Brent Williams, CEO, DLA Cliffe Dekker Hofmeyr, on the African investment climate

Brent Williams, CEO, DLA Cliffe Dekker Hofmeyr

There are many reasons foreign investors, including investors from other countries in Africa, continue to look at South Africa as an investment opportunity on the continent. South Africa has a highly developed, sophisticated legal system that is comforting to foreign investors looking to invest in Africa and in South Africa specifically. The country also has a very well developed and regulated capital markets regime that makes investment or capital raising an attractive proposition. In the latter regard, the Johannesburg Stock Exchange is one of the top performing stock exchanges in the world and is regularly placed in the top three globally.

The World Economic Forum’s 2013 Global Competiveness Report ranked South Africa first out of 148 countries for regulation of securities exchanges. This, together with several other elements of the report, points to the country’s exchange as a sound environment in which to invest. Other key rankings were South Africa’s second place for financing through the local equity market, and South Africa’s financial market development ranking, in third place. The major service providers in the financial services sector all have global links, either because they are subsidiaries of global firms or because they are locally based with global subsidiaries, and so are able to service local and panAfrican needs according to global best practice.

Mining also remains an attractive proposition in South Africa, mainly because of the size and diversity of the country’s resource base. This is despite our mineral resource regulation, specifically the Mineral and Petroleum Resources and Development Act and its regulations and proposed amendments, having recently caused some anxiety for incumbent and prospective investors legitimately seeking greater certainty and transparency around South Africa’s mineral resources regulatory regime. It is fair to say, though, that the uncertainty that currently plagues mineral resources regulation in the country is neither arbitrary nor capricious, and at its heart lies efforts by government to balance the interests of investors risking their capital, with the competing interests of historically neglected stakeholders in the mining industry – mostly mineworkers and local communities – and the country’s broader economic development imperatives.

Looking at the interest from investors in renewable energy projects, it is clear this sector holds opportunities both in South Africa and across Africa. Taking into account the continent’s development needs and the fact that renewable energy infrastructure is capable of being commissioned in much shorter timeframes than older energy solutions, such as coal-fired power stations, it is a small wonder investors are showing the levels of interest that they do. The shorter lead times are advantageous not just from the perspective of delivering energy faster than has traditionally been the case (albeit in a number of instances more expensively) but because the shorter lead times translate into a quicker return on capital for investors. In South Africa, 600 MW of power from renewable energy projects started in 2012 is already being delivered to the grid.

Oil and gas is another distinct area of investment off South Africa’s coast, and Africa’s east coast and west coast as well. In South Africa’s territorial waters there is considerable opportunity to invest in oil and gas exploration. Offshore oil and gas is relatively new for South Africa in terms of private sector investment in prospecting and production. Also attractive to investors is the expectation that there will likely still be sustained global demand for oil and gas for the foreseeable future. As long as oil and gas exploration also results in the development and growth of ancillary industries, including infrastructure related to oil and gas exploration, there is a net gain for the country from the revenue generation, job creation and industrial development point of view, and for returns on investment. Given the strategic nature of the oil and gas industry, it is subject to varying degrees of regulation and governed by a large body of legislation. Investment and interest in Africa, in order to be sustainable, must create a win-win scenario for the continent’s people and its investors.

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Brent Williams

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The Report: South Africa 2014

Legal Framework chapter from The Report: South Africa 2014

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