Voting with their feet: Are international investors leaving South Africa?

Are international investors leaving South Africa, voting with their feet because the country is not an attractive investment destination anymore?

Busiswe Mavuso, CEO of Business Leadership South Africa (BLSA), says in her weekly newsletter that you can expect that foreign investors will come and go, depending on many factors, including global strategies and our links to the rest of the world.

“While decisions are inevitably going to happen both ways, the more attractive our country is, the more often you can expect investment to be made than withdrawn.”

International investors: Withdrawal of investment dominating

She points out that it currently feels as if the withdrawal of investment is dominating.

The announcement last week that Shell will exit its downstream business in South Africa, mostly affecting its 600 petrol stations, was driven by many factors.

“It has shifted global strategy away from downstream, but if South Africa offered a predictable regulatory environment and a stronger economic growth outlook, such a decision could have gone the other way.

“Coming weeks after the news that BHP is keen to buy Anglo American, provided it first unbundles most of its South African assets, it is clear that global giants have lost appetite. People vote with their feet, capital has many addresses and if we do not make it easy to invest here it is going to land somewhere else.”

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Why do international investors think SA is not worth the effort?

What is it about South Africa that makes global boardrooms decide it is not worth the effort?

Mavuso says it has been interesting to see the political response to both companies’ decisions.

“Mineral Resources and Energy Minister Gwede Mantashe last week threatened Shell over future exploration licenses for its upstream business, saying ‘we should be more reluctant’ to grant permits and licenses to the company because of its decision.

“The same minister also described BHP as “not positive” for South Africa and that he would vote against its bid for Anglo if he could.”

Government rhetoric

Mavuso warns this kind of rhetoric is obviously going to be noticed in global boardrooms.

“It says the South African government is not one to respect the business decisions of companies. While it may legally have little discretion to intervene on companies’ licenses and to block transactions, that does not mean it does not want to.”

Any company must pause and consider whether the legal position may change in the future, given that government seems to be signalling that it is not so keen on companies acting in their own commercial interests, she says.

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Why did Amazon choose to invest?

Of course, some companies do choose to invest. Amazon Web Services last year committed to invest R30 billion in South Africa over the next 10 years, having already invested R15.6 billion and creating 5 700 jobs.

The company is also building a R4.5 billion head office in Cape Town and Mavuso says it is doing so in a welcoming environment that includes various incentives to support call centre employment, among other benefits for the company.

“The background reality is that our mining and manufacturing sectors have been shrinking while services have been growing.

“This has held true for the last 20 years, reflecting global conditions and the rise of cheaper manufacturing bases, but also the impact of policy uncertainty and the collapse of important economic infrastructure, particularly electricity supply and logistics.”

Mavuso points out that services companies are less exposed to the efficient working of ports and many can create their own power sources as they are not particularly power intensive.

There is less regulatory risk, given that it is hard to threaten services companies over licenses and other bureaucratic interventions.

“If we want to attract companies that must make big long-term investments in fixed infrastructure, like mines and manufacturers, we must create an investor-friendly environment. Investors are aiming to maximise their returns, full stop.

“If we make it clear that South Africa is a good place to do that, companies will come. But we have to instil confidence that South Africa is a business-friendly environment with a government that respects the commercial realities facing companies.”

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We cannot have a minister who threatens investors – Mavuso

Mavuso says having a minister who loudly proclaims displeasure and threatens investors with consequences, is only going to confirm what investors fear.

The better approach is to signal regret, but respect commercial decisions and redouble efforts to make South Africa attractive to investors so that next time the decision is different.

“I hear from some commentators that it is fine, local investors or other foreign investors will step in, but that is not true. Even domestic investors will keep their money on the sidelines if they perceive the potential returns to be low relative to the risks”

The importance of international investors

She also warns that foreign investors are also important in bringing international expertise to our economy, driving competition and ultimately improving the quality of service that end-consumers receive.

“Thanks to our low domestic savings rate, there is simply too little domestic capital to be able to provide all the investment that the economy needs. The fewer foreign investors that come, the poorer we are.”

Mavuso says president Cyril Ramaphosa has consistently signalled the country’s eagerness to attract investors and his annual investment summits are a visible effort to promote the country.

“But if we are to win over global boardrooms, we must follow the sentiment with action, eliminating policy uncertainty, signalling our respect for corporate decisions and of course delivering the structural reforms that will enable the economy to lift all boats.”

She says BLSA works hard to enable a conducive environment for business in South Africa, as well as many in government.

“However, we must be consistent and to follow through with policy decisions.”