As a born and bred Zimbabwean, I think the recent plunge in the value of the South African rand feels eerily similar to Zimbabwe in the late 1990s when things started to go downhill.
Until then, the situation in Zimbabwe had been mostly stable. The country was considered the “bread basket” of Africa, tourism was booming and the Zimbabwe dollar was relatively stable for a spell. Even Robert Mugabe was still held in some, albeit declining, regard by the international community. However, the seeds of unrest were there.
In 2000 the first violent invasions of white-owned farms exploded onto TV screens worldwide after two decades of independence that had failed to address the country’s huge inequalities in the distribution of wealth.
As the commercial agriculture industry collapsed, Zimbabwe’s dollar went into freefall before entering a period of hyperinflation so severe that by 2008, when I bought a cup of coffee at Harare airport it cost me Z$400m and I had to carry around a suitcase full of cash.
No one believes that, given the size of South Africa’s economy and its importance in Africa, it will end up like Zimbabwe, a basketcase minnow in comparison. Yet many of the same problems that led to Zimbabwe’s downfall are now brewing in South Africa.
It is 22 years since the end of Apartheid rule and yet vast swathes of black South Africans are arguably poorer than ever before, and angry about it. There is a shortage of homes and significant land redistribution has yet to take place. Julius Malema, the firebrand politician who wants to seize white-owned land and nationalise mining companies and banks, is gaining influence. And the biggest problem of all is the corruption (and sexual scandal) in the Jacob Zuma-led ANC party.
All of this has led to the recent sharp fall in international confidence in South Africa and the weakening of the rand. South Africa’s finance minister, Pravin Gordhan, even said the country’s economy was “in crisis” when he unveiled an “austerity” budget last week.
It is therefore no surprise that South African investment into the UK, which started out as a trickle, has recently become a gushing torrent.
In the past 12 months alone, Deloitte reports that four of the 10 biggest acquisitions of UK retail groups were carried out by South African investors. This included the biggest deal of 2015 when Christo Wiese’s Brait investment vehicle took majority control of fashion retailer New Look in a £1.9bn deal including debt.
Wiese is also a major shareholder in the UK’s Iceland Foods and in Steinhoff International, the South African furniture giant that has gatecrashed Sainsbury’s proposed £1.3bn takeover of Home Retail Group, the owner of Argos, with a higher, all-cash offer. Office, the footwear chain, and Phase Eight, the upmarket retailer, are also now South African-owned.
It is a similar story in the UK property sector, where South African investors are buying assets directly and becoming major shareholders in listed real estate companies. Hammerson now has South African investors on its shareholder register and recently went on a roadshow there. Intu Properties, Capital & Counties and Redefine International have long had a sizeable South African investor base and a dual listing on the Johannesburg Stock Exchange. Last September Capital & Regional sought a dual listing on the JSE.
South African capital outflows into the UK are only going to continue at a time when the local economy, although still in positive growth territory, is losing momentum as demand and government spending weakens. The country’s vital mining sector is being clobbered by the global rout in commodity prices and South Africa as a whole is facing severe power shortages and a drought.
Investors are acting now and extracting capital before an already challenging situation deteriorates any further. This may be good for the UK but spells trouble for South Africa. The country must make the right decisions or risk an uncertain economic future. Zimbabwe didn’t and look how that turned out.
Deirdre Hipwell is retail and M&A correspondent at The Times
