is currently South Africa’s 20th largest trading partner, with bilateral trade valued at around $3 billion last year, compared to Saudi Arabia’s trade value of $7.5 billion.

Investment by UAE firms in South Africa is also below potential, sitting at about $38.9 million, with companies like GAC Logistics and Better Homes already profiting from this sizeable market.

“Our export capacity over the years has been characterised by commodities in terms of the GCC region. We have been focusing on exporting our agroprocess products as well as machinery and automotive parts into the region and we are also looking at supplying juice, canned food and frozen products,” says Ncapayi.

DTI has created a policy framework to put South Africa at an advantage in a number of sectors focusing on manufacturing, which goes hand in hand with infrastructure developments taking place in the country.

As much as $80 billion has been allocated for new and upgraded infrastructure over the next three years, according to Pravin Gordhan, the country’s Minister of Cooperative Governance and Traditional Affairs.

“South Africa is championing one of the largest infrastructure programmes in the world,” says Ncapayi. “That also extends to energy.”

Meanwhile, the mining landscape appears to be glittering once again. Although South Africa fell from being the world’s number one gold producer to number six, former deputy president Kgalema Motlanthe recently stressed the industry should not be measured solely by the performance of its gold sector.

He said there were huge proven unexploited deposits in other sectors, including iron ore, platinum, chrome and diamonds.

Wasting no time, De Beers, the world’s second biggest diamond producer, recently entered the market with a $2 billion investment to extend the lifetime of its Venetia Mine in South Africa beyond 2040, taking its investment over the past 14 years to $18.7 billion. The new mine is expected to start underground production in 2021, replacing the existing pit as the country’s largest diamond mine.

AT Kearney’s Foreign Direct Investment (FDI) confidence index, conducted across 300 of the world’s leading multinational corporations, ranks South Africa as the 13th most attractive destination globally.

And with tourists reaching their highest level ever last year with nearly 10 million visitors, South Africa is proving a viable investment destination.