South Africa’s dwindling economic growth is driving local companies to look abroad for expansion opportunities.
SOUTH Africa’s dwindling economic growth is driving local companies to look abroad for expansion opportunities.
This is according to the 8th PwC South Africa Economic Outlook report released on Tuesday which focused on local companies finding growth opportunities abroad, ranging from exports to direct investment deals.
PwC said that local companies looking for mergers and acquisitions (M&A) abroad were reaping the rewards.
Data from White & Case shows that the value of outward M&A activity by South African companies — that is, deal activity by local businesses into the rest of world — reached R222 billion in the second quarter of 2022.
This was highest on record based on data going back to 2006.
PwC said local companies were embracing international opportunities as South Africa’s economic growth rate was slowing to a long-term potential of 1.5 percent per annum while the global trend was forecast at 2.6 percent.
It said there were faster-growing markets available to South African firms that are willing to look abroad.
PwC senior economist Christie Viljoen said some South African companies had focused on neighbouring countries, with a notable deeper expansion into the rest of Africa, or beyond — to Europe, North America or Asia — with each company’s internationalisation route being different.
Viljoen said deals launched during a downturn can achieve outsized growth and better returns for buyers.
“Deal-makers are adapting to a new business climate where inflationary pressures, rapidly rising interest rates, short-term volatility in financial markets, supply chain disruptions, and geopolitical tensions all appear to be developing into longer-term trends,” Viljoen said.
“While these trends and the global economic outlook are uncertain, our research has found that deals made during a downturn are often the most successful.”
India, Mexico and the UK were found by PwC to be offering business opportunities not just for South Africans but also from other emerging markets seeking new opportunities.
Deal Leaders International chief executive Andrew Bahlmann said the figures in the PwC report reflected their own experience of robust outward investment activity in the M&A market.
“Despite the actions of the government to turn around the economy, many of the poor financial indicators appear to be endemic, with South Africa trapped in a low growth environment for some years,” Bahlmann said.
“In this environment, astute management of local companies are increasingly looking to exit or reduce their exposure to low-growth markets like South Africa.”
According to data from the UN Conference on Trade and Development (Unctad) for 2017, South Africa was the third biggest exporter of capital as a percentage of gross domestic product in the world.
Just recently, the US retail giant Walmart made an offer to buy out shareholders in Massmart, a local company which owns Makro, Game and Builders Warehouse, and de-list it from the JSE.
Bahlmann said one of the reasons for the buy-out offer of Massmart minorities by Walmart was concerns about the imminent arrival in this country of Amazon, which would intensify competition in the local market.
He said South Africa was a highly competitive market, and a highly regulated one – especially on the JSE – which was another of the reasons given by Walmart for its bid.
“These are also two prominent reasons for many South African companies looking to invest abroad where, although economies are still competitive, at least the size and rigour of their economies create greater opportunities for growth and healthy returns on investment,” Bahlmann said.
“After all, it is exactly the same as offshore investors and emigrants are doing.”
– BUSINESS REPORT
