Breeding Global Players

Not content with being just the largest investor in sub-Saharan Africa, South African companies are increasingly looking to capture markets much further afield, with a flurry of outward investment occurring in the last 12 months.



Last week saw the ninth-largest deal in South African corporate history with mobile telecoms operator MTN agreeing to buy the Lebanese telecoms giant Investcom LLC for $5.5bn in cash. The deal will enable MTN to enter a number of fast-growing markets including Sudan and Syria.



MTN, which has a market value of R100bn ($16.57bn) and about 23.2m customers, is expanding into Iran, Nigeria and eight other African countries as competition at home intensifies.



Investcom has operations in Benin, Cyprus, Ghana, Guinea Bissau, Liberia, Sudan, Syria and Yemen and has licences to build networks in Afghanistan and Guinea.



"This puts us in 21 markets with no overlap in emerging markets in the Middle East and Africa with a lot of growth potential," Azmi Mikati, Investcom's chief executive, was quoted as saying in the local press.



The combined group may also bid for Saudi Arabia's third mobile licence, currently under consideration by the Saudi government, Mikati said.



South African mobile phone operators have a strong presence in sub-Saharan Africa and this latest acquisition can be seen as an attempt to crack open the Middle East.



This is undoubtedly the era of the so-called third-world multinational, with developing international companies such as Mittal Steel becoming major international players. The South Africa mining sector has been looking abroad for some time now and foreign acquisitions in that sector continue unabated. Gold Fields, for example, agreed to buy the shares it does not already own in Bolivar Gold for $330m to acquire a gold mine in Venezuela last November. This would add to a portfolio which already includes mines in Australia and Ghana, which account for a third of the firm's annual output of 4.2m ounces of the metal.



South Africa's financial service sector is also getting in on the act. The MTN deal follows hot on the heels of Old Mutual's acquisition of 64.28% of the shares and votes in Nordic insurer Skandia, which was ratified by Swedish regulators in December 2005.



The deal, estimated to have achieved market capitalisation of SEK141bn ($19.13bn), aimed to create the eighth biggest insurance group in Europe measured by embedded value, with a presence in more than 20 countries.



Whether Old Mutual's acquisition of Skandia represents the start of more South African insurance businesses looking overseas is debatable. Although the country's insurers have attempted to penetrate the US, they have met with little success. However, the UK is seen as a sound foundation on which to build international expansion, and companies such as Old Mutual have already broadened their footprint in the country. Other emerging markets also offer opportunities for South African insurers, which can draw on their experience of working in their own similar market environment.



Meanwhile, as South Africa looks increasingly attractive to foreign banks in the wake of the Barclays Absa deal, its domestic banks are also making overseas acquisitions. In December 2005, a consortium led by Standard Bank entered into an agreement with the Bank of America to buy BankBoston, Argentina. In January 2006, it was also granted a licence by Dubai's Financial Services Authority to establish a full branch in the Dubai International Financial Centre.



In a decision that could potentially have huge ramifications for the banking sector, Finance Minister Trevor Manuel issued a dispensation in 2005 allowing a portion of a bank's assets to comprise exposures in the rest of Africa and, to a lesser extent, internationally, without exchange control approval.



Currently, 40% of a bank's assets can be invested outside of South Africa and 20% can be invested outside of the African continent. Some banks are now restructuring their business units to take account of this allowance.



South Africa is also leading the way in private health care with Netcare, the country's largest hospital group, announcing two weeks ago that it had been given the green light to acquire the UK's General Healthcare Group (GHG) for R23.7bn ($3.93bn) in a deal that gives the company the biggest private healthcare company in the UK.



These deals are surely a sign of a re-invigorated South Africa, confident of its ability to compete on a global scale. South Africans will be hoping that this could direct the attention of some members of the international investment community towards the platform from which these companies have been launched.