SA holds value for investors

Mergers and acquisitions, investment still happening, says expert. LOCALS WITH NEGATIVE SENTIMENT OFTEN OVERLOOK OPPORTUNITY

Despite corporate South Africa witnessing an uptick in business confidence to the highest levels in six months off the back of improved vehicle sales and an interest rate cut, top South African listed companies still seem apprehensive and are stockpiling an estimated R1.4 trillion in cash, according to research done by the Centre for Competition, Regulation and Economic Development.

While local business decision-makers often overlook investment opportunity due to negative sentiment surrounding political and economic challenges, foreign investors continue to see value in the South African market.

This is according to Gasant Orrie, Cape managing partner and director of the Corporate and Commercial Practice at Cliffe Dekker Hofmeyr (CDH), who says that despite the current economic and political uncertainty, activity levels witnessed by the firm’s mergers and acquisition (M&A) practice remain stable – particularly among foreign investors.

“This highlights that M&A deal activity and investment is still happening, and we remain positive that this activity will continue.”

Orrie says that although South Africa has witnessed significant outflows of investment as a result of political and economic uncertainty, the country remains an attractive place to do business.

“Despite all the noise created by economic issues and the upheaval surrounding our stateowned enterprises, South Africa remains a relatively affordable and safe place for global investors to do business from a legal and regulatory perspective.”

He says offshore investors are getting real value as a result of the currency benefits of a weaker rand and the country’s robust financial market, banking and regulatory infrastructure.

Orrie refers to the CDH’s latest Doing Business in South Africa Report – an annual publication that explores the commercial legal landscape in South Africa, which unpacks various legislation in detail. “The Banks Act is primarily based on similar legislation in the UK, Australia and Canada. Although no formal agreements have been concluded towards a consistent international position in the area of banking regulation, there have been amendments to exchange control, as well as to financial markets legislation to make South Africa an attractive investment prospect.

“In addition to our world-class financial and banking system, we have seen legislative efforts by the government to incentivise foreign investment,” says Orrie.

“The Promotion and Protection of Investment Act, which effectively gives a foreign investor the same rights as a domestic investor, was passed into law in 2015,” he says.

“Many foreign investors had concerns around the protection of their investment and whether they will be able to safeguard their rights through, for example, having recourse to an international tribunal. This legislation assists in alleviating these fears,” says Orrie.

The report also highlights South Africa’s robust corporate governance structures as an attractive feature for foreigners wanting to establish corporate enterprises in the country.

He says that the King reports set out several principles and recommendations for best corporate governance practice for organisations doing business in South Africa.

“Although these are not legally binding, JSE primary listed enterprises are bound by certain obligations and are required to describe the extent of compliance, and explain any noncompliance, in the annual report to shareholders – essentially keeping big players true and providing a level of comfort for investors,” explains Orrie.

New iterations to the report are also taken on board regularly, keeping South Africa on a global level in terms of governance.

South Africa also boasts a growing professional services market, and Orrie believes that the country’s auditors, lawyers and other corporate advisers are some of the best in the world.

“Access to services of this standard, with fees charged in rand, is a significant drawcard for businesses wanting to expand to our shores or investors wanting to set up shop.”

When we consider these factors, the full picture starts to look quite attractive for foreign investors. “Yet, some local businesses aren’t seeing the silver lining. If local businesses invested more back into the economy with the same optimism, the effects would be far reaching,” concludes Orrie.

Access to services of this standard, with fees charged in rand, is a significant drawcard for businesses wanting to expand to our shores or investors wanting to set up shop. Gasant Orrie Cape managing partner and director of the Corporate and Commercial Practice at Cliffe Dekker Hofmeyr