Southern Africa: Still Taking The Lion’s Share

South African companies lead our pan-African table of the Top 250 Companies to a huge extent. Indeed, South African firms fill 24 of the top 30 slots and so their domination of the Southern African table is even more complete.

The biggest three firms in Southern Africa are obviously the same as the top three in the continent as a whole: BHP Billiton, Anglo American and SABMiller, which are all many times bigger than the largest non-South African company in the region.

Ongoing consolidation in the mining industry means that BHP Billiton is likely to make more acquisitions in the medium term. The company failed in its attempt to take over Rio Tinto Group and has refused to comment on claims that it is considering a takeover of, or merger with, Anglo American.

However, chief executive Marius Kloppers has said: “I have absolutely no doubt that over time we will do more transactions.”

Even without headline-grabbing acquisitions, the company spent almost $17bn on buying up shale gas projects last year and has announced plans to invest a massive $80bn in increasing its iron ore, coal and copper production capacities over the next five years.

Anglo American recorded a 14% increase in operating profits for 2011 to $11.1bn, largely on the back of high iron ore and coal prices during the first half of the year. In November, the mining giant agreed to take a majority 85% holding in diamond producer De Beers, after buying the Oppenheimer family’s 40% stake for $5.1bn.

Chief executive Cynthia Carroll said: “Despite short term uncertainty persisting in the global economy, particularly in Europe, the longer-term outlook for Anglo American’s diversified mix of commodities remains strong. We expect sustained growth in the emerging economies, notably in China and India, which will underpin robust demand for commodities, supplemented by early recovery signs in the US.”

SABMiller too made a major acquisition in 2011 with the $12.3bn purchase of Australian firm Foster’s, although the South African company believes that the Foster’s business model must be greatly changed. The beer market in Africa is becoming increasingly competitive, with a variety of foreign and African firms seeking to dominate key markets. Following the expiry of a distribution agreement between SABMiller and East African Breweries Ltd (EABL) in Kenya, the South African brewer is launching new premium products to increase its market share in Kenya at the expense of EABL and also Dutch brewer Heineken. Unlike most South African firms, the value of Old Mutual actually increased between our 2011 and 2012 surveys, from $7.5bn to $8bn, taking the company up from 24th to 18th in the continental table. The company has sold a number of assets, including its Dwight Asset Management business, and is now seeking to expand.

Old Mutual decided to delay a planned initial public offering (IPO) of its asset management business in the US last year because of market instability and the offering is now unlikely to take place until next year at the earliest.

Shipping and logistics company Grindrod falls out of the continental African Top 100 to 110th but continues to expand its operations across more of Southern Africa. In January, it agreed to sell a 35% stake in Mozambique’s Matola Coal Terminal (MCT) to Swiss firm Vitol for $67.7m. Grindrod Mauritius holds a concession to operate MCT until 2033. The two companies have also set up a joint coal trading firm. MCT has now been expanded to handle 6m tonnes a year but Phase 4 will take that up to 20m tonnes a year to cope with coal exports from South Africa’s Waterberg Basin and probably also Botswanan mines.

South African growth

The South African economy grew by 2.9% in 2010 and 3.1% in 2011, which would be healthy for an industrialised economy but not enough for a government that has promised much more rapid growth in order to create 5m new jobs by 2020 and also to lift millions of its citizens out of poverty. Finance minister Pravin Gordhan said: “We have to implement a strategy for faster and more inclusive economic growth. We are not doing well enough in growing our economy and creating jobs for our young people.”

The national unemployment rate stood at 23.9% in February, while millions more are underemployed: that is, they have some employment but work either part time or seasonally when they need to work full time. In February, President Jacob Zuma pledged to invest R300bn ($39.9bn) in infrastructural projects over the next seven years in order to provide a Keynesian style boost to the national economy.

Economic contraction in South Africa’s main trading partner, Europe, means that high rates of economic growth are unlikely for the foreseeable future. In its budget review in February, the Treasury reported: “A high degree of risk clouds the global outlook. While global developments are likely to hold back growth over the short term, the domestic outlook remains positive.”

Beyond South Africa

First National Bank of Botswana is now the biggest company in Southern Africa outside South Africa with market capitalisation of $906m, up from $875m last year. Given the performance of other banks on the continent, this is a notable achievement and a further sign of confidence in the Botswanan economy.

With unconventional gas and coal capable of driving economic growth over the next decade and beyond, Botswana’s well-managed economy should provide more companies for our regional table in the years ahead. One factor stands out above all others in the region: the re-emergence of Zimbabwean firms over the past couple of years. More than a decade ago, Zimbabwean firms competed alongside the biggest companies in Nigeria and North Africa for second position behind South Africa. They virtually disappeared from the scene for many years under the weight of the country’s political and economic problems but returned last year as a result of the dollarisation of the Zimbabwean economy and the successful operation of the country’s stock exchange.

However, it is difficult to overestimate the scale of the recovery that is required if Zimbabwe is to regain its former position. In February, the executive secretary of the National Economic Consultative Forum, Amos Mushaninga, claimed that Zimbabwean GDP had shrunk to half of that of Swaziland, at the height of the country’s economic crisis.

Zambian companies are also well represented in our table. Forecasts for economic growth in the country this year and next stand at about 6-7%, roughly in line with the estimated 6.7% experienced in 2011. Given that Zambia relies on copper to fuel the rest of its economy, the fate of the global copper sector is vital to the health of the national economy. Although copper prices fell sharply last September, they remain high by historic standards and so the value of copper exports is expected to continue rising on the back of sustained international demand and low government taxes. Steadily increasing confidence in the government’s performance could result in a Eurobond issue in the near future.