EDITORIAL: SA’s investor ghost town
Froneman’s warning is explicit: the antibusiness rhetoric is frightening off investors
Sibanye Gold CEO Neal Froneman does not mince his words. With his forthright comments on why Sibanye is steering clear of further investments in SA, we have to wonder whether Froneman is voicing what many other CEOs are thinking. If he is, then SA’s economy is in even more trouble than many might think.
"Until this country gets its house in order, I don’t see any company being able to make further investments," Froneman said last week after Sibanye’s shareholders approved the company’s first investment offshore, a $2.2bn cash purchase of the US’s only palladium and platinum producer, Montana-based Stillwater Mining.
Sibanye, spun out of Gold Fields in 2013 to house the group’s South African assets, had aspirations to be a national champion, benefiting as others such as Anglo American and BHP Billiton cut their exposure to SA. The company bought some of their assets, such as the unprofitable Rustenburg platinum mine Anglo shed as part of its restructuring. But now, Sibanye’s shareholders in China, the UK and Europe have lost their appetite for SA.
Sibanye isn’t pulling out of SA, but it is not increasing its exposure. Froneman was explicit about the reasons for this: until SA sorts out its regulatory and policy issues, Sibanye would have to be "very careful" about further acquisitions or new projects. He was explicit that the antibusiness rhetoric was, quite simply, frightening off investors.
This is particularly serious because figures show that domestic investors were already pretty frightened off before the recent cabinet reshuffle and ratings downgrades, and the growing rhetoric of white monopoly capital and radical economic transformation.
Fixed investment spending fell almost 4% in real terms in 2016, taking about one percentage point off SA’s economic growth rate. Even if investment spending had been neutral, SA’s growth rate could have been comfortably more than 1% instead of the actual, pathetic outcome of 0.3%.
The fall in investment came despite better export prospects and higher commodity prices, which should have driven at least some revival in investment spending in mining and related industries. But the mining minister is less than friendly to the industry and uncertainty about mining legislation and the new mining charter has grown. The release of some of the details of the proposed new charter in Parliament in 2016 sent extremely negative signals to investors or potential investors.
Unless domestic and foreign companies are willing to put money into new projects that will increase the capacity to grow and create jobs, the economy is in trouble
But it is not only in mining that the environment is unfriendly and big companies are choosing to invest anywhere but SA. The poor growth prospects and high degree of regulatory and political uncertainty has seen many of SA’s big corporates turn their attention outside the country. They have been prompted, in part, by shareholders — including pension and provident funds that look after the savings of millions of South Africans — who want to diversify their risk and earn more reliable returns.
Although SA still receives foreign direct investment from multinationals, domestic companies are investing more into projects and acquisitions elsewhere than those multinationals are investing into SA’s economy.
SA’s growth rate is expected to pick up in the next couple of years, but that relies in part on modest increases in investment spending, particularly in 2018 and 2019. Unless domestic and foreign companies are willing to put money into new projects that will increase the capacity to grow and create jobs, the economy is in trouble.
As Froneman’s comments suggest, unless SA sorts out its politics and starts implementing policies that are more investor-friendly, the appetite for investment in new plants, new activities and new jobs is unlikely to be there.