Can AB InBev navigate the tumultuous South African investment climate?

The takeover of SAB Miller by Belgian alcoholic beverages giant AB InBev is happening at one of the most testing times for South Africa with the country currently reeling from a series of political, social and economic setbacks. Since coming to power in 1994, the ruling African National Congress (ANC) has largely adopted a pragmatic and liberal approach to managing the economy, redistributing wealth and correcting the chronic social imbalances left by apartheid. Nevertheless, left-wing populist rhetoric, strong trade union mobilisation and stiff public scrutiny of business have often fed into the debate around policies and strategic decision-making.

For AB InBev, this backdrop presents a challenging environment for its acquisition bid, which is bound to attract vigorous scrutiny not only from South African regulators but also from a wider network of vested interests. Importantly, the regulators will look not purely at anti-trust issues, but at the broader notion of ‘public interest’ which is a far-reaching term in the South African context. In this regards, the regulators will likely take into account the unique structure and circumstances of the South African economy – one which has still not fully shed the worst vestiges of apartheid. Current public sentiment on socio-economic and political issues is likely to play into how the state acts towards the deal, while the reaction of the country’s vocal trade unions may also have some bearing. Lastly, we should also expect some involvement from left-wing parties outside the ANC ruling alliance, which are gaining more influence and public support by the day.

AB InBev’s leadership has so far proven to be savvy on the possible reaction which it could face in the South African market and has put in place a strong engagement team and strategy. Last year, it announced that the new mega-brewer would be listed on the Johannesburg stock exchange, ingratiating the business with government and investors alike. Additionally, Brazilian-born company CEO Carlos Brito launched a concerted charm offensive during a recent visit to South Africa in which he paid significant attention to key government stakeholders as well as the typically more receptive local investor community.

AB InBev’s leadership has so far proven to be savvy on the possible reaction which it could face in the South African market and has put in place a strong engagement team and strategy. Last year, it announced that the new mega-brewer would be listed on the Johannesburg stock exchange, ingratiating the business with government and investors alike. Additionally, Brazilian-born company CEO Carlos Brito launched a concerted charm offensive during a recent visit to South Africa in which he paid significant attention to key government stakeholders as well as the typically more receptive local investor community.

AB InBev is clearly aware of the role that the country’s independent regulators will play in reviewing the terms of the deal, but also of the influence that other strategic government stakeholders may bring to bear in this respect. This was certainly the case with the 2011-12 Walmart takeover of South African retailer Massmart, which experienced significant challenges in passing political and regulatory approval. It is interesting to note that one of the Ministers met by Brito was Minister of Economic Development, Ebrahim Patel, who was at the forefront in scrutinising the Walmart deal from a public interest perspective, especially with regards to its impact on local workers and businesses. Patel’s involvement saw a bevy of conditions imposed on Walmart to ensure the protection of local suppliers and workers. We anticipate similar measures applied on SAB Miller locally, though the company is already fairly streamlined, limiting scope for major layoffs in any case.

Brito and his teams will need a strong charm offensive to appeal beyond the obviously powerful stakeholder groups – namely government and investors – to include an outreach to employees, service providers and union groups linked into one of the largest value chains in the country; that of SAB Miller. These stakeholders can often prove to be bigger obstacles to the long term interests of a business than any one political administration. As such, the feelings of this stakeholder group will need to be taken seriously during the deal, with their cooperation required long after the government, investors and regulators have been satisfied with the technicalities of the takeover.

In a tumultuous economic climate, many South African workers and small business owners are living in extremely tough conditions. Growing debts and large families makes the idea of a mega corporate take-over an existential threat given fears over potential cost-cutting for efficiency following such deals. For now, AB InBev has announced commitments on safeguarding jobs in the merger. Since AB InBev and SAB Miller appear to have more complimentary businesses in Africa – rather than actively competing – Brito’s assurances of no job cuts carry greater muster. Nevertheless, we don’t anticipate an easy ride in terms of drawing public support given the stakes at play and the number of interest groups implicated.

Should AB InBev be able to clear the technical hurdle of the competition regulator and also manage to allay the fears of local workers and contractors, it should be on sturdy ground to withstand the dynamic South African socio-political environment. However, it will also find itself facing an increasingly vocal left-wing movement outside of the ruling ANC, led by the Economic Freedom fighters (EFF). This movement is a lot more aggressive in its demands, especially towards South Africa’s corporate sector whom they feel have not adequately contributed to the post-apartheid challenge of building a non-racial, non-sexist society. From the left’s perspective, major corporate players have invariably stayed on the side-lines of such debates, benefiting from the dividends of a democratic South Africa re-introduced to the global economy, having previously propped up or benefited from the apartheid years. The lack of diversity in top management and in ownership in the supply chains of various sectors – including beverages – remains a major bone of discontent in this regards.

In summary, the AB InBev-SAB Miller deal is likely to provide a barometer for South Africa’s investment environment. From an investor’s point of view, it will reveal the openness of the ANC government to creating a competitive environment for foreign direct investment. Coming at a time when investors are growing increasingly concerned about the risks of investing in South Africa, the importance of this should not be under-estimated. On a positive note, while we anticipate a number of challenges to the deal – not least from the workers and unions carrying a vested interest – a major derailing appears unlikely. Instead, public discourse and populist pressures will influence some of the conditionalities imposed on the deal at the South African end. Beyond the deal, a weakening ANC and an embattled party leadership increases the risk of anti-business rhetoric and policy as the ruling party seeks to recover ground, particularly from the left. President Jacob Zuma is a born political survivor and the ANC remains the country’s dominant political force. But with growing pressures on the system, we anticipate a challenging environment for South African business, requiring significant public engagement.

Sinethemba Zonke; Political Risk Analyst, africapractice

Sinethemba is a political risk analyst with a detailed knowledge of the political environment in Southern Africa. He has advised multinational companies on political, stakeholder engagement and communications projects in Southern African and authored several africapractice publications on political, commercial and social dynamics in the Southern African region.

The post Can AB InBev navigate the tumultuous South African investment climate? appeared first on Ventures Africa.