In April 2018, our president set a goal to attract $100 billion in direct foreign investment into South Africa over the next 5 years. According to World Bank and SARB figures, South Africa made a strong start in 2018, recording $5.57bn in investment, an increase of 446% on the year before and followed that up with a respectable $4.62bn in 2019. Then came Covid 19 and the world shut its doors, choosing to focus on their own economies as consumers were forced to stay home and the leisure and tourism industries all but collapsed. But still, South Africa recorded investments from abroad of $3.4bn and that feeds into a bigger picture we as South Africans should take notice of.

 

It is easy to think that in a year when the world turned inward, that our president’s pledge on foreign direct investment targets would be a fading echo drowned out by the bickering in Parliament. Despite this, foreign entities continue to choose to invest in a bout of confidence that possibly went unnoticed between the usual worries about load-shedding, corruption scandals, and how to cope with the kids being in the house 24/7. It is important to identify what a realistic goal looks like here. We are not attempting to convince the entire world to invest in our country, but rather nurturing a select handful of relationships toward sustained and meaningful investment.

 

This is something of which we as DLI must constantly remind ourselves – we are not going to convince everyone we engage with to consider investing in our clients’ businesses, but that is not our aim. Our aim is to search through several different streams in search of the golden nugget. This then allows focusing our efforts where true value lies. It is in identifying and nurturing these kinds of relationships that we start to see the greater impact underlying Ramaphosa’s pledge. It only takes a handful of these shows of confidence, and a stable and transparent business environment before we start seeing momentum and economic growth feed off each other.

 

 

Over the last 18 months, DLI has engaged in a conversation with over 700 international investors discussing potential investments in South Africa. Of these, only about a third of them said they would not consider investing in South Africa under any circumstances, whether by mandate or unfamiliarity with the region. That still leaves about 450 potential rivers to explore in search of our proverbial golden nuggets, despite a global pandemic that continues to throw up obstacles, including our current third wave.

 

So, let us put reality on the table. In the last few months, we have observed a few large international entities continuing to invest in SA. One can point to the takeover consideration by Heineken of Distell, acknowledging the opportunity to scale up operations after the South African distiller has invested in world-class manufacturing operations. Additionally, we can highlight the $50bn earmarked by US Private Equity firm Sassoon Group for investments in South Africa over the next 5 years, having already invested in Bluedrop Energy and targeting further investments in infrastructure and renewable energy. That is not to mention Swedish mining technology companies Epiroc and Sandvik’s respective acquisitions of South Africa’s MineRP and Kwatani, two companies borne out of South Africa’s globally respected mining industry. Deals such as these remind us that South Africa produces businesses of an extremely high calibre.

 

It should therefore be understood that these decisions are not only good for job growth and increased economic opportunities but are also statements by prominent international companies of their confidence in South Africa in the coming years. From a macroeconomic viewpoint, this is something that will continue as international investors seek growth outside of low-yield developed markets. South Africa, alongside other emerging markets, offers growth opportunities as populations increase and ongoing development continues – but it is differentiating ourselves as an easy-to-do-business environment that needs to be our focus. This is why policy stability and transparency are so critical to encouraging further investment, and why we should be aware of international sentiment when it comes to policy decisions. This is something that will need ongoing discussions, including direct feedback from international investors looking to our shores to make informed decisions.

 

Beyond the jobs created and economic stimulus, an overseas investor looking to acquire a company in South Africa will need to consider a whole host of information and assess several risks. Simply acquiring another company involves understanding the cash flows that the company will likely produce over the next 10,15 or even 20 years, the sensitivities those cash flows have to the business cycle, understanding each of the assumptions that go into forecasting those cash flows, assessing the additional capital expenditure and working capital requirements, and then understanding the opportunity cost of investing that sum into a risky venture. None of this even touches on the country risk, the currency risk, or the changing political and economic environments that SA is faced with.

 

So, while it may be tempting to ask why anyone would invest here when the headlines seem to continuously point out the multitude of issues, it is always important to consider three things:

 

Firstly, negative news tends to get more engagement, and thus more ad revenue. Just because the headlines all seem to be depressing and pessimistic does not necessarily mean that all hope is to be abandoned.

 

Secondly, we do not factor particularly highly in the global news cycles and so most potential investors know very little about what is going on here. This presents both a challenge and an opportunity. There is not a lot of knowledge around doing business in South Africa, particularly when it comes to Broad-based black economic empowerment (BEE). Many of our conversations can begin with clarifying simply where on the globe South Africa is but very often end with discussions on the growth in emerging markets compared to low-yielding developed markets. The one thing that remains consistent in each of these conversations though, is they usually end up with the acquirer considering South Africa in a new light – and, at the end of the day, the more we can reduce market ignorance the better our chances of unearthing those golden nuggets.

 

Finally, those that are already investing here continue to do so not because they do not see the risks, but because they see the potential. DLI is simply attempting to play its part in driving these investments, not by trying to change the entire world’s mind about the risks involved in investing here, but rather by identifying those that are willing to look beyond the risk and see the vast potential rewards on the horizon.

 

Deal Highlights

Deals Across the Finish Line!

 

EOH agrees to sell Sybrin unit for R334m