Ever since political reform in the early 1990s, investors have been interested in this country of vast mineral wealth, first-world industries and extreme social deprivation. South Africa offered the prospect of a competitive return on investment compared to South East Asia, Asia and Latin America; it offered a sophisticated commercial and financial infrastructure with high levels of capitalisation in core industries and, uniquely in Africa, the opportunity to invest in home-grown, international companies.
The down side for global investors in the run-up to the first election allowing all South Africans to vote, was the high level of political uncertainty and risk. The received wisdom was that a future government would be hostile to markets and unsympathetic to the (mainly white) corporate establishment.
That was the way things looked back then. In fact, the South African government has followed a programme allowing private enterprise to flourish. Currently, the all share index of the Johannesburg Stock Exchange is standing at an all-time high of 9,265.36 (as at 13 February). One factor in this bull market is the high level of corporate activity: Gold Fields and Iscor (South Africa's steel company) are both rumoured to be the subject of takeovers.
Interestingly, all the big South African companies (Didata, Anglo American, De Beers, Old Mutual, South African Breweries and Billiton) are listed in Johannesburg and account for 40 per cent of trading on the exchange. South Africa's heavyweight corporations have either listed or are looking at listing on the London and New York exchanges.
Probably the main cause of positive business sentiment in South Africa is the expectation that the February budget will cut taxes for companies and dramatically increase expenditure on infrastructure projects. The growth rate for the South African economy this year is expected to be 3 per cent.
The South African government is also planning a major structural reform of the economy through an aggressive privatisation programme. Eskom, South Africa's wholly-owned electricity utility and one of the 10 largest utilities in the world, has been rumoured to be a target for privatisation over the last eight years. In August 2000, the Industry of Public Enterprises published a report examining the merits of a privatised Eskom, with its generation and distribution components spun off to separate companies, a very similar model to that of the privatised utilities in the UK.
The government is also planning further privatisation
of South African Airways and national telecoms operator Telkom, of which the government still owns 80 and 70 per cent respectively. The government has also announced plans to sell substantial stakes in the state-owned transportation and ports infrastructure, broadcasting, as well as defence company Denel.
Expertise is crucial to the smooth and efficient management of these huge projects. The international professional services community has been slow to react to the opportunities in South Africa. Only two international law firms are present in Johannesburg. Setting up an office in South Africa as a law firm is difficult, as is qualification at the South African bar. However, setting up an office as a corporate entity specialising in the provision of legal services is very straightforward and seems to work very well in this business culture.
There may be powerful commercial reasons for not opening an office in South Africa, but undoubtedly the so-called “African danger factor” lurks in the background.
Only a handful of professional services firms are experienced in large infrastructure projects across Africa. It is these which are likely to reap the rewards from what is a mammoth programme of reform in that country. In Africa, you get in or you get out. Going niche is not an option.
Jude Kearney is managing partner of the Johannesburg office of LeBoeuf Lamb Greene & MacRae