South Africa's firms trigger backlash in region

When South African firms started moving into Zambia a decade ago, following apartheid's demise, they began to change the face of business in this impoverished nation of 11 million.

Middle-class professionals in Lusaka, Zambia's quiet capital, no longer had to travel to Johannesburg or Harare to buy modern electronic equipment, and poor Zambians living in Lusaka's gritty "compounds" saw prices for bread and other staples become more affordable as South African supermarkets put pressure on local grocers. Modern banking facilities were introduced along with new jobs and concepts like the money-back guarantee.

These days, Shoprite and Pep's retail outlets, Debonair's Pizza, Nando's and MTN cell-phone shops – all South African-owned – dominate Lusaka, doing brisk business just blocks from family-owned shops hawking secondhand clothes and traditional chitenge cloth.

But corporate South Africa's surge into Zambia – a trend mirrored in other cities throughout the region – has also fueled perceptions that South African businesses – with the tacit approval of their government – are intent on a modern-day recolonization of the continent.

"South Africa has now become the most important investor in the rest of the continent," says Stef Coetzee, a professor at the University of Stellenbosch Business School outside Cape Town, South Africa. "One of the dangers that we have is another form of colonialism in Africa. South Africa is small in global terms ... but it's huge in African terms."

South African foreign assets throughout Africa totaled about $5.1 billion in 2004, spanning a wide range of sectors from telecommunications to mining, according to the South African Institute of International Affairs, a Johannesburg-based think tank.

South Africa accounts for about 25 percent of Africa's total GDP and has produced striking trade balances with less developed African economies – a concern to regional leaders.

In Zambia, South Africa has supplanted former colonial power Britain as the country's largest foreign investor. South Africans have poured about $300 million into Zambia since 1993, according to the Zambia Investment Centre. In 2005, Zambia held a trade deficit of more than $600 million with South Africa. Moreover, nearly half of Zambia's imports are South African.

"The concern is that we're going to become an extra province of South Africa in terms of the export relationship," says Bruce Imboela, a development studies professor at the University of Zambia.

While many here resent what they see as South Africa's economic hegemony, South African business – and the tax revenue it brings – is hard to resist for many cash-strapped African governments, like that of Zambian President Levy Mwanawasa, who is seeking reelection this Thursday and has seen the behavior of foreign investors (mainly Chinese) emerge as a controversial campaign issue.

Mr. Mwanawasa, who has pursued free-trade and anticorruption policies, is being challenged by populist leader Michael Sata, who complains that foreign investment isn't doing much to benefit the people of Zambia. In a country where unemployment is about 50 percent and more than 60 percent live on less than a dollar a day, Mr. Sata's protectionist stance resonates. And although he has focused blame on Chinese investment during his campaign, the arguments can extend to the burgeoning trade from South African firms.

Robert Chiwala, marketing manager at a Lusaka water-pump company, notes that South Africans have spurred local businesses to become more innovative – but often crowd out Zambian products in favor of South African imports. "It was nice having stuff on the shelves. Lots of stuff – variety. But at the same time, when our local goods were not being accepted on the shelves, we felt the pinch," Mr. Chiwala says, noting that some of his countrymen "feel abused, in some instances."

South African firms have been unable to avoid accusations of arrogance and exploitation – especially in retail, where some local businesses struggle to compete with more organized South African competition.

"We do create employment, and we do improve infrastructure and we do lower prices," argues David Robins, deputy chairman of Pick n' Pay, a Cape Town-based grocery retailer operating in Botswana, Namibia, and Zimbabwe. But, Mr. Robins acknowledges, "It's a perception thing.... [South African firms] have kind of moved in with a significant amount of brute force on the African continent."

While companies like Game and SAB-Miller have created thousands of well-paying jobs in countries with largely informal economies, Zambian unions grumble that South African companies often refuse to give workers the same benefits they would back home and often bring in expatriates as managers. Plus, a handful of firms took advantage of Zambian tax incentives for foreign investors but then left town.

Local businesses contend that some South African firms simply take their profits without partnering with local producers or investing in local infrastructure. "We're the ones with the property," notes Andrea Petsas, longtime general manager of Melissa Supermarket, a popular Zambian grocery store chain.

Politicians acknowledge these concerns. "It's not enough– there's still a lot being imported ... from South Africa," says Dipak Patel, who has worked to attract South African firms as Zambia's minister of trade and industry. And Zambia's parliament recently debated legislation encouraging greater participation by Zambian investors in foreign-owned enterprises.

Politics and long memories also color perceptions, however. Some Zambians who aided the antiapartheid movement are bitter that the South African government will not police its firms abroad – or send development aid along with corporate investment.

South African President Thabo Mbeki has walked a fine line, espousing lofty regional development goals but also quietly using initiatives like the New Economic Partnership for Africa's Development (NEPAD) to facilitate the expansion of South African firms and state-owned entities like power utility Eskom, analysts say.

Ultimately, South Africa's businesses will be crucial for regional development, says Ohene Nyanin, World Bank representative in Zambia. But they must acknowledge local sensibilities, he adds. "You need to manage perceptions."

The perceptions are pervasive enough that some South African lawmakers, academics, and business leaders are increasingly scrutinizing the behavior of South African firms in the region and asking whether their conduct – or at least their public relations efforts – can be improved.

Indeed, many firms are already working to improve perceptions. Cape Town-based Protea Hotels requires each of its hotels to implement a project that gives back to the host community, director Bernard Cassar stresses. He adds that Protea also builds the capacity of local management.

The University of Stellenbosch's Coetzee says the latter will be even more important, and pushes firms to establish local partnerships. "If South Africa is reaping the benefits of the private sector moving into the continent, what are we plowing back?" he asks.

And some South African politicians are saying that the government may need to weigh in with firms, lest accusations of corporate colonialism undermine their foreign relations throughout the continent.

"When we go out into Africa," Fatima Hajaig, a member of Parliament, argued at an Aug. 16 committee hearing in Cape Town, "we do have some sort of responsibility and so does the corporate sector."