South African companies accelerate their expansion overseas

Over the past few years many South African companies have accelerated their expansion overseas and, with big acquisitions, several now have substantial operations offshore.

Woolworths bought Australian retailer David Jones in 2014. TFG, which owns Foschini, bought into the retail sector in the UK with its acquisition of Phase Eight and Whistles.

Mediclinic and Netcare have also been buying up businesses, as have property companies, particularly in Eastern Europe.

Grocery retailers, banks, telecoms and mining companies have expanded into Africa, and, in some cases, elsewhere.

It is not only listed companies that have spread their wings. Nando's now has more stores in the UK than in South Africa and in Australia its store footprint is on a par with its home base, according to a report BMI Research released in February.

Its revenue in the UK and Ireland grew substantially from 2010 to February 2016, although profit declined in the year to February 2016. BMI said this was due to acquisitions. Overall it has a network of more than 1,000 locations in 23 countries and is focusing on building scale in the US where its operations are small.

All these companies are in search of locations where there are more shoppers, or consumers with more money. Or, ideally, both.

But just as important is that the expansion by South African companies has given them a foothold in countries that in many cases offer less risk.

And now that political and economic risk in South Africa has spiked, this could tip the scales for these companies to eventually move their operations mostly offshore.

It's a long game and it won't happen in two years or five years. But in 10 years, will the scale of stores, fast-food restaurants, manufacturers and service-related businesses in South Africa - which together employ millions of people - have shrunk?

After President Jacob Zuma last week fired four fistfuls of ministers - 10 ministers and 10 deputies - concerns have deepened that the National Treasury will be used to direct the country's resources to a select few.

And then credit downgrades to junk by S&P Global Ratings and Fitch this week mean South Africa has a long road of economic hardship ahead.

All this in just two weeks has left businesses badly shaken.

A ratings downgrade weakens the country's finances because the cost of its debt will rise, meaning there will be less money to pay for services, salaries, grants and infrastructure.

If the rand weakens - as it has already done over the past two weeks - inflation is expected to rise fast as imports become more expensive. To contain this the Reserve Bank will need to hike interest rates, meaning consumers will have less to spend.

Retailers are already trying to cope in a tough environment and any further significant pullback in spending could sink some.

But for those who have been building a nest egg offshore, is there scope to move on?

Woolworths' Australian operations, which include Country Road and David Jones, aren't as profitable as Woolworths' food, clothing and general merchandise business in South Africa. However, in the latest financial results for the six months to December, Australia contributed a respectable 42% to operating profit.

For TFG, in the half-year to September 2016, its international business that includes Phase Eight and Whistles helped its good performance with a 15% contribution to profit before tax.

The group has more than 2,000 stores in South Africa compared with about 800 overseas. But that's now.

So as business looks to grow and reduce risk, South Africans can expect a very different country from the one we have today.

Enslin-Payne is deputy editor of Business Times