South African firms could be at risk after xenophobic attacks

A police officer is seen during as looting and violence erupts on September 02, 2019 in Johannesburg, South Africa. Shops in and around various parts of Johannesburg, were looted and set alight. Most of these establishments are owned by foreign nationals.

Alon Skuy/Sowetan/Gallo Images via Getty Images

Some of South Africa’s largest businesses could be vulnerable after a spate of attacks on foreign nationals in recent weeks, one expert has told CNBC.

Twelve people were killed earlier this month when foreign-owned businesses were subject to targeted xenophobic attacks, mainly in the Johannesburg area, prompting South African President Cyril Ramaphosa to dispatch emissaries to neighboring countries in a bid to soothe relations.

On Monday, South African special envoy Jeff Radebe offered an apology to Nigerian President Muhammadu Buhari. Radebe will also visit Niger, Ghana, Senegal, Tanzania, the Democratic Republic of Congo and Zambia, the presidency said on Sunday, according to AFP.

A number of Nigerian-owned businesses and properties were targeted during the attacks, leading Lagos to repatriate hundreds of its citizens back to Nigeria last week. The violence also prompted reprisals against South African firms in Nigeria and led to the temporary closure of South Africa’s diplomatic missions in Lagos and Abuja.

Speaking to CNBC Tuesday, Capital Economics Senior Emerging Markets Economist John Ashbourne said large South African corporations could be particularly vulnerable if protests and boycotts against them in foreign territories escalate.

“A lot of South African companies, particularly consumer-facing ones, have been faced with very slow growth in South Africa in recent years, and they have seen the solution to that problem as being a really aggressive expansion in the rest of Africa,” Ashbourne explained.

South Africa avoided a second recession in two years in the second quarter of 2019, with the economy growing by 3.1% in the three months to the end of June. However, growth is likely to slow again in the third quarter, according to BankservAfrica’s monthly economic transactions index.

“There are a variety of factors going into that — problems in the mining sector, electricity problems this year — but the key takeaway I guess is that it doesn’t seem like it is a one-off shock,” Ashbourne said. “It seems like trend growth in South Africa is very weak.”

‘Big trouble’ for international corporations

Ashbourne pointed to telecommunications giant MTN as the “poster child” for international expansion, with around 60% of its revenue for 2018 coming from the rest of Africa (excluding South Africa).

A number of South African companies have set out to establish themselves in nearby less developed economies which are underserved in technology-rich sectors such as telecoms.

“Their biggest source of revenue is still South Africa, which is 33%, but then Nigeria is 28%, so just Nigeria is almost as important to MTN as their home country is,” Ashbourne added.

Service revenue in MTN Nigeria grew 172% in 2018, according to the company’s annual report, while MTN Ghana was up 23% and MTN South Africa was up 4.2%.

In an email to CNBC, the MTN Group said it was “deeply concerned about the violence of the past few weeks, the victims of that violence and the growing sense of lawlessness and its impact on our employees and our communities.”

“MTN believes that it is important that the country works much more purposefully to address these issues and we are ready to lend whatever capabilities and resources that are available and useful. We have engaged with the relevant authorities and stakeholders to focus on stabilizing the situation both in South Africa and in Nigeria to seek a lasting collaborative solution involving the public sector, civil society and business,” it said.

Buhari has been invited on a state visit to South Africa in October, and Ashbourne suggested that while the potential alienation of its closest allies was “politically embarrassing” for South Africa, the blowback on its international businesses would also be a key concern given the country’s economic fragility.

“Corporate South Africa, given its very difficult position already, doesn’t need another shock, and this has the potential to create that,” he said.

He added that a lot of companies in South Africa had established themselves in places like Nigeria and Kenya in order to address weak growth domestically, and if that is threatened, “these companies are in really big trouble.”

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