Gateway to Africa

By Gary McLean, partner, Allen & Overy.

“Africa is the last great economic frontier and South Africa is the gateway.”

These words by Yvonne Johnston, delivered in a speech during the International Marketing Council of South Africa’s mission to Germany and the UK in June 2005, may be argued by the more cynical investor to be little more than marketing hyperbole. The recent investment by Barclays of $5.5bn of its shareholders’ money into a majority stake in South African bank Absa, however, displays a contradictory opinion and represents a strong vote of confidence in the African country.

As the developed world continually looks to the emerging economies of the developing world for new investment opportunities, it is becoming increasingly evident that Africa cannot be ignored. South Africa’s continued economic growth and stability offers a platform for investors wishing to expand into the African markets.

During his 10th budget speech to the South African National Assembly on 15 February 2006, South African Minister of Finance Trevor Manuel presented an extremely positive picture of the South African economy and its potential for continued growth on the basis of sound macroeconomic, fiscal and monetary policies. “Business confidence is strong; investment and employment creation have gained momentum; inflation and interest rates remain moderate,” he said.

Years of civil unrest, social and economic inequality, oppression and underdevelopment have given way to a more stable investment environment offering an advanced telecommunications and transport infrastructure, modern banking and financial services (with a sophisticated and well developed stock exchange), electrical power at one of the cheapest rates in the world, rich natural resources and cutting edge technology.

Investment opportunities are available in all sectors of the South African economy. To highlight a few of these[1]:

South Africa has a strong agriprocessing industry with many of the worlds largest agriprocessing companies (Coca-Cola, HJ Heinz, Unilever) having a presence in the country.
South Africa offers the automotive and components sector the benefits of low production costs and access to new markets as a result of trade agreements with the EU and SADC.
South Africa’s chemical sector remains extremely strong with South Africa being a world leader in the manufacture of synthetic fuel from coal.
The South African IT industry is regarded as being one of the best in the world. Its technologies, equipment and skills are well placed to take advantage of the expansion of telecoms and IT across the African continent.
South Africa is a strong competitor in the food and beverage industry in terms of both processing and research.
South Africa remains one of the most mineral rich countries in the world, holding the largest reserves of gold, platinum, manganese ore, chrome ore and titanium metals.
The country’s tourism industry continues to go from strength to strength with eco-tourism offering excellent investment opportunities.

There is every indication that South Africa is going to be a focal point for prospective international investors in the decades to come. In Ms Johnston’s words: The new South Africa works.

Reference

1. www.southafrica.info