South African Multinationals and Economic Development in Africa Presentation to Conference on “Emerging Multinationals. Who are they? What do they do? What does it mean?” OECD Conference Centre, Paris Michael Spicer – CEO Business Leadership South Africa Monday, 27 March 2006 BUSINESS LEADERSHIP SOUTH AFRICA Former South Africa Foundation, re-branded November 2005. Analogous to US Business Round Table, Canadian Council of Chief Executives and Australian Business Council. Represents top 50 Johannesburg Stock Exchange listed companies, top 20 multinational subsidiaries in South Africa and top 5 State Owned Enterprises (SOE’s). Market cap of listed members R2 264b ($360b) 66% total JSE 2 EMERGING MULTINATIONALS THE SOUTH AFRICAN CASE Only indigenous Sub Saharan African multinationals to have emerged in C2O. Apartheid and isolation largely restrict companies to SA and Southern Africa. Few exceptions like Anglo American with Minorco (North and South America) and long African legacy Post 1990, SA rejoins world economy and SA companies rapidly globalise, playing catch up 3 EMERGING MULTINATIONALS THE SOUTH AFRICAN CASE Mid 1990’s with exchange control and need for global capital and reach, London listings. Billiton, subsequently BHP Billiton, now world’s largest mining company. Anglo American, world’s second largest mining company. South African Breweries, world’s second largest brewing company. Old Mutual, just taken over Skandia, insurance/financial services company. Didata, IT company. Investec, bank. All in FTSE top 100 save Didata. 4 EMERGING MULTINATIONALS THE SOUTH AFRICAN CASE Top 50 non financial TNC’s from developing economies ranked by foreign assets (UN World Development Report 2004 and 2005) Sappi (11th) – Paper and packaging Sasol (12th) – Energy and chemicals MTN – Cellular telephony Barloworld – Manufactured goods and logistics AngloGold Naspers – Media company, significant investment in China Nampak – Packaging company 5 SOUTH AFRICAN vs SUB-SAHARAN AFRICA: 2003 Largest economy in Africa: 36,4% SubSaharan Africa GDP, 69,1% SADC. 63,5% telephones (fixed). 45,7% telephones (mobile). 39,8% personal computers. 50% paved roads, railways. Largest investor in Africa from 1994 to 2004 - $1,4 billion per annum (UNCTAD figures) Source: “World Bank, World Development Indicators, 2005” 6 COMPANIES ACTIVE IN AFRICA Sasol MTN AngloGold Barloworld Banks – Standard, ABSA (now taking over Barclays Africa interests), FNB/RMB, Nedbank Retail – Shoprite and 10 others SOE’s – Eskom, IDC, DBSA, Transnet In 2004 – 92 top 100 SA companies active in Africa. Just under half having investments which might be regarded as significant. (Versus 18 in 1993, almost exclusively in Southern Africa). These companies had made 232 investments in 27 countries employing 72 000 people with profit margins of 25 – 50 percent since 1994. Source for this and following slides unless otherwise states: “South Africa’s Business Presence in Africa”, South Africa Foundation, 2004. 7 SOUTH AFRICAN BUSINESS AS A REGIONAL INVESTOR 1993 18 of SA top 100 listed companies invested in rest of Africa 2004 40 of SA top 100 listed companies invested in rest of Africa 232 investments in 27 countries employing 72 000 people Source: “Who Own’s Whom, Africa In., November 2004 8 SOME MAJOR SOUTH AFRICAN INVESTMENTS ON THE AFRICAN CONTINENT BHP Billiton: Mozal Phases 1 & II = >$2bn Sasol: Temane-Secunda pipeline = $1.1bn MTN: Nigerian licence fees = $280m Total investment 2004 = $900m Vodacom: Tanzania = $150m DRC = $150m Mozambique = commitment of $150m Anglo Platinum: Unki (Zimbabwe) Implats: Zimplats (Zimbabwe) AngloGold: Mali = $400m Ashanti = $1.5bn Anglo Base Metals: Skorpion (Namibia) = $450m Eskom: DRC – Inga project = $1bn SA Breweries: Maputo and Beira breweries = $50m Source: Mail & Guardian various. 9 MTN NIGERIA - CASE STUDY Invested $900 million in 2004 Results Revenue EBITDA PAT 2005 $1,55m $800m $500m 2004 $1,162m $593m $400m Increase 34% 37% 50% (Rand figures have been dollarised and rounded off) Source: MTN Annual Report 2005 10 SABMiller’s investment pattern into the rest of Africa Country Date Effective Ownership Botswana Swaziland Lesotho Zimbabwe Tanzania Zambia Mozambique Ghana Uganda Kenya Angola 1978 1981 1982 1990 1993 1994 1995 1997 1997 1998 1998 47% 60% 39% 23% 66% 90% 65% 69% 40% 87% Management Contract Source: Based on SABMiller annual reports, cited in Grobbelaar op cit. 11 NIGERIA MARKET INFORMATION Population Mobile penetration MTN Market Share Prepaid/Post paid mix Total subscriber base Total potential market 133,8 million 7,02% 47% 98/2 155% (year on year) 4m to 10,2m 27m/134m 12 INVESTMENTS IN AFRICA - TOTAL Number of Investments in Africa of Selected SA-Based TNCs 70 60 50 40 30 20 10 Other Madagascar Mali DR Congo Uganda Nigeria Angola Mauritius Ghana Kenya Malawi Tanzania Lesotho Mozambique Swaziland Zambia Zimbabwe Botswana Namibia 0 Source: Whitehouse & Associates, cited in South Africa Foundation report. 13 INVESTMENTS IN AFRICA – NON SACU Number of Investments in Non-SACU Countries by SA-Based TNCs 45 40 35 30 25 20 15 10 5 Other Gabon Algeria Senegal Rwanda Egypt Madagascar Mali DR Congo Uganda Nigeria Angola Mauritius Ghana Kenya Malawi Tanzania Mozambique Zambia Zimbabwe 0 Source: Whitehouse & Associates, cited in South Africa Foundation report 14 WHY ACTIVITY IN AFRICA? 1990 rejoin world economy, catch up. Initial weakness domestic economy conducive to growth in African markets. Unique position in terms of access. Platform of decades of integration in Southern Africa (SACU), Zimbabwe and Zambia. 15 WHY ACTIVITY IN AFRICA? Role of President Mbeki and African Renaissance. Creation of African Union to replace OAU. New Partnership for African Development (NEPAD). However South Africa not an aid donor, little direct government support for private sector activity (unlike major competitors China, India, Europe and US). So main thrust pragmatic expansion driven by interaction of trade, projects and investments. Investment mostly follows liberalisation in African countries but not always (mining and energy). 16 FEATURES OF ACTIVITY Large financial, ICT, retail, mining: main sectors. Emergence of services sector. Oil industry services sector cluster in Cape Town promoted by $200 billion prospective oil spend in West Africa Relocation of multinational oil companies African business headquarters to Cape Town Other multi national companies relocate Africa headquarters to South Africa. Advertising, franchising, architectural and design services, education, management and consulting. 17 IS SOUTH AFRICAN INVESTMENT CONTRIBUTING TO DEVELOPMENT Thickening of Civil Society (Study of multi national companies in China, Prof Gordon Redding, Head Hong Kong Business School, late 90’s). Controversy over SA Investment – a predatory “tiger”, a “fire in a dry bush”. Figures show that African investment has grown slightly slower than total foreign investment (see next slide) and is a small proportion. However average size of Sub-Saharan economies $3,6 billion (R21,6 billion) which means even modest investments have big impact. 18 SOUTH AFRICA’S FOREIGN ASSETS 1994 - 2004 Table 1: South African foreign assets in Africa, 1994 - 20044 Year Africa’s % of Total Value of Africa’s share (R bn) South Africa’s total foreign assets (R bn) 1994 5.7% 6,143 106,129 1995 5.4% 6,751 123,580 1996 4.9% 8,131 164,219 1997 4.0% 9,357 232,956 1998 4.6% 15,318 332,899 1999 3.3% 20,453 606,258 2000 3.3% 24,170 721,569 2001 3.2% 26,801 818,782 2002 4.5% 30,009 662,758 2003 4.6% 32,399 688,882 2004 4.9% 36,668 746,118 Total N/A 216,200 5,204,150 Source: Various South African Reserve Bank Quarterly Reports, 1995 - 2005 Source: “South African Engagement with Africa: Impacting Negative & Positive Perceptions” Neuma Grobberlaar, SAIIA, 2005. 19 IMPACT OF INVESTMENTS SABMiller purchase and operation 3 breweries in Mozambique (semi-moribund) increase taxes paid 700%; by 2003 SAB pays 5% total tax. Mali gold production 6,6 tonnes (1996) – 51,6 tonnes (2003) following RandGold and AngloGold investments. Gold contribution to GDP grown 2,25% to 14% from 1992 to 2002, raised Mali growth rate to 5,2% between 1999 and 2002, first ever trade surplus. Anglo American invests $450 m in Skorpion zinc mine in Namibia: output equivalent to 4% GDP. 4% GDP is the South Afrcian Reserve Bank calculation of total contribution of Anglo American to SA GDP. Source: “Can South African Business Drive Regional Integration on the Continent.” Neuma Grobbelaar, SA Journal of International Affairs, Vol 11, Issue 2, 2004 20 IMPACT OF INVESTMENTS SAB, BHP/Billiton and Sasol in Mozambique: introduce best operational procedures, reliable wages, medical health insurance and pensions. BHP Billiton and Business Trust roll back malaria in Southern Mozambique (down 80%) also Anglo American in Zambia. Anglo American, De Beers extended comprehensive HIV/AIDS including ARV’s from South African to Southern Africa and other African operations. AngloGold Ashanti case in Ghana. IMF calculates 2005 that impact of 1% extra growth in SA economy 1994-5 equivalent to 0,5 to 0,75% extra growth in Africa. By extrapolation and given other key variables, 5 years of 4 – 5% growth would translate into 2 to 3, 75% extra growth in Africa. Source: Various, IMP Working Paper, WP/05/58 21 IMPACT OF INVESTMENTS – THE RETAIL SECTOR More than 10 retail groups active and highly visible. Accused of flooding markets with South African goods, displacing informal markets and traders, undermining local manufacturing capacity and charging more than in South Africa. South African companies say competing with unregulated informal sector that pays no tax, often deals in smuggled goods and is erratic in cost and supply. South African companies provide consistent supply, stable prices that reflect real costs of goods. However Botswana diversification hindered by South African tax and other policies. Source: Grobbelaar op cit . 22 OTHER ASPECTS OF DEVELOPMENT London and NYSE listed South African companies most pro-active in formal sustainable development programmes. However King II Code of Good Governance and JSE Sustainability Index also influential. Under NEPAD more than 300 companies majority South African signed onto 4 codes of good practice. Business Covenant on Corporate Governance. Business Declaration on Corporate Responsibility. Business Covenant on the Elimination of Corruption and Bribery. Business Declaration on Accounting and Audit Practices. 23 CONCLUSION SA investment is: Leading to growth of private sector in Africa. Increasing revenue generation of government. Improving economic growth and exports. Transferring technology. Ensuring re-industrialisation of some economies through acquisition and revitalisation of moribund SOE’s. Formalising the market, ensuring price stability, discipline in pricing and improved consumer choice. Creating employment. Transferring business skills. Introducing good corporate practice and governance. Boosting confidence of other investors. However: More companies need to adopt deliberate sustainable development approach to deal with criticism. 24