JOHANNESBURG—The corporate exodus from what was supposed to be Africa’s breakout economy is accelerating, driven by a toxic cocktail of corruption, lawlessness and poor infrastructure.
Africa’s largest and most developed economy has long been plagued by logistical problems, including failing infrastructure and rising electricity prices.Foreign investors from Shell to British American Tobacco are downsizing in South Africa. The decisions could mark a watershed moment for a country where the government’s ability to provide basic services has become so limited that private companies have taken over many basic civic functions.
Africa’s largest and most developed economy has long been plagued by logistical problems, including failing infrastructure and rising electricity costs. Firms have tolerated those drawbacks for access to a deep portion of South Africa’s mineral resources and its growing consumer market.
But a catalog of recent high-profile corruption scandals, often linked to laws intended to right the racial wrongs of apartheid, have tarnished South Africa’s reputation among investors and exacerbated the country’s fundamental problems, including regular day-long water and power outages.
Laws designed to improve South Africa’s black majority also hindered investment. Elon Musk’s SpaceX had been in talks with South African officials to launch its Starlink internet service in the country — which could have boosted the fortunes of the country’s economic backwaters — but the billionaire, the world’s richest, is seeking an exemption from a rule that requires foreign companies to divest 30% of their local South African black operations.
The World Bank estimates that crime costs the South African economy at least 10% of gross domestic product annually, including stolen property, additional costs of security and insurance, and missed economic opportunities.
Rolex will close its South African affiliate office in 2024, in what a spokesperson described as an evolution of the local market. The criminals, known collectively as the ‘Rolex Gang’, terrorized wealthy Johannesburg residents by robbing them of luxury watches at gunpoint, often shooting first and then seizing the watch.
A Rolex spokesman declined to say whether such groups influenced the company’s decision to leave the country. Rolex maintains an after-sales service center there, he said.
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Shell, along with BP, sold their jointly owned refinery to South Africa’s state-owned Central Energy Fund in 2024 for one South African rand, or about six US cents. That same year, Shell said it would sell its gas stations in the country, but the company has yet to find a buyer. The oil major did not respond to a request for comment.
“It’s less about income. It’s more about taking things that don’t fit our strategy off the books,” Shell chief financial officer Sinead Gorman said on the company’s second-quarter earnings call in July.
British American Tobacco has announced that it is closing its last cigarette-manufacturing facility in South Africa by the end of this year, due to the illegal cigarette trade that has wiped out about 75% of the local legal market for tobacco. The company wants to shift to an import model.
The cigarette maker said its facility, first opened in 1975, currently operates at only 35% capacity, due to a significant increase in the illegal tobacco trade in South Africa, due to a ban on cigarette sales during the coronavirus pandemic.
“We’re holding on as long as we can, hoping that all the announcements the government is making will bear fruit,” Johnny Moloto, head of corporate and regulatory affairs for the company’s sub-Saharan Africa unit, told the Wall Street Journal. “We have now reached that tipping point.”
He also said that the company will reinvest in local production if the government brings the illegal cigarette trade under control.
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During the Covid pandemic, South Africa banned the sale of tobacco in an attempt to relieve the health care system. Prohibition led to a flood of illegal cigarettes. Courts later declared the ban unconstitutional, but the legal cigarette market did not recover.
In 2024, BNP Paribas closed its corporate and investment bank in South Africa amid a wider pullout from the continent by European banks. Later that year, HSBC said it would transfer its South African business to local banks and exit the country.
Some of the multinational companies operating here are themselves implicated in local corruption in South Africa.
Bain last year in his dec The advice of the North African stops the business A state corruption investigation into Jacob Zuma found the company colluded with the former president to undermine South Africa’s tax agency.
The Boston-based firm was banned from doing business with the South African government in 2022 after the National Treasury accused Bain of “corrupt and deceptive practices”.
Bain’s actions curbed the tax agency’s ability to tackle financial crime, according to the inquiry, which heard testimony over nearly three years accusing Zuma and members of his government of securing lucrative government contracts in exchange for payments and other favors. There have been no convictions related to the corruption allegations, which analysts say is further evidence of government failure.
Zuma did not respond to requests for comment through his lawyer. He has repeatedly denied the allegations. Bain did not respond to requests for comment.
Mining giant Anglo American, a stalwart of foreign investors in South Africa, is currently working to divest its majority stake in diamond behemoth De Beers for an initial public offering or sale. It closed last year and then the world’s number one platinum miner, South Africa-based Anglo American Platinum, sold its remaining stake, now called Valterra Platinum.
Still, Anglo, which has operated in South Africa for more than 100 years, is not abandoning the country entirely. It retains a majority stake in South African miner Kumba Iron Ore, as well as interests in Vergelegen, a local manganese business outside Cape Town, and its sprawling wine farm.
“We see South Africa as a hub for investment across the region, whether in exploration or more advanced opportunities,” said James Watt-Tilby, a spokesman for Anglo American. “We are incredibly proud of the greater contribution we have made to the country to address some of the national priorities related to energy, logistics, crime and corruption, or education.”
Write to Alexandra Wexler alexandra.wexler@wsj.com
