By Gareth Driver, Director at Werksmans Attorneys
The African continent is no longer viewed simply as a source of raw materials, but as a growth market in its own right. As this realisation grows, more and more foreign investors keen to establish a presence in Africa will start by acquiring a base in South Africa.
South African companies, especially those with an African footprint, are being seen as attractive springboards into markets across Africa. Many of these companies have been doing business in various African countries since the mid- to late nineties, giving them a lead on other investors who only subsequently became interested.
Their continued success in these markets – widely regarded as tough to break into – represents a competitive edge not easily emulated by investors that are only now exploring the continent’s growth potential. Thus, foreign firms under pressure in their home markets are recognising the value of buying into South African companies whose experience can smooth their entry into the rest of Africa.
In recent years it has increasingly been Indian and Chinese investors that have started taking advantage of the traction that can be gained by targeting South African success stories in Africa. In one of the biggest transactions of this kind to date, the Industrial and Commercial Bank of China acquired a stake in South Africa’s Standard Bank, which has a significant presence throughout Africa.
In 2008-9, Indian mobile phone network Bharti Airtel attempted to merge with South African MTN, which operates in many African and Middle Eastern countries. MTN was clearly the first choice of Bharti Airtel in its efforts to gain a foothold in Africa’s mobile telecommunications market. Only when its plans to merge with MTN failed for regulatory reasons did Bharti Airtel seek an alternative route into Africa.
Apart from banking and telecommunications, many South African companies have fared very well in Africa’s retail, mining and infrastructure sectors. The trend suggests that the next two to three years will see an increase in acquisition activity targeting South African companies with a track record in other countries in Africa.
South Africa is far from being the only route into the markets of Africa, which has an estimated population of 900 million, but as a leader in intra-African trade and investment, it is likely to become an increasingly busy one.