PWC report: Local companies embrace international opportunities

PwC South Africa recently shared its eighth South Africa Economic Outlook report for 2022. 

The report focuses on local companies finding growth opportunities abroad, ranging from exports to direct investment deals.

Operation Vulindlela makes progress with freight transport

The report found that local container shipments for export declined by 17.5% year-on-year during the second quarter of 2022.

This after port activity was impacted by international supply chain disruptions, local electricity load-shedding and flooding in KwaZulu-Natal.

Apart from the transient supply chain challenges experienced, South African ports are also challenged by operational inefficiencies. 

On a positive note, the report found that Operation Vulindlela, a joint initiative of the Presidency and National Treasury to accelerate economic recovery, has made some progress of late regarding their objective of creating a competitive and efficient freight transport system in the country.

For example, with the necessary legislative and policy requirements now in place, Transnet was expected to release a request for proposals this month to set in place private partnerships in container terminals at the Ports of Durban and Ngqura from January 2023. 

ALSO READ: “We’ve made good progress” – Finance Minister on Operation Vulindlela

Lullu Krugel, PwC South Africa Chief Economist, says: “Reforms already achieved in the rail and port space, as well as ongoing and planned developments in these areas, will improve rail and port performance to the benefit of South African companies and their export business. Increased private sector involvement in the operation of railways and port terminals will bring key technical skills to the operation of key transport infrastructure and should improve operational efficiency”.

Looking abroad for growth opportunities

“South Africa’s economic growth rate is slowing to a long-term potential of 1.5% per annum, while the global trend is forecast at 2.6%. If these growth rates could be translated into the speed at which a car travels, South Africa would be driving at 60km/h while the global economy is driving at more than 100km/h,” the report explained.

“Clearly, there are faster-growing markets (compared to the local economy) available to South African firms who are willing to look abroad. Offshore investment is nothing new for South African companies, and during the second quarter of 2022, the country recorded a record-high value of R222 billion of outward merger and acquisition deals.”

NOW READ: To grow, SA has to embrace a new way to do business

SA dealmakers adapt to new business climate

Another PwC South Africa Senior Economist, Christie Viljoen, said that dealmakers are adapting to a new business climate where inflationary pressures, rapidly rising interest rates, short-term volatility in financial markets, supply chain disruptions, and geopolitical tensions all appear to be developing into longer-term trends.

“While these trends and the global economic outlook is uncertain, our research has found that deals made during a downturn are often the most successful,” Viljoen said.

Some South African companies have focused on neighbouring countries, with a notable deeper expansion into the rest of Africa, or beyond — to Europe, North America or Asia — with each company’s internationalisation route being different. 

Key content in this edition includes:

• Global macro environment: Update on key international factors and their local impacts.
• Export trends: Container shipments decline in 2022Q2 but planned port investment provides some optimism.
• Offshore investment: South African companies make record-high international M&A deals during 2022Q2.
• Where investors are looking: Long-term economic growth outlook in key export and investment destinations.
• International market entry strategy: Asking the right questions to find the right opportunities.
• M&A activity: Deals made during a downturn are often the most successful.

The report and associated projections are updated on a monthly basis — though revisions could occur more frequently based on major economic data releases or key influential events.

*Info and write-up supplied by PWC.