THE CASE FOR INVESTMENT IN SOUTH AFRICA
Corporate and Investment Banking
In the wake of global economic headwinds, eagle-eyed investors are turning to sector-specific quality assets in emerging markets to generate long-term, healthy returns. South Africa is one such example – the country’s diverse portfolio of investment sectors continues to provide a multitude of opportunities for local and foreign direct investment (FDI).
The country’s post-pandemic recovery enjoyed a positive outlook at the end of 2021, with the local JSE All-Share Index performing at its best in more than a decade, with FDI inflow from across the globe being R27.2 billion in the same period, widening from R22.7 billion in the previous quarter.
The first half of the year also saw an uptick in mergers and acquisitions (M&A) activity in the region, with significant deals having already been announced, including a joint venture between Sanlam and Allianz, Digital Realty’s acquisition of a majority stake in Teraco, Suez’s acquisition of EnviroServ, and Heineken’s acquisition of Distell and Namibian Breweries. And then most recently Ethos Private equity was acquired by American asset manager Rohatyn Group.
A large part of South Africa’s attractiveness as an investment destination is due to a well-established and effectively regulated banking system characterised by well-regulated, highly capitalised, liquid and profitable financial institutions which are supported by a robust regulatory and financial infrastructure.
However the investment landscape in the country is not without impediments.
Business and investor confidence have taken a knock in recent months in the wake of global supply chain disruptions, skyrocketing inflation and structural issues in electricity generation, resulting in widespread loadshedding. The Council for Scientific and Industrial Research (CSIR) estimates that loadshedding results in lost economic output of about R700 million per load shedding stage, per day – the cost to the economy estimated between R60 billion and R120 billion in 2019 alone.
However, these challenges also bring future invest opportunities – especially in renewable energy and digitisation.
Twenty-five renewable energy projects have been selected for development in the fifth bid window of the country’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP), which aims to secure more than 2,500MW of renewable energy primarily from onshore wind farms and solar photovoltaic plants.
As a testament to the appetite for sustainable energy solutions in South Africa, Standard Bank recently acted as a mandated lead arranger and underwriter to support Scatec and H1 Holdings in bringing three renewable solar and battery storage projects valued at over R16 billion. Each project targets 50MW of dispatchable generation capacity - the first of their kind to be financed in the country.
The carbon market in South Africa is also growing, with voluntary carbon credits directing private financing to climateaction projects that would not otherwise get off the ground. These projects support investment into the innovation required to lower the cost of emerging climate technologies.
Investors, especially foreign investors, are increasingly considering the long-term impact on the environment, society and the performance of the businesses to which they are directing their money. Being a responsible investor is surely gaining momentum in South Africa, with environmental, social and government (ESG) factors being a mainstay in most valuations and portfolio formations
South Africa has large market potential, well-developed infrastructure, and a competitive domestic economy, it is the most industrialised, technologically advanced, and diversified economy on the African continent. This makes the country an exciting investment destination for investors looking for longterm returns and impact investing opportunities.