FRONTIERS-Rising Africa puts South Africa on the spot

(Reuters journalists have produced a special multimedia package
on frontier markets including stories, video reports, pictures,
research and graphics. To see the full package click on

* Growth in South Africa set to lag region

* Needs to become gateway to rest of Africa

* Some companies making changes, but more needs to be done

By Ed Cropley

JOHANNESBURG, May 26 (BestGrowthStock) – Even by the extended
outlook of emerging market investors, a century is a very long
time. By that measurement, though, South Africa, the continent’s
biggest economy, has been a staggering success.

A punter who took a slice of the then British colony 100
years ago would have enjoyed annual returns of 7.6 percent,
easily surpassing the United States, Germany and Japan and
behind only Sweden and Australia, according to Credit Suisse

The 21st century looks less enticing. Stagnating population
growth and dwindling deposits of the gold and other minerals
that fuelled such dramatic expansion are likely to crimp South
Africa’s growth.

The rest of the region is likely to fare much better.

“Frontier Africa”, loosely defined as anywhere south of the
Sahara excluding South Africa, remains a mish-mash of
impoverished small and medium-sized states with shoddy
infrastructure and erratic governments.

But beneath its soil and seas lie huge deposits of oil, gas
and other minerals coveted in particular by Asia’s booming

Over the past decade, that demand has spurred growth of 5
percent a year, and with the continued benefits of debt relief,
market liberalisation and the spread of new technologies such as
mobile phones, the trend looks set to continue.

By the middle of this century, South Africa is unlikely to
be a sole economic giant among dwarves. To stay competitive it
needs to profit from the new “Scramble for Africa” by
positioning itself as a springboard into the rest of the
continent, analysts say.

“We are playing on a big stage now,” said Paul Runge,
Johannesburg-based head of Africa Project Access, a consultancy
helping South African firms invest in other sub-Saharan African

“Africa is becoming an increasingly international arena. If
we as South Africans are going to play on this stage, we had
better get very worldly very quickly.”


Nearly all the indicators point to a long-term decline in
South Africa’s status and clout relative to the rest of Africa.

In 2000, the “Rainbow Nation” that had emerged from decades
of white-minority rule and isolation accounted for nearly 40
percent of all economic output in the sub-Saharan region,
according to International Monetary Fund figures.

That share will drop to 28 percent this year, in part
because South Africa’s economy was caught in the global
recession, and will shrink further as countries such as Nigeria,
Ghana and Uganda notch up growth of 7 percent or more compared
to the 2.3 percent expansion forecast for South Africa in 2010.

With a heavy HIV/AIDS burden and high levels of urbanisation
by African standards, its population will grow by only 7 million
people to 57 million by 2050, according to the United Nations
Population Fund.

By contrast, Nigeria and Ethiopia’s populations will double
to nearly 300 million people and 175 million people
respectively, while Democratic Republic of Congo, currently home
to 68 million people, will boast 150 million.

If African policy makers play their cards right, those
booming populations should help drive economic growth by
creating vast pools of young labor in economies increasingly
geared towards manufacturing for export — similar to China 30
years ago.


It is gold mining that most starkly illustrates South
Africa’s waning fortunes.

Annual production of the precious metal in 1990, the year
Nelson Mandela was released after nearly three decades in an
apartheid jail, stood at 600 tonnes.

By 2009, it had fallen to just 160 tonnes, making the
country the world’s fourth biggest gold producer behind the
United States, China and Australia.

Such statistics are not lost on policy makers and
politicians in Pretoria, who constantly talk of the need to
restructure the economy away from mining and raw material
exports towards higher value manufacturing and service
industries such as specialist engineering, banking and media.

That’s slowly beginning to happen. Mobile firm MTN,
supermarket operator Shoprite and Standard Bank are cited as the
main success stories, having expanded aggressively into Africa
to become its biggest operators in their respective fields.

A KPMG survey in February of South African private equity
managers showed the investment industry slowly shifting its
sights, with 46 percent of respondents saying Frontier Africa
was the “next meaningful opportunity”.

“If you had asked that question five years ago you would
have got 90-10,” said Warren Watkins, the accountancy firm’s
South African head.

Exports of manufactured goods to the rest of Africa also
increased nearly four-fold from 2000-8 to $16 billion, helped by
the likes of Johannesburg-based packaging firm Nampak, which
makes everything from beer-bottle tops to plastic milk cartons
in 10 African countries beyond its core domestic market.

Nampak is about to add an 11th export market, Angola, where
revenues from offshore oil are beginning to build a big-spending
middle class in an economy less than a decade out of civil war.

“Demand for packaging is closely allied to demand for
packaged consumer goods such as food and beverages and if these
grow then Nampak will clearly benefit,” Nampak spokesman Graham
Hayward said.

However, many South African companies have yet to realize
where the future lies.

“Too many companies are sitting with decision-makers that
view Africa through the prism of the 1980s and the early 1990s,
where it was considered to be ludicrously risky,” said Duncan
Bonnett, of consultancy Whitehouse and Associates.

In the copper mines of central Zambia, just 1,200 km (750
miles) north of Johannesburg, South Africa is visible only in
the form of Johannesburg-registered trucks carrying engineering

The mines themselves are run by Indian, Chinese and Canadian
companies, a telling example of the stiff international
competition South Africa faces for contracts and concessions in
what should be its back yard.

“South African companies need to wake up. A lot of
opportunities are already being stolen from under our noses, and
not just by the Chinese — it’s the Indians, the Brazilians, the
Russians, the Canadians, Australians,” Bonnett said.

Stock Research Tools
(Editing by Simon Robinson)

FRONTIERS-Rising Africa puts South Africa on the spot