Petro Dollars Pour Into SA

Sunday Times (Johannesburg)
NEWS
March 5, 2006 [/b]
Posted to the web March 6, 2006

By Adele Shevel and Sharda Naidoo
Johannesburg

SOUTH Africa is attracting billions of rands in investment from oil-rich Middle Eastern countries that are shifting money away from the US and Europe - where they have been made to feel unwelcome.

Talal Jassim Al-Bahar, chairman and managing director of IFA Hotels & Resorts, said on a visit to South Africa this week that a lot of Middle Eastern investment was moving away from the US and Europe. "Africa is key," he commented.

He was in the country for the listing of IFA on the main board of the JSE on Monday.

The international company of the same name is listed on the Kuwaiti stock exchange and has a market capitalisation of about US$1.3-billion. IFA plans to invest R1-billion - mainly in property development - in South Africa over the next four years. The company says the local listing is not a capital-raising exercise, but rather the creation of a platform for future growth in South Africa.

Jonathan Naidoo, chief operating officer of Trade and Investment KwaZulu-Natal, confirmed that a number of multi-billion-rand investments from the Middle East were likely to be announced in coming weeks.

"There has been huge interest in our country from the Middle East; there is great interest in KZN specifically, because the climate is great," he said.

Naidoo said a team from Trade and Investment KZN left South Africa this weekend for the Middle East to add final touches to "highly sensitive" negotiations that were initiated in Durban about a month ago.

"Part of my team is there busy concluding the deals and this weekend we will close them," he said. Naidoo said more details would be announced on March 10 when the SA delegation returned.

He revealed that the Middle Eastern investors were interested in putting money into hospitality and leisure, aluminium beneficiation and paper and pulp industries. They were also interested in the country's ports, and were positioning themselves to capitalise on South Africa's hosting of the 2010 Soccer World Cup.

Al-Bahar said part of the reason for the growing interest in South Africa was because people from the Middle East were made to feel comfortable in the country. He described his experience of walking in a mall in Durban. "You can see the Islamic custom. People feel comfortable. They don't get harassed. They don't look at you in a different way. They're open-minded. That's creating a lot of interest from investors to invest in South Africa."

Al-Bahar has spent time in Durban since his company bought Zimbali Lodge on the KwaZulu-Natal north coast and entered into 50% joint venture with Tongaat-Hulett subsidiary Moreland. Since taking over Zimbali, Al-Bahar says his company has seen the hotel's international client base expand from 3% to 21%.

The group is planning further developments with Moreland at Zimbali. And IFA Kuwait is also developing in its own right - but not through the listed entity - a resort development to be operated by Fairmont Hotels. The Fairmont Zimbali project includes a new Gary Player golf course costing over R100-million, a Fairmont hotel, luxury villas, apartments and leisure facilities.

The total value of the project will be about R1.65-billion.

IFA Kuwait recently bought an 80% stake in Yotel, a small-room hotel concept with luxury amenities in expensive real estate markets and busy airports. The first Yotel rooms will open at the end of this year at Heathrow and Gatwick, near London. Al-Bahar says the aim is to "hopefully bring this into South Africa".

IFA is looking to expand its real estate business to other parts of South Africa, like Cape Town. "Our expectation is big in South Africa. I think we'll be one of the biggest real estate companies in the country. It's an untapped region."

Phillip de Sylva, executive director of IFA in South Africa, points out that the market is already factoring in expectations of future IFA earnings in its share price, which made its debut at R4.50 and is currently trading at about R5.50.

But talk of a proposed restriction on foreign ownership of property is of concern to the executives of IFA.

De Sylva says this would have a negative impact on the group. "The government is talking of a moratorium. It means there will be no more buying, though it's not applicable retrospectively."

He says government wants to grow the tourism sector, increase foreign direct investment, grow jobs and alleviate poverty.

"We are doing that. I'm confident that if there's a ban on foreign direct investment it will be sectoral - possibly foreign ownership of agricultural and rural areas. I'm confident that, in the long run, it won't hamper our business."

New money from the Middle East will add to the already significant growth in investment into South Africa from that region.

The Department of Trade and Industry reports that in 2004, the most recent year for which figures are available, South Africa received investment of around R5.2-billion, from Saudi Arabia alone. This figure was significantly up on preceding years.

Sihle Shange, director North Africa and the Middle East at DTI, also points out that some investmentsfrom the Middle east are not declared. "I have not included Israel. This includes mainly the Arab side."

Attempts by Arab companies and countries to move into the West have met opposition from quarters in the US. Several US senators have warned that they will oppose the £3.9-billion bid by Dubai Ports for P&O, which controls six major ports in the US, including New York and Miami. Dubai Ports is backed by the Dubai government.

A second Dubai-owned company confirmed this week that the Bush administration had launched an "unusual investigation" into the potential security risks of its business activities within the US.

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