The formation of the BRICS, Africa’s rising importance as a destination for foreign investment and the continent’s favourable growth prospects have ensured renewed focus on the continent, and South Africa is seen and marketed as a "gateway to Africa”. What is often missed however is the extent to which South African companies themselves have invested in the continent, and the positive light in which these companies are viewed by consumers in many host countries. A recent report by DNA Economics and TNS Surveys for NEDLAC’s Fund for Research into Industrial Development, Growth and Equity (Fridge) places the importance of South Africa’s outward FDI into context and assesses the attitude of host countries to South African investors.

It is clear from the available data that South Africa has experienced a sharp growth in investment across Africa, with this investment increasingly diversified in terms of host countries and sectors. South Africa’s official FDI stocks in Africa have grown from just under R16 billion in 2003 to over R121 billion in 2010. The country is counted amongst the largest developing country investors in Africa (measured by official FDI stocks), exceeded only by Malaysia. A "scoping analysis” of 100 South African Multinational Corporations (MNCs) undertaken by DNA Economics confirms that the migration of South African firms into Africa has been rapid, extensive and generally profitable.

Nearby and established markets (such as the SACU member countries) tend to have the greatest presence of South African firms, followed by SADC countries. Key markets in East and West Africa also feature heavily in South African companies’ current and future investment plans, though investment in Northern Africa appears to be more limited. A key differentiating factor for South African investment into Africa, when compared to investment from other countries, is the extent to which South African firms are looking to expand their business operations and reach new consumers across Africa, rather than to extract resources or access cheaper labour. The bulk of South African firms operating in Africa are in service oriented sectors, though companies in the primary and manufacturing sectors also feature prominently.

Figure 1: African footprint of 100 South African MNC's

The results from the scoping study are confirmed in a survey of consumer perceptions, undertaken in five African countries (Egypt, Lesotho, Kenya, Nigeria and Zambia), which highlights a high awareness of South African companies operating in these markets, except for North Africa. More importantly, consumers in the four African countries where South African firms are well known, are overwhelmingly positive about the services or goods provided by South African companies, when compared to the offerings of local competitors.

Figure 2: Total rating of service / product received from South African company compared to local offering

In addition to these positive consumer perceptions, individuals in these countries have a strong preference for working for South African companies, over and above those of local companies. Moreover, in terms of corporate behaviour, South African firms are perceived to contribute positively to knowledge and technology transfer and the development of local supply chains. Some negative perceptions persist around the environmental management practices of South African companies, and in some countries, their negative impact on local competitors.

However, the overall reputation of South African firms is generally favourable, with South African companies perceived to have better reputations than those of both local and other foreign competitors in Lesotho, Kenya and Zambia. In Nigeria, South African firms have a better reputation than local firms and are viewed, on average, equal to those of other foreign companies. The far smaller number of South African firms in North Africa is reflected in the Egyptian consumer survey, where roughly half of consumers were not able to assess the reputation of South African firms.

Figure 3: Overall reputation of South African firms versus local companies / other foreign firms in the same industry

The study demonstrates that South African investment into Africa has expanded rapidly and across a wide range of sectors and countries, and the consumer survey results suggest that South African companies offer favourable services and have a good reputation across this diverse set of African countries. Nevertheless, despite the success and positive impression of South African investment in Africa, it is important for South African investors to remain vigilant. A number of developing countries are showing increased interest in Africa, and may threaten South Africa’s position in some countries and sectors. Specifically, competition from Asia and intra-African investment from countries such as Nigeria and Kenya is likely to intensify over coming years. Ensuring that South African investors behave well and are perceived to contribute positively within host countries might prove to be a critical competitive advantage. This can be supported in a number of ways.

First, individual companies should be encouraged to improve reporting on their investments in other African countries. This relates not only to financial and operational reporting, where a clearer breakdown of their African activities would be useful, but also in terms of their wider social and economic contribution to host countries. Second, a coordinated effort should be made by South African business associations and government to market the positive contributions made by South African investors in other countries and actively monitor the behaviour and perceptions of South African firms.

Finally, at a policy level, greater priority should be given to regional trade negotiations in the services sector, where South African investment is highly concentrated and visibly active. This would serve to reduce potential barriers faced by South African firms when investing in other African countries while at the same time encouraging a more inclusive approach to regional integration.

Written by Yash Ramkolowan, DNA Economics