This is a short version of the report "An original ranking of South Africa’s Global Players for 2015-2017" based on 2016 data.
The School of Economics and Management Sciences of the North-West University (NWU), South Africa, and the Columbia Center on Sustainable Investment (CCSI), a joint center of Columbia Law School and The Earth Institute at Columbia University in New York, are pleased to release the results of their second survey done on South Africa’s nonfinancial multi-national enterprises (MNEs). The survey is a part of the Emerging Market Global Players (EMGP) Project, which investigates the long-term global expansion of multinational enterprises within emerging markets. This survey was conducted from April 2018 to February 2019 is the second of its kind and reports on the 2015 to 2017 period.
This report was prepared by Prof Henri Bezuidenhout, Associate Professor in Economics at the School of Economics, North-West University (NWU): Potchefstroom, as well as Jacob van Rensburg and Anè Massyn, research fellows at the School of Economics, North-West University (NWU): Potchefstroom. Editorial support and data visualization was provided by Lise Johnson, Head of Investment Law and Policy, and Mario Saraiva, researcher, at the Columbia Center on Sustainable Investments. Special thanks go to Bureau van Dijk for providing invaluable company data in compiling this report. Another note on appreciation to Margerie Gie of Woolworths, John Nkosi of Impala Platinum.
The Top 20 Multinational Enterprises
By the end of 2017, the top 20 South African nonfinancial MNEs within the survey had combined foreign assets of more than US$87 billion (roughly 32.5% of all OFDI stocks), around US$ 68 billion in foreign revenue, and more than 185,000 employees working outside of South Africa. The top 20 nonfinancial MNEs foreign assets accounted for 45% of their total assets while foreign revenue accounted for 40% of total revenue, with foreign employees at a 32% share of the top 20’s total employees. The share of foreign assets, foreign revenue and foreign employees of the top 20 nonfinancial MNEs resulted in a Transnational Index (TNI) of 39% collectively. Between 2015 and 2018, there were significant changes in the list of the top 20 MNEs. These include the entry of eight new companies:
- Sun International
Compared to the previous report in 2015, there are eight companies that do not appear on the list of the top 20 South African MNEs in 2017. These companies are:
- Life Healthcare,
- Pick 'n Pay
- Super Group,
- Tiger Brands,
Sasol and Anglo Gold Ashanti are the only companies that remained in the same position as the previous report. Sasol (chemicals and energy) is South Africa’s top nonfinancial MNE in terms of both foreign assets (US$19 billion) and foreign sales (US$8 billion). In terms of foreign assets, Barloworld (transportation and storage) comes in at second spot (US$ 13 billion), followed by Naspers (information and communication) in third (US$ 10 billion). In terms of foreign sales, Shoprite Holdings (wholesale and retail trade) is second on the list (US$8 billion), followed by Mondi Group (Manufacturing) in third position (US$7 billion).
By the same token as the previous report, the top five companies (in this case Sasol, Barloworld, Naspers, Mondi, and Anglo Gold Ashanti) dominated the top 20 MNEs total foreign assets by accounting for 70% of the total. While the top 10 accounted only for 91%.
Due to Sasol’s large presence within the top 20 MNEs for 2017, the energy and chemicals industry claimed the largest share in foreign assets by main industry, with 24% of the total (roughly US$ 21 billion). The industry with the second largest share in foreign assets is the information and communications industry consisting of Naspers, MTN, Datatec, and Telkom. This sector accounted for 22% (US$ 19.8 billion) of the top 20 MNEs foreign assets.
When considering these movements from the previous report, it seems that foreign investment in South Africa’s tertiary economic sector (information and communication, as well as transportation and storage) is expanding at a more rapid rate compared to the country’s primary economic sector (mining and quarrying). Although the number of companies from the top 20 that participate in the primary economic sector is more than the companies that participate in the tertiary economic sector, the tertiary economic sector has outperformed the primary sector with regards to foreign assets.
Out of the top 20 MNEs; none are without any form of state ownership. The company with the smallest share of state ownership is Harmony Gold (5.91%); whereas the company with the largest share of state ownership is Telkom (39.3%). The average state ownership between the top 20 nonfinancial MNEs is roughly 14%. The majority of this share is owned by the Public Investment Corporation (PIC), Africa’s largest asset manager, which is responsible for investing the South African Government Employees Pension Fund (GEPF).
Corporate governance and gender balance
Despite the fact that the top 20 MNEs enjoy a significant geographical footprint, the majority of the CEOs are South African nationals, with the exception of seven companies (Sasol, Mondi, Sun International, Sappi, Datatec, Naspers and Woolworths). A Canadian and an Australian national heads Sasol and Woolworths respectively, whereas the other five non-South African MNE CEOs are all British.
Noticeably, all of the 20 CEOs are men. It is, however, worth mentioning that a slight increase has occurred with regards to the share of female board members since the previous report (up from 45 in 2015 to 65 in 2017). All respondents from both EMGP reports on South African MNEs have indicated that promoting gender equality is an important foundation stone of the company’s corporate governance.
In 2015, the Sustainable Development Goals (SDGs) drew heightened attention to corporate reporting. SDG 12, on Responsible Production and Consumption, states that one of its targets is to "[e]ncourage companies, especially large and transnational companies, to adopt sustainable practices and to integrate sustainability information into their reporting cycle." (SDG 12.6)
Stakeholders have understood the power large companies have on economic, environmental, and social issues, therefore, are demanding greater transparency from companies. Stakeholder theory, which argues that the interest of all stakeholders (not only shareholders) should be considered, is commonly used to explain the increasing global trend in CSR and, consequently, sustainability reporting (Nielsen & Thomsen, 2007; Russo & Perrini, 2010; Liang & Renneboog, 2017).
There are many sustainability reporting frameworks, but one stands out - the Global Reporting Initiative (GRI). Some would claim that GRI is the preferred reporting framework for multinational enterprises but such a claim is debatable. In 2017, all companies in our sample had issued a sustainability report - including corporate social responsibility or integrated reports. Only seven companies followed or at least had a reference to the Global Reporting Initiative (GRI) reporting framework. The Integrated Reporting Framework was by far the most popular framework used by South African firms.
Social responsibility programs were plentiful, with most firms having several community projects in place. Example include MTN’s 21 Days of Y’ello care program, a community development program; the Telkom Foundation, a program aimed at contributing to the transformation of disadvantaged communities through sustainable development program; as well as the Sasol Inzalo Foundation, a public benefit organization established by Sasol that aims at driving excellence in science, technology, engineering and math (STEM) education at all levels in South Africa.
Why South African firms go abroad? Major drivers of outward South African FDI
The majority of the listed South African MNEs are driven by market-seeking FDI, especially within the energy and chemicals; manufacturing; transportation and storage; wholesale; and retail trade industries. The other major driver concerning the listed South African MNEs is resource-seeking FDI, especially in the case of companies within the mining and quarrying industry. As noted in the previous report, market-seeking opportunities were predominantly attractive with regard to ventures in Sub-Saharan Africa, where markets remain untapped to a large degree. However, a noticeable shift has occurred in terms of the footprint in other emerging and developed areas such as Asia-Pacific, Eastern Europe, and Latin - and North America.
A marked outflow of South African FDI has occurred over the course of the last two to three years, which can largely be attributed to the poor performance of South Africa’s domestic economy. Various socio-economic factors, such as an uncertain political environment, poor levels of business and investor confidence (spurred by reoccurring threats of credit rating downgrades) and the ever-present issues of poverty, inequality, and unemployment have forced many South African MNEs to look to investing abroad. A further noticeable business deterrent has been the interrupted electricity supply by ESKOM, South Africa’s major electricity supplier, that have hampered doing business in the country. In particular, it is worth noting three issues:
Historically in South Africa, a significant portion of land was alienated from indigenous people and handed over to white settlers, starting from 1910, but especially between 1930 and 1960. Since 1994 when the ANC-led government took over power, a concerted effort has been made in order to reverse the process. Since then, three types of land reforms have taken place: land redistribution and restitution; government re-allocating schemes, and also reforms of customary tenure.
Some successes have transpired, especially on the ‘willing buyer, willing seller’ basis. Overall, land redistribution and restitution efforts between 1994 and 2018 have covered 12,1 million hectares, an area far greater than commonly believed.
Unfortunately for business, a lot of uncertainty around the issue has dominated dialogue in both the public and private sectors. This is especially prevalent with EU owned MNEs located in South Africa. As for South African MNEs, land reform uncertainty featured in some of the feedback received from our survey.
The impending outcome of the UK’s decision to leave the EU demands some interest from South African MNEs since the UK is South Africa’s sixth largest trading partner. South Africa’s Department of Trade and Industry Minister, Rob Davies, says several scenarios face SA amid uncertainty over the UK leaving the EU. Should Brexit go through, a proposed basic agreement with the UK is to have a parallel Economic Partnership Agreement (EPA), with some tariffs already negotiated on important agricultural products such as fruit and wine.
Furthermore, 3 companies in the top 20 MNEs in this report have listings on the London Stock Exchange (LSE). In addition to these companies, several South African financial MNEs have secondary headquarters situated in London, notably Old Mutual and Investec Asset Management. Although these companies mentioned have no influence over the proceedings, the current situation is less than ideal and creates further uncertainties added to the uncertainties experienced locally.
Business and investor confidence
At the start of 2019, business confidence in South Africa fell for the fourth straight quarter to its lowest level since the second quarter of 2017. The Rand Merchant Bank (RMB) business confidence index, compiled by the Bureau for Economic Research fell by three points to 28 points in the first quarter, dropping further below the 50-mark that separates net positive and negative readings.
The economy has been especially hurt by policy and political uncertainty. Further negative cross-currents have been created by South Africa’s credit ratings downgrades by all three of the major credit rating agencies since the previous report. Furthermore, investors are skeptical about President Cyril Ramaphosa's ability to bring in reforms ahead of elections in May, with widespread state corruption still lingering. Furthermore, ESKOM, South Africa’s state-owned electricity supplier, has not aided confidence, with nationwide electricity blackouts recently resuming. The uncertainty created by this has been noted by MNEs in our survey.
For these aforementioned reasons, many companies have recently been known to sit on significant cash reserves, but are reluctant to invest domestically, hence the increased amount of foreign assets as reported in this report. This current trend is expected to continue in the near future.
Regionality Index, foreign affiliates and geographical distribution
The top 20 MNEs within this report has a total of 726 foreign affiliates worldwide (Annex Table 2). The largest number of foreign affiliates are situated in Sub-Saharan Africa, which consists of 45% of the top 20 MNEs total foreign affiliates (Annex Table 2). Sappi, Gold Fields, and Harmony Gold are the only companies that do not have African affiliates. The second largest region with regards to the top 20’s geographical footprint is European countries, excluding eastern Europe, with a mere 13% share followed by Latin America with 9% share in the total foreign affiliates.
When viewing individual companies, Naspers has the largest number of foreign affiliates globally, accounting for 224 foreign affiliates of the total 726 in the top 20 nonfinancial MNEs. Naspers is followed by Datatec, with less than half the foreign affiliates that Naspers has globally with 105 foreign affiliates (Annex Table 2). Notably, both Naspers and Datatec are part of South Africa’s information and communication industry. The top 5 companies with the largest geographical footprints (Naspers, Datatec, Imperial, Barloworld, and Sasol), accounts for ~68% of the total foreign affiliates of the top 20 MNEs
Mergers and acquisitions
Only six companies - MTN, Anglo Gold, Sasol, Sappi, Naspers and Impala Platinum, had merge and acquisition transactions large enough to be in the country's the top 20 M&A transactions. Nevertheless, none of these companies were responsible for the execution of the largest merger and acquisition. The largest merger and acquisition was carried out by Airports Company South Africa (ACSA), who expanded into Sao Paulo, Brazil within the area of service activities incidental to air transportation valued at more than US$ 7 billion. This is largely due to the fact that most of these MNEs are already well-established companies prior to the period. The mergers and acquisitions that took place between 2015 and 2017 rather indicate the up-and-coming South African businesses that are expanding into foreign markets.
Out of the six EMGP companies, MTN had the largest merger and acquisitions with an expansion into Iran valued at US$2 billion. The second largest merger and acquisition within the top 20 MNEs within this report was Sasol with an expansion into Germany valued at US$1.2 billion
When looking at the geographical footprint of the top 20 mergers and acquisitions it is evident that most deals (14 deals) were done with developed countries between 2015 and 2017. Only two deals within the top 20 mergers and acquisitions were executed with Sub-Saharan Africa countries (Ghana and Kenya respectively). Five deals took place with the United Kingdom, two with the United States of America and Germany and the remaining countries participated in singular deals with regards to the top 20 merges and acquisitions.
Top Greenfield investments
A small amount of the top 20 MNEs made acquisitions that were included within the outward Greenfield investment list. Within the top 20 outward Greenfield investments, the company that accounted for the most acquisitions were MTN, followed by Sappi and Imperial. The company with the largest singular Greenfield investment was Shoprite, with a US$ 864 million real estate investment in Mozambique in 2016. Mondi executed the second largest investment between 2015 and 2017, with the Czech Republic valued at US$ 502 million in the paper, printing and packaging industry. MTN also made a significant investment (US$299 million) in Pakistan’s communication industry in 2016, which is listed as the third largest investment during the reporting period.
When considering the geography of top 20 Greenfield investments made between 2015 and 2017 there is no prominent country in which South African companies have invested in. Region wise companies within the top 20 Greenfield investments invested in six different European countries, five different African countries of which three of these countries are in the Sub-Saharan region, three different countries in Asia and in one country in North America.
THE BIG PICTURE
Over the last four years, South Africa’s outward foreign investment has increased significantly, notably spurred on by an expansion of the country’s top MNEs as reported on in this second edition of South Africa’s Emerging Markets Global Players report. Various domestic economic factors have also played an important role with the increased levels of foreign investment, such as the uncertainties surrounding land reform, poor levels of business and investor confidence, as well as the pending outcome of Brexit, a significant trading partner of South Africa, not to mention a second home for many South African MNEs. The variation of between FDI inflows and outflows has become marked since the previous report, which was released in end-2016. Over this period, South African inward FDI flows have decreased significantly, whereas South African outward FDI flows have increased significantly. The same can be said with regards to South African FDI stock, with outward FDI stock being nearly double the amount of inward FDI stock.
Some changes have been experienced within the top 20 MNEs, especially with regards to companies falling out of the ranking. However, by-and-large the same companies occupy the top 20 South African MNEs compared to the previous report. This can largely be attributed to the fact that most ranked MNEs are well established within the global market, therefore the continued increases of outward investment are both observed and expected. South African MNEs’ market-seeking motivation that drives many foreign investments can be observed by looking at detailed FDI data included in this report.
Although 14 of the top 20 mergers and acquisitions from the perspective of South African MNEs occurred with companies located in developed countries, there has not been a significant change in the top 20 MNEs’ geographical footprint worldwide. Sub-Saharan Africa remains the primary location of South African MNE affiliates. The large share in neighboring countries and regions within Africa is likely to increase further in the future, due to the prevalent perspective of the top 20 MNEs of this report indicated by the increasing footprint in the continent.
Reticent economic and political instabilities, such as the recent credit ratings downgrade to junk status, as well as a later upgrade to BBB status and the forthcoming national elections, did have an influence on the volatility within South Africa’s markets which is clearly indicated when investigating the in- and outflow of FDI in recent years. Even though the government has little influence over MNEs in South Africa, a certain consensus derived from the perspective of the firms surveyed indicates that South African MNEs do value a positive relationship with the government.
Other factors continue to hamper the growth of the local economy, such as the inconsistent supply of electricity and concerns surrounding skilled labor in South Africa, with a so-called ‘brain-drain’ hampering some sectors within the country. A recent report indicated that for one skilled person entering the country, eight skilled persons are leaving (South Africa. 2017. White paper on international migration for South Africa. Government Gazette.) The labor legislation has been another concern pointed out by our respondents.
From studying the corporate websites we conclude that, environmental issues and responsibilities, as well as corporate social responsibility, are, aspects which respondents seem to have under control. No concern was indicated by respondents regarding these aspects. Their awareness and responsibility are indicated by the provision of many reports and media updates on their corporate social responsibility and environmental awareness.
Future reports will further investigate developments of South African MNEs and their investment activities abroad.