South Africa Continues as Africa's Leading Deal Maker with $63 Billion to Invest

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Written by Richard Finlayson, Senior International Editor for Industrial; Info Resources (Sugar Land, Texas)--South African companies are sitting on a potential investment hoard of about $63 billion and are enthusiastically looking into opportunities on the African continent, rather than making direct investments into domestic projects, says a Mergermarket report that was produced in collaboration with Nedbank and law firm Edward Nathan Sonnenbergs.

However, the report says, South Africa has been the target for investors in 50% of the top 10 African merger and acquisition deals and is expected to be the leading sub-Saharan country for cross-border deals in 2013. The United Kingdom (U.K.) and France are the two most active investors in Africa, and South Africa is the most common domestic investor, although it is worth noting that international businesses will often use South Africa as a vehicle to access other African markets.

There have been 1,562 merger and acquisition transactions worth $249 billion in Africa since 2005. In 2011, there were 199 deals worth a total of $29.8 billion. In 2008, there were 13 deals worth more than $500 million, representing 5% of the total. In 2011, there were 20 deals more than $500 million, about 10% of the total.

Earlier, Ernst & Young (E&Y) reported that "there was a lot of hype" around Nigeria becoming the largest economy in Africa.

"It is good for the continent, but the truth is that being the largest does not make it the gateway. Yes, some investors might want to invest directly in other regions, but South Africa is still the main entry point," said Ajen Sita, CEO of E&Y Africa.

During 2007-11, the worst global economic crisis in living memory, foreign direct investment (FDI) into the country grew at a compound of almost 25% for FDI capital and almost 29% for projects. In contrast, some other African markets (such as Ghana, Kenya, Mozambique, Tanzania and Zambia) have seen spectacular growth in FDI over that period--in excess of South Africa, but all off a much lower base, reports E&Y.

While investment in many of the other leading African markets tends to be focused on capital-intensive sectors (such as oil, mining and other extractive industries), South Africa's economy is far more diverse, and a large proportion of investment in the country tends to be in less capital-intensive manufacturing and service sector projects, which generally provide higher job-creating potential.

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