IS THERE a new Great Trek of companies leaving SA and heading north? It certainly seems so. In years of reporting on business in SA, I can’t think of a time when the desire to leave was so strong, and when the level of business confidence was so low. Yet the picture is complicated and it’s easy to jump to conclusions.
Reasons for divestment range from the desire to take up new opportunities in faster-growing countries to escaping the shackles of a bewildering labour movement and a government whose pleas for investment are surrounded by ifs and buts.
I have the feeling it’s not so much the antibusiness sentiment in government: this kind of popular chatter is visible around the world. It’s the specific kind of peculiarly depressing vacuity of the dialogue in SA that really worries business. The conversation tends to be filled with excessive generalisations and empty sloganeering. Its practical application to the problem at hand is almost invisible. How do you reason with that mentality?
Ultimately, though, I don’t believe politics is much more than a side irritant. Departing companies are not always leaving to leave, so to speak, but leaving to arrive. Reasons for departure range from the entirely legitimate, like the need to raise capital cheaply, to the doubtful, like seeking to dodge the taxman, to the outright dubious, which includes a kind of SA phobia.
Even taking into account this broad range, it is extraordinary how many companies want out, like Steinhoff and to a large extent BHP Billiton, or want at the very least a hedge. This list is long and getting longer. It includes companies using their SA balance sheet aggressively to either buy or grow businesses outside the country. It includes some banner brands of the JSE, like Woolworths and Sasol.
It’s not just big companies that are leaving. My ears pricked up when I read that the Automotive Leather Company, based in Rosslyn outside Pretoria, had decided to move to Lesotho.
The new way of achieving an SA hedge is to split the company, as Gold Fields did, and as AngloGold Ashanti tried to do, and as Bidvest may well do. In most cases, I think these splits are legitimate, partly because the most egregious business disasters often entail ego-driven acquisition sprees. When a company decides to split, it’s much more likely to be a rational management choice. Though not always.
It’s not just big companies that are leaving. My ears pricked up when I read that the Automotive Leather Company, based in Rosslyn outside Pretoria, had decided to move to Lesotho. I’m not sure if this is still true, but many years ago I believe BMW tried to find a component built in SA that was cheaper than anywhere else, tax concessions excluded. In the huge mass of individual components that make up a car, it could find only one: leather seats. Now that is gone, too.
All of this provides a poignant context for a new debate about exchange controls and entrepreneur Mark Shuttleworth’s successful court challenge. As a legal layman, I can’t comment on the judicial basis of the two decisions, the first from the Pretoria high court and the second from the appeal court. But reading the two decisions, it strikes you how wide apart they are. The high court had some real constitutional problems with exchange controls, while finding against Shuttleworth. The appeal court decided they were extraneous, while finding for Shuttleworth. The appeal court’s finding was narrow, based on the legality of charging an "exit fee" without explicit tax-raising authority. The lower court’s finding was wide, expressing concern about the constitutional legality of some aspects of exchange control regulations — by no means all — even those that were not particularly relevant to the case.
I hope Shuttleworth takes it further and wins, though I have my doubts. But the real point is that companies will come and go, as economic fortunes ebb and flow. It’s important to understand clearly what underpins these decisions rather than to try to impose arbitrary blockages on their ability to do so.