India could be next FDI driver in S Africa: analysts

Religare Capital Markets Ltd's (RCML) acquisition of a 74% controlling stake in South African broker Noah Financial Innovation has been hailed by analysts as a sign that India could be the next foreign direct investment driver in South Africa's financial services sector.

Indian investment banking and institutional securities company RCML, which concentrates on emerging markets, said the acquisition would boost its current trade and research capacity in South Africa.

"South Africa is one of the markets that RCML has identified as being of key strategic importance and the Noah acquisition complements the existing team by providing a meaningful local presence," RMCL Chief Executive Martin Newson told media.

Jean Pierre Verster, an analyst at 360ne Asset Management, said the acquisition indicated an about-turn in South African and Indian sectoral investments, as it had been predominantly South African companies investing in the Indian financial services sector until now.

"It's only natural that at some point when they've created sufficient wealth and accumulated enough capital from their domestic markets that they would look at investment outside India," Verster told the Business Report daily.

Nick Chambers, head of investor relations and capital markets at Africapractice, said RCML's move was a bold one in the African banking and financial sector that had traditionally been the preserve of European investors.

Chambers told Business Report there was also a significant difference in the approaches of India and China in FDI. "While the Chinese have followed a model that mostly invests in traditional African sectors such as resources, Indian companies have been seen to diversify from this model and invest also in non-traditional African sectors that incorporate services such as information and communications technology, agriculture and business process outsourcing."

The RCML deal came as the World Investment Report 2011 of the UN conference on Trade and Development (Unctad) showed that FDI into South Africa had dropped hugely by 70% to only a sixth of the peak of $5 billion recorded barely two years earlier.

Stephen Gelb, a professor of economics at the University of Johannesburg, attributed South Africa's drop to tenth position in the list of countries attracting the most FDI in the African continent from fourth place a year earlier to few major mergers and acquisitions being finalised.

"Most huge investments in South Africa come through mergers and acquisitions," Gelb said, although other economists blamed the FDI reduction on talk of nationalisation and government policies which made potential foreign investors nervous.