South Africa dominated the headlines 15 years ago during the dark days of apartheid. Today, the country barely receives a passing mention. That's ironic because the combination of South Africa's natural resources and its new, globe-trotting companies give it much greater economic force than it ever had before.

Famous for its vast reserves of gold, platinum and other precious metals, South Africa remains a heavily commodity-dependent economy. Indeed, both the Johannesburg Stock Exchange-listed stocks and South Africa's currency -- the rand -- plunged during this past summer's global market hiccup. Despite the market swoon, the combination of South Africa's strong economic growth and the commodity boom has ensured that investors in South Africa have just about doubled their money during the past three years.

Economic Reforms Bear Fruit

The African National Congress (ANC) has been South Africa's ruling party since 1994, with Thabo Mbeki succeeding Nelson Mandela as president during 1999. The ANC has embraced investor-friendly economic policies, focusing on the twin goals of economic growth and job creation. Indeed, 12 years after the end of apartheid, joblessness, crime and HIV/AIDS have supplanted race as the most pressing issues on the minds of South Africans.

The cornerstone of the government's efforts is its Accelerated and Shared Growth Initiative – South Africa (Asgisa). Launched last year, the program aims to keep annual growth at or above 4.5% until 2009. The intent then is to lift growth to at least 6% a year for the next five years. The government also has targeted outsourcing and tourism as top priorities. In addition, there are high-profile infrastructure projects such as The Gautrain, a high-speed, European-style rail link that will whisk commuters between Johannesburg and Pretoria in just over half an hour. The Gautrain is scheduled to be completed just in time for the World Cup, which will be hosted by South Africa during 2010.

The verdict on the government's program is: so far, so good. South Africa's GDP grew at an annual pace of 4.9% during 2005 and it is set to match that rate this year. Indeed, low interest rates, cheap imported goods and new demand for household durables have fueled South Africa's first consumer boom. The number of cars on South Africa's roads is growing by 10% a year. Nor has the global housing boom eluded South Africa. No country in the world matches the country’s housing price appreciation since 1997. Endless new "Tuscan" style developments sprawl across former farmland north of Johannesburg.

This is not to say that South Africa does not have its challenges. Its distribution of income is one of the most unequal in the world. Perhaps no other country juxtaposes displays of affluence that equal any in the developed world, alongside wretched poverty that rivals the poorest parts of the developing world. Job creation remains the most critical economic challenge in South Africa, where the official unemployment rate is 29.4%!

The lack of skilled labor also is a problem. The apartheid system deprived most blacks of an opportunity to obtain a decent education or the skills required for employment. At the same time, new immigration laws have made it difficult or even impossible for companies to obtain and extend work permits for their skilled foreign employees. Slow telecom liberalization means that phone charges remain high and are a big impediment to expanding the outsourcing sector. In addition, exacting environmental impact assessments have caused long delays in many infrastructure projects and may be too stringent for a developing economy.

Out Of Africa

The lifting of American sanctions against South Africa during July 1991 and the elimination of U.N. restrictions a few years later were a watershed for South African businesses. Until then, South African companies had been confined within their own borders. Only after those sanctions were lifted did South African companies have a chance to integrate into the global economy.

Today, the list of South African companies form a veritable global "Who's Who" of the New Global Champions. The Anglo American Corporation and De Beers are among the top mining companies in the world. SAB Miller has given "Miller Time" in the United States a distinctly South African lilt. Old Mutual -- South Africa's biggest financial firm -- recently bought Sweden's oldest insurance company. Further, Dimension Data (Didata), which provides computer services, now operates in more than 30 countries.

What explains the rapid and successful global expansion of South African companies? After apartheid, South African firms had to rebuild from scratch. Because of their inability to invest abroad, the South African business scene was dominated by conglomerates enmeshed in complicated, Japanese-style ownership of businesses in many industries. For example, Mining giant Anglo American had interests in beer, banking, insurance and media companies. South African Breweries (SAB) owned everything from hotels and retail chains to furniture, textiles and matches.

To compensate for their late arrival on the international scene, South African businesses went on a global shopping spree. SAB is the best case study. After the fall of the Berlin Wall, SAB gobbled up state-owned breweries in Eastern Europe, including entities in Hungary, Poland, Romania, Slovakia, Russia and the Czech Republic. In 1993, SAB bought a stake in Tanzania's loss-making national brewer. By 2000, SAB had moved into another five African countries. SAB moved into China very early during 1994 and acquired U.S.-based Miller during 2002. And SABMiller -- as the company is now known -- became the second-largest brewer in South America last year when it bought Bavaria, a Colombia-based brewery. This breathtaking global expansion is something that few companies could have pulled off. Similar to many developing country-based multinationals, SAB found it harder initially to invest outside its home region. But by going where others fear to tread, it was able to leverage its ability to operate in tough environments.

South Africa has a long way to go. But the progress it has made in 12 short years already is remarkable.

Sincerely,

Nicholas A. Vardy
Editor, The Global Guru

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