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

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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

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EMERGING MULTINATIONALSTHE 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

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EMERGING MULTINATIONALSTHE 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.

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EMERGING MULTINATIONALSTHE 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 packagingSasol (12th) – Energy and chemicalsMTN – Cellular telephonyBarloworld – Manufactured goods and logisticsAngloGoldNaspers – Media company, significant investment in ChinaNampak – Packaging company

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SOUTH AFRICAN vs SUB-SAHARAN AFRICA: 2003

Largest economy in Africa: 36,4% Sub-Saharan 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”

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COMPANIES ACTIVE IN AFRICA

SasolMTNAngloGoldBarloworldBanks – Standard, ABSA (now taking over Barclays Africa interests), FNB/RMB, NedbankRetail – Shoprite and 10 othersSOE’s – Eskom, IDC, DBSA, TransnetIn 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.

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SOUTH AFRICAN BUSINESS AS A REGIONAL INVESTOR

199318 of SA top 100 listed companies invested in rest of Africa

200440 of SA top 100 listed companies invested in rest of Africa232 investments in 27 countries employing 72 000 people

Source: “Who Own’s Whom, Africa In., November 2004

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SOME MAJOR SOUTH AFRICAN INVESTMENTS ON THE AFRICAN CONTINENT

BHP Billiton: Mozal Phases 1 & II = >$2bnSasol: Temane-Secunda pipeline = $1.1bnMTN: Nigerian licence fees = $280m

Total investment 2004 = $900mVodacom: Tanzania = $150m

DRC = $150m Mozambique = commitment of $150m

Anglo Platinum: Unki (Zimbabwe)Implats: Zimplats (Zimbabwe)AngloGold: Mali = $400m

Ashanti = $1.5bnAnglo Base Metals: Skorpion (Namibia) = $450mEskom: DRC – Inga project = $1bnSA Breweries: Maputo and Beira breweries = $50m

Source: Mail & Guardian various.

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MTN NIGERIA - CASE STUDY

Invested $900 million in 2004

Results 2005 2004 IncreaseRevenue $1,55m $1,162m 34%EBITDA $800m $593m 37%PAT $500m $400m 50%

(Rand figures have been dollarised and rounded off)Source: MTN Annual Report 2005

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SABMiller’s investment pattern into the rest of Africa

Country Date Effective Ownership

Botswana 1978 47%Swaziland 1981 60%Lesotho 1982 39%Zimbabwe 1990 23%Tanzania 1993 66%Zambia 1994 90%Mozambique 1995 65%Ghana 1997 69%Uganda 1997 40%Kenya 1998 87%Angola 1998 Management

ContractSource: Based on SABMiller annual reports, cited in Grobbelaar op cit.

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NIGERIA MARKET INFORMATION

Population 133,8 million

Mobile penetration 7,02%

MTN Market Share 47%

Prepaid/Post paid mix 98/2

Total subscriber base 155% (year on

year) 4m to 10,2m

Total potential market 27m/134m

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INVESTMENTS IN AFRICA - TOTAL

Source: Whitehouse & Associates, cited in South Africa Foundation report.

Number of Investments in Africa of Selected SA-Based TNCs

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INVESTMENTS IN AFRICA – NON SACU

Source: Whitehouse & Associates, cited in South Africa Foundation report

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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.

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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).

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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.

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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.

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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.

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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

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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

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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.

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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.

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CONCLUSIONSA 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.