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Last week BHP made a bid for Anglo American minus the South African assets, confirming the widely held perception that SA mining is uninvestible due to bureaucratic ineptitude in the issuing of mining licences, onerous BEE requirements and the disasters at Eskom and logistics provider Transnet.
No mining house worth its salt wants to step into this mess, or so the terms of the BHP’s bid seem to suggest: we want everything Anglo has to offer, just not in South Africa.
That accords with Stanlib data showing that a net R1 trillion has been pulled from SA financial markets by foreigners in the past 10 years for a laundry list of reasons: corruption, decrepit state-owned companies, a deteriorating fiscal position and multiple downgrades, to name the most obvious.
It’s a different story with foreign direct investment (FDI) which, unlike fickle financial markets flows, is by nature long-term and ploughed into productive capacity.
The same week BHP threw its hat in the Anglo ring, PwC published a report showing that SA has attracted net positive FDI every year since 2018.
It turns out that mining accounted for nearly a quarter (24,2 percent) of the country’s inward investment stock, worth nearly R3 trillion in 2022.
That seems to contradict the notion that the SA mining sector is uninvestible, though it is clear that the major mining houses are steering well clear on SA.
Manufacturing is by far the largest holder of FDI at 38,5 percent of the inward stock, followed by mining and financial services (20 percent).
South Africa has seen a net FDI inflow (inflows minus outflows) every year since 2018, says PwC’s April Economic Outlook bulletin.
“This may come as a surprise to some considering the country’s economic challenges and obstacles faced by private business. Many would expect that outflows would overshadow inflows. However, data from the South African Reserve Bank (Sarb) shows that the country’s net FDI flows averaged R58 billion per annum after the global financial crisis when excluding 2021.”
That year was an outlier due to Covid, and included deals that were postponed in 2020 as well as transactions from companies that were forced to make strategic deals to keep their doors open.
In fact, 2021 was a huge year for inflows, totalling a net R594 billion or 9,5 percent of GDP, which contributed to SA’s ability to bounce back from the devastation of Covid.
In 2023, SA recorded net FDI inflows of R91.3 billion or 1,3 percent of GDP.
PwC senior economist Christie Viljoen says it’s not surprising that manufacturing attracts the lion’s share of FDI inflows, given its prominence in sectors such as vehicle manufacture, food products and building materials.
“Mining investment is also surprisingly robust, but perhaps we shouldn’t be too surprised given the fact that it has a 170 year track record in this country and we are the world’s largest exporters of platinum group metals, as well as major global suppliers of iron ore, coal, chrome and other crucial minerals and metals.”
It’s also no surprise that financial services is the third largest recipient of FDI flows, given the presence of several large banking and insurance groups, with representation across the continent and further afield.
“The financial services sector in SA is sophisticated and well developed and has shown relatively strong growth in recent years, which would make it attractive for foreign investors,” says Viljoen.— Moneyweb
Online Reporter