By Hannah Edinger and Simon Schaefer
South Africa, the most recent member of the BRICS grouping, is - in comparison to its BRICS partners - the smallest economy with the smallest population. Despite its economic and demographic size, South Africa plays a significant role within the BRICS alliance. South Africa may well seem dwarfed by China, India, Russia or Brazil, but it is a giant on the African continent.
South Africa is Africa's economic, financial, and political powerhouse. Although the 51 million South Africans do not make up even 5% of the continent's population, they generate close to 19% of Africa's economic output. South African corporations are also among the largest and most successful companies in the region.
Economic power and political supremacy
During the past two decades, South Africa has become one of the key investors on the continent. Between 2003 and 2011, South Africa's direct investments on the continent increased by 64.8%. In 2011, South Africa held the fourth largest stock of foreign direct investments in Africa at approximately USD 18 billion - no other BRICS member exceeded this. Furthermore, South Africa has dramatically extended its trade relations with other African countries in the past ten years. Between 2000 and 2012, trade f lows between South Africa and the rest of the continent grew more than fivefold from USD 4.4 billion to approximately USD 24.7 billion. South Africa's imports and exports to and from Africa are heavily concentrated among the member states of the Southern African Development Community (SADC). In 2012, SADC countries accounted for approximately 73% of all South Africa's continental exports and 55% of all South African continental imports.
This economic power is also reflected in Pretoria's political ambitions. Within international bodies and organizations, South Africa often sees itself as the voice for the rest of the continent. Following a hotly contested election, Nkosazana Dlamini-Zuma assumed office as the chair of the African Union Commission in October 2012. Her election emphasizes South Africa's political supremacy within Africa. However, the tight result demonstrates that South Africa will not be able to permanently maintain its claim as the only hegemony on the continent: emerging regional powers such as Kenya and Nigeria will be challenging South Africa for both its political and economic position.
After 1994: Expansion on the continent
The end of the apartheid regime in 1994 and the subsequent first democratic elections in South Africa also meant the end of the country's international political and economic isolation. Attracted by promising and still relatively underdeveloped markets, South African companies started to expand on the continent. In particular, retail chains, banks, insurance companies, mobile operators, logistics companies, fast moving consumer goods companies, agricultural groups, fast food chains, mining houses and construction companies from South Africa quickly expanded into neighboring countries where they encountered only weak competition. Especially in Anglophone countries a significant number of South African companies have established operations in recent years. Apart from a couple of exceptions including MTN, South African corporate continue to struggle to tap into markets in Francophone Africa businesses continue to find it difficult to tap into markets in French-speaking countries. This is partly the result of cultural and linguistic barriers, but also due to the close ties that these countries maintain with their former colonial power, France. These ties are to some extent reflected in the legal systems prevalent in Francophone Africa.
South Africa's locational advantage
Thanks to - by regional standards - superior infrastructure and business environment as well as its world-class financial sector, South Africa is often the first choice for many international companies entering the continent. The good continental links of Johannesburg's or Tambo International airport and the relatively high and western-style living standards in South Africa's commercial capital represent a decisive advantage for international companies seeking a presence in Africa.
South Africa's big four banks - Absa, FirstRand Bank, Nedbank and Standard Bank - are among the most crisis-resistant and most well-established banks in Africa. In particular, FirstRand and Standard Bank have focused on organic growth in recent years and have substantially expanded their branch networks in southern Africa. Absa and Ned- bank, by contrast, have chosen to follow the path of mergers with other established banks (Barclays and Ecobank respectively) to build their presence on the continent. The Johannesburg Stock Exchange (JSE) is by far the biggest stock exchange in Africa and is one of the 25 largest stock exchanges in the world. The size and liquidity of the JSE al- lows listed companies to raise fresh capital for expansion with relative ease. With South African institutional investors, including the government pension fund worth billions of rands, increasingly focusing on Africa, South Africa's financial might is set to intensify.
Benefit from consumer-orientation
Compared with other BRICS members, South African companies in Africa are less focused on resource extraction and are instead often active in consumer-oriented areas of business. They are therefore well positioned to benefit from Africa's rapid consumer growth. These consumer-oriented corporations include the brewing giant SABMiller, supermarket chain Shoprite, the mobile operator MTN, Stand-ard Bank, the logistics group Barloworld Logistics, the pay TV provider MultiChoice, retailer Mr Price and fast moving consumer goods company Tiger Brands.
MTN is often used as a prime example of South Africa's expansion on the continent. In less than 20 years, the company has become one of the world's largest mobile operators and Africa's number one network operator. During the 14 years that MTN has been operating outside South Africa, the company has entered 15 African countries and serves more than 105 million users. A blend of gut instinct, good timing and foresight has enabled MTN to take African markets by storm. While the USD 285 million acquisition of GSM license in Nigeria sparked shareholder disapproval, today hardly anyone questions MTN's bold move to enter the Nigerian market. MTN now has almost 49 million customers in Nigeria and a 44% share of the local market, making the West African nation a key market for MTN.
Where there's a will, there's a way
Many South African companies that have successfully expanded on the continent benefit from the widespread 'can-do' attitude and multicultural character of their workforce. When South African businesses encounter a problem, their motto is often "let's make a plan". This roughly translates into "where there's a will, there's a way" - and appropriate solutions are quickly found. Most South African companies leverage their experience of the strong disparities within their home country and adapt this special expertise to the local conditions in new markets. Especially in neighboring countries South African companies feel very comfortable. Their geographic proximity also gives them a major competitive advantage over other market players such as other BRICS countries, for instance.
Public and private sector: Stronger alignment necessary
Although South African companies are very active on the continent, South Africa's engagement differs strongly from the state-driven activities of, for instance, China or Brazil. Time and again in Johannesburg's boardrooms, complaints are heard that the fine tuning between the state and corporate sector leaves much to be desired and that African businesses have a competitive disadvantage to companies from Brazil and China that can draw on state support including the access to finance.
Once Ghana, Kenya and Nigeria's ambitions to position themselves as 'gateways' to the continent are taken into account, South Africa would be well advised to improve both the coordination among and the cooperation between the public and the private sector in order to maintain the country's position as a gateway to the continent. Only a more coordinated approach will enable the country to compete within sectors such as construction, which is heavily dominated by Chinese players, and to grow from a tame kitty-cat into a full-grown lion.
