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Dec 10, 2012 | 11:16 GMT

7 mins read

South Africa's Ambitious Foreign Investment Plans

South Africa's Ambitious Foreign Investment Plans

Despite possessing the largest economy in sub-Saharan Africa, South Africa lacks the international influence of a country that views itself as a continental leader. As the ruling African National Congress prepares for a Dec. 16-20 leadership convention that will almost certainly name President Jacob Zuma party leader for another term, Pretoria has begun a push to expand its strategic clout by investing in the West and elsewhere in Africa.

After fighting off a leadership challenge from African National Congress politicians belonging to a rival ethnic group in mid-2012, Zuma won the endorsement of the Xhosa tribe, the country's second-largest ethnic group. Combined with the support from his own Zulu ethnic group, which is the largest in South Africa, Zuma is well-positioned to win re-election as leader of the African National Congress for another five-year term through 2017. Since the African National Congress thoroughly dominates South African politics, winning the party leadership contest is tantamount to winning the presidency itself, and a Zuma victory will allow him to be re-elected president in the 2014 election through 2019.

Zuma is likely to focus his efforts over the next seven years on boosting South Africa's international profile and influence. Recent moves by the Zuma administration show that the South African president is already looking beyond the party conference to political and especially economic opportunities within Africa and in influential Western states.

South Africa's Foreign Policy Profile

Pretoria sees itself as the rightful leader of the African continent but lacks a commensurate position in the international system. In part, this lack of international influence has been a self-imposed policy since the end of white-only rule in 1994. During the Cold War, the apartheid government was used by other powers as a tool to combat communism in southern Africa.

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As a legacy of that era, the post-apartheid governments have been extremely cautious in their exercise of power, especially within Africa itself. Indeed, the African National Congress spent many years, first under Nelson Mandela and later under Thabo Mbeki, expressly avoiding the kind of hegemonic behavior that characterized the apartheid-era National Party. For example, the military was allowed to decline, the intelligence and security services were reined in, and all were barred from intervening in other African countries to impose order or destabilize them.

Nearly two decades after the end of apartheid, however, South Africa has begun to move away from this excessively cautious and inward-looking posture. As part of its effort for more international involvement, South Africa has courted and received a great deal of foreign investment in its mining, finance and telecommunications sectors. It also successfully hosted the 2010 World Cup, which Pretoria believed would showcase its supposed arrival as a major international stakeholder. Still, these efforts have not translated into any greater influence in affairs beyond South Africa's borders.

Some of South Africa's recent efforts to expand its clout have been directed at prominent international forums. For example, it sought and acquired a non-permanent seat on the U.N. Security Council representing Africa, membership in the G-20 forum for rich and developing countries, the BRICS association of emerging economies with Brazil, Russia, India and China, and the chairmanship of the African Union Commission.

But a voice in these diplomatic and economic forums has not given Pretoria the influence it is seeking, and South Africa has even seen a number of setbacks to its leadership aims in the past year. Pretoria tried to mediate the conflicts in Ivory Coast and Libya, but was effectively ignored in each after France and the United States, respectively, took the lead in ousting the incumbent regimes in each country.

Seeking Influence Through Investment

Pretoria is now trying to enhance its influence through a new approach: checkbook diplomacy. South Africa announced Dec. 5 that it had signed a $5.8 billion contract with the French company Alstom to refurbish South African passenger rail trains. Passenger rail is a common form of transportation in South Africa but has been declining in popularity as other transportation methods become more widely available, such as low-cost airlines and inexpensive minibuses. South Africa also recently constructed a high-speed regional rail network called the Gautrain, which operates in the capital province of Gauteng.

Since passenger rail is still widely used and South Africa has made infrastructure improvement a priority, the plans to refurbish the cars can be rationalized, but the larger aim is likely political. The $6 billion contract is reportedly one of the largest signed since the African National Congress came to power in 1994, and will certainly ensure that Paris pays more attention to Pretoria, which could have turned to China or Canada for a comparable supplier.

In another deal, South Africa's state-controlled energy and chemical company Sasol announced Dec. 3 that it would invest up to $21 billion in a gas-to-liquid and ethanol facility in the U.S. state of Louisiana. The investment — a significant amount of money for any company but especially for Sasol and its top shareholder, the South African Industrial Development Corporation — would underwrite a 96,000 barrel-per-day, $11 billion-$14 billion gas-to-liquid plant and a $5 billion-$7 billion ethane cracker. Sasol would not likely finance the entire projected $21 billion, but it will go forward with the project, sharing the financing and also the advanced gas-to-liquid technology it has developed with other investors.

The gas-to-liquid project complements the broader U.S. goal of becoming energy independent. While its feasibility is still being evaluated, the jobs the project may eventually provide in the United States and the potential investment opportunity for other companies could eventually result in a closer relationship between Washington and Pretoria.

Closer to home, South Africa is deploying capital across multiple countries. Sasol opened a $250 million natural gas-fired power plant project in Mozambique on Nov. 30. South Africa's upstream oil producer, PetroSA, announced Oct. 17 the purchase of a stake in Ghana's Jubilee field. South African companies are investing more than $500 million in Nigeria, acquiring on Nov. 28 stakes in a telecommunications company and, on Oct. 5, stakes in agriculture and food services. South Africa is also disbursing a loan of $300 million to help underwrite the budget of the neighboring Swaziland kingdom.

South Africa's Regional Mineral Interests

State-owned rail and port operator Transnet announced Nov. 20 that it would rehabilitate a rail network that links South Africa to the Democratic Republic of the Congo. Working with governments in Zimbabwe, Zambia and Congo, Transnet aims to improve supply chain efficiencies that move mining commodities throughout South Africa and the Copperbelt region of Central Africa. Pretoria's involvement in this project is no surprise; South Africa's rival for regional leadership, Angola, is also working to rehabilitate a rail line to the same mineral-rich region. If completed, Angola's Benguela rail line would undermine South Africa's ability to oversee the movement of commodities and finance into central Africa, a region Pretoria has always viewed as South Africa's rightful territory.

Transnet's rail line to the Congo would likely be aimed at better connecting the ports at Richards Bay and Durban with Zimbabwe's Great Rift, Zambia's Copperbelt and Congo's Katanga. Though the route from Angola's Lobito harbor to Congo is shorter, South Africa is better able to provide supply chain inputs and infrastructure for the rail network than the less economically developed Angola can. Transnet is also working to help rehabilitate ports at Maputo in Mozambique and at Walvis Bay in Namibia, where commodities and goods are transported between these southern African countries.

While South Africa believes itself to be the leading African power, it has struggled to live up to its expectations for international clout to this point. However, with the question of national leadership through the near future on the cusp of resolution, Pretoria is ready to begin pursuing these and no doubt other economic ventures aimed at enhancing its influence.

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