Foreign direct investment soars

5 April 2006

The value of mergers and acquisitions (M&A) involving South African companies climbed by R103-billion, or 63%, from R165.5-billion in 2004 to R269.1-billion in 2005, according to Ernst & Young’s latest review of M&A activity worldwide.

Crucially, according to Business Day, R57-billion of this was “inward investment” – an amount equal to the foreign direct investment (FDI) in South Africa of the previous five years combined – helping the country to edge past India for the first time ever in the FDI stakes.

“This shows local companies are now on the radar when it comes to foreign takeovers,” Business Day correspondent Robe Rose commented.

“While South Africa still lags China and Brazil by far in foreign direct investment, last year’s steep rise due to Barclays’ and Vodafone’s investments shows SA is now able to compete with such emerging market investment darlings as India.”

British bank Barclays bought a majority stake in South African bank Absa for close on £3-billion (around R30-billion) in 2005 – the biggest single foreign direct investment ever in the country.

Not long afterwards, British communications giant Vodafone concluded a US$2.4-billion (around R21-billion) deal that gave it an 84% stake (and 90% effective voting interest) in South African investment firm VenFin, and through this access to VenFin’s 15% stake in South African mobile phone operator Vodacom.

According to Ernst & Young, these two deals “potentially represent the beginning of a new era of investment [in South Africa] that should send strong signals of confidence to other potential investors.”

BEE deals reach R56bn
Powered by megadeals such as these – as well as Old Mutual’s R38-billion takeover of Swedish insurer Skandia – the value of transactions involving SA firms rose sharply compared to 2004, even though the number of transactions dropped from 822 in 2004 to 744 in 2005.

At the same time, the value of black empowerment (BEE) deals in South Africa reached their highest level ever – R56-billion – in 2005 even though the number of BEE transactions dipped slightly, from 243 in 2004 to 238 in 2005.

According to Business Report, the biggest BEE deal of the year – and South Africa’s biggest to date – was struck when resources giants Anglo American and Kumba Resources announced a R25.7-billion deal establishing the country’s largest wholly black owned, controlled and managed company.

Ernst & Young director Dave Thayser told Business Report that BEE was one of the biggest drivers of corporate activity in SA’s economy, adding that the BEE process was maturing, with BEE deals becoming more broad-based and increasingly involving women’s groups.

Resolution on the BEE codes of good practice and other regulatory issues would remove uncertainty, Thayser said, boding well for a further increase in deals. reporter