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South Africa, as part of the African continent, is tied to the fates of its fellow African nations. As the largest economy in Africa, South Africa carries the hope of spreading and sharing its wealth with the rest of Africa, but it also carries the fears of dominating and overwhelming the weaker states. This paper seeks to highlight the size of South Africa’s economy relative to Africa and to identify some of the ways in which this economic strength may be beneficial and harmful to other African countries.

In relation to the rest of Africa, South Africa is economically in a different league. Its GDP of $212,777 million is two and half times as large as Algeria (the second highest GDP in Africa), and more than the combined GDP of every other country in sub-Saharan Africa[1]. South Africa is Africa’s largest trading nation – in 2004 South Africa accounted for almost 20% of exports and 27% of imports for the African continent[2]. The following table is a comparison of South Africa, Nigeria (its closest economic rival in sub-Saharan Africa) and Botswana (its closest economic rival in the SADC region).

Source CIA World Factbook 2005[3]

As can be seen from this, South Africa stands head and shoulders above other African countries. South Africa is so dominant in the region, the WTO considers the abbreviation SADC to stand for the ‘South African Development Community’[4], as opposed to the ‘Southern African Development Community’. Several people have debated whether South Africa should be called a hegemon and whether it will behave as one, and have instead toyed with such ideas as a partner[5], a pivotal state[6] or even ‘just another kid on the block’[7]. In my opinion, these arguments are purely academic and are merely different names for the same elephant. A hegemon is defined as ‘a global or regional leader in military, political, economic and often cultural affairs’[8] – focusing on the economic aspect, South Africa is undoubtedly Africa’s leader. The foreign policy discussion document of 1996 even supports this view: “South Africa should assume a leadership role in Africa in all those areas where a constructive contribution could be made”[9]. If South Africa is a hegemon, then the question of whether it will behave as a hegemon is also moot, since a hegemon can only behave as a hegemon. The questions to rather ask are why are there negative connotations to the term hegemony and why is the labelling of South Africa as a hegemon the cause for concern? With Africa’s history of colonialism, Cold War proxy wars, and IMF and World Bank advisors, there is a strong suspicion and resentment of anyone either imposing their will or their ideals. Many in Africa fear that South Africa will come in, take over and run things their way – following the agenda and ideals of the Western world and bleeding their countries dry[10]. The South African government is sensitive to these concerns, and tries to work within multi-lateral organisations as far as possible. South Africa’s support of the African Union and SADC, and most significantly its policy of ‘quiet diplomacy’ are examples of how the government is trying to avoid the stereotype of isolationist, unilateral hegemon. The proviso that accompanies the earlier quote from the foreign policy discussion document sums up this approach: “without politically antagonising the Country’s African partners.” Most of these negative stereotypes are drawn from experiences with the former colonial powers and with contemporary America, but South Africa’s relationship to Africa is different in two significant ways. Firstly South Africa is part of Africa and not on some distant continent – instability and poverty in neighbouring countries directly affect South Africa in terms of security and refugees. As Alfred Nzo told SADC, “We cannot be an island of prosperity surrounded by a sea of poverty.”[11] Secondly, Africa is South Africa’s closest and best potential market. Although a hegemon within Africa, South Africa is barely a middle power in the rest of the world. South Africa has limited ability to compete in the established markets of the developed world and faces stiff competition from the Asian economies. South Africa has the advantage in Africa, from proximity and from an understanding of the culture. This view is shared by South African business, as shown in an opinion survey in 1997 in which 62% of companies thought that Africa was their best option for foreign investment[12].

The South African government has supported South African investment into Africa, both in rhetoric and policy. Most recently, from 2003, the limit in terms of exchange control regulation for foreign investment of South African funds was $1 billion for destinations outside of Africa and $2 billion for investments into Africa[13]. Furthermore in the 2006 budget, the threshold for foreign direct investment into Africa was lowered from 50% to 25%[14]. The government has done much to steer South African companies’ investments in Africa, rather than the rest of the world, and South African companies have been only too keen to invest in Africa.

In 2003 there were more than 30 major South African companies in Africa[15]. MTN has provided a vital telecommunications network in Nigeria, Eskom has invested in and upgraded electricity networks and retailers are providing everyday consumer goods. Africa is South Africa’s third largest export market by continent[16] and Africa’s largest foreign direct investor[17] – the investment that Africa has cried out for is finally arriving from South Africa. International companies have also invested into Africa through South Africa, seeing South Africa as a springboard into the continent[18]. This investment is providing jobs, growth and infrastructure to African nations.

Unfortunately the picture is not entirely a rosy one. South Africa’s balance of trade with Africa is very heavily in South Africa’s favour, a R30 billion surplus in 2005[19]. South Africa is exporting goods and services to Africa and not importing goods back. This is an unsustainable position as it will over the long term weaken the currencies of the African nations and deplete their foreign reserves – giving legitimacy to the fear that South Africa will bleed African countries dry. The other fear is the ‘South Africanisation’ of Africa, whereby South Africa will impose their culture onto African societies. South African companies will naturally sell mostly South African goods and impose their South African business values, practices and policies. This is a very pessimistic outlook, derived from Africa’s past experiences with multinationals and fuelled by current anti-globalisation protests.

Looking at the profile of major South Africa corporations in Africa, the possibility of a different future comes to light. The majority of companies are focussed in the service sector, including ABSA, Alexander Forbes and Standard Bank in financial services, Multichoice, MTN and Vodacom, Massmart and Shoprite as retailers, and Imperial Car Rental[20]. Although these companies go into Africa with South African ideas, to succeed they have to cater for and market to the local consumers. As the service sector is geared to selling a service to people, they are especially sensitive to local wants and desires. These companies may South Africanise Africa, but they will in turn be Africanised by their host countries. The other key feature of these companies is that many of them have a direct stake in improving local markets and in turn provide services that will improve the local market. The banks, for example, will do well if the local economy does well and at the same time provide vital banking and financing services. Other companies have already made permanent commitments and are manufacturing in the African countries, most notably SABMiller that has breweries in 10 countries[21]. Retailers like Massmart and Shoprite will source perishables from local markets and will increasingly source more products from local markets due to reduced transport costs. Make no mistake, there is little or no altruism in these businesses, their primary aim is to make profits. The oft quoted Roger Pardoe put it very bluntly, “[We are] not investing in Africa for altruism. We’re investing in Africa to make some money.”[22] Success in Africa and the success of Africa is for many South African companies the best prospect for profits and growth. With markets very firmly established in the West and with increasing competition from Chinese good on the world market, South African companies face tight margins and lack market knowledge in countries in the rest of the world.

This still paints a future of Africa dominated by South African companies, with few local companies able to compete. This may unfortunately be the case and may result in a backlash from locals. South Africa is once again the nightmare and also the source of hope. The Johannesburg Stock Exchange (JSE) is pursuing the goal of a Pan-African Board[23]. They have the technology, structures and a world class electronic trading system already available. A stock exchange is a vital source of equity finance for companies – by providing the service to other African countries, the JSE will be giving local companies a source investment which will hopefully lead to the development of non-South African industries. This initiative of the JSE has the full support of the government, with restrictions being lifted in the 2004 budget. In the words of Trevor Manuel “we propose to develop a policy framework during 2004 to promote South Africa as a regional financial centre able to cater more fully for the needs of the African continent. It is envisaged that inward listings by African companies, institutions and governments should be encouraged”[24]. The concept of South Africa being a financial centre to Africa was spelt out by the Director General of the National Treasury - Lesetja Kganyago. He identified the six pillars of this policy as follows:

• Opening South Africa’s markets to African and global issuers
• Global lowest trading costs and trading risk
• Global leadership in investor protection
• Developing key new markets
• A world-class pool of financial talent
• A global hub for financial business process outsourcing[25]

He also highlights a key point, that “Africa’s economies cannot wait the slow maturing of national financial markets … Only a regional financial center will be in a position to provide these services in the foreseeable future.”

South Africa’s actions and governmental policy appear to fall into the school of hegemonic stability theory, attributed to Charles Kindleberger[26]. With South Africa’s already developed financial and business system and regional hegemonic status, it is in a position to provide the system of rules and structures necessary for other countries in Africa to grow and develop. The hope of development is nevertheless tainted by the fear of domination. With investment may come the loss of local enterprises, the loss of identity and local values. The relationship with Africa will have to be carefully managed by both government and companies alike, a backlash against South Africa would hurt not only our pride, but may also spell disaster for our own economy.

[1] World Development Indicators database, World Bank, http://siteresources.worldbank.org/DATASTATISTICS/Resources/GDP.pdf, 15 July 2005

 [2] International trade statistics 2005, World Trade Organisation, Geneva, 2005, pg 83

 [3] The World Factbook 2005, Central Intelligence Agency, Washington, 2005

 [4] International trade statistics 2005, op cit., pg xiii

 [5] Ahwireng-Obeng F, McGowan P, “Partner or Hegemon? South Africa in Africa”, in Journal of Contemporary African Studies, Vol. 16 Issue 1, January 1998, pg 5

 [6] Habib A, Landsberg C, “Hegemon or Pivot?: debating South Africa’s role in Africa’, http://www.sarpn.org.za/documents/d0000620/P611-Pivotalstate.pdf, August 2003

 [7] Schoeman M, South Africa In Africa: Behemoth, Hegemon, Partner Or Just Another Kid On The Block?, http://general.rau.ac.za/sociology/Schoeman.pdf, August 2004

 [8] Habib A, Landsberg C, op cit

 [9] South African Foreign Policy Discussion Document, Department of Foreign Affairs, http://www.info.gov.za/greenpapers/1996/foraf1.htm, 1996

 [10] Barber J, Mandela’s World, James Currey, Oxford, 2004, pg 173

 [11] Ibid, pg 182

 [12] Ibid, pg 179

 [13] Manuel T, Budget Speech 2004, http://www.info.gov.za/speeches/2004/04021815161001.htm, 18 February 2004

 [14] Manuel T, Budget Speech 2006, http://www.info.gov.za/speeches/2006/06021515501001.htm, 15 February 2006

 [15] Daniel J, Naidoo V, Naidu S, “Corporate Expansion Into Africa” in HSRC Review vol 1, no 3, Human Sciences Research Council, September 2003, pg 7

 [16] South African Trade by Continents, Department of Trade and Industry, http://www.thedti.gov.za/econdb/raportt/rapcont.html, 8 March 2006

 [17] Lutchman J, Daniel J, Naidu S, “South Africa And Nigeria: Getting Closer” in HSRC Review vol 2, no 4, Human Sciences Research Council, November 2004, pg 10

 [18] Barber J, op cit. pg 180

 [19] South African Trade by Continents, op cit.

 [20] Daniel J, Naidoo V, Naidu S, op cit., pg 7

 [21] Ibid, pg 7

 [22] Ibid, pg 6/7

 [23] JSE Security Exchange, Annual Report 2004, pg 7

 [24] Manuel T, Budget Speech 2004, op cit.

 [25] Kganyago L, Speech at “Reuters Economist Of The Year” Award Ceremony: “South Africa As A Financial Centre For Africa”, http://www.treasury.gov.za/speech/2004081101.pdf, 11 August 2004

 [26] Eichengreen B, Hegemonic Stability Theory and Economic Analysis, University of California, Berkeley, October 1996