Shell Reportedly Planning Exit from South Africa, Prompting Concerns Over Investment Climate

In a surprising turn of events, petrochemical giant Shell is reportedly considering an exit from South Africa, stirring concerns over the nation’s investment climate. According to recent reports from City Press and the Sunday Times, Shell is contemplating divesting its 72% stake in Shell Downstream South Africa, a move that has sparked conflict with its BEE (Black Economic Empowerment) partner in the region, Thebe Investments, over the valuation of the latter’s remaining 28% stake.

Both Shell and the Department of Mineral Resources and Energy have refrained from commenting on the speculated exit, asserting that engagements with shareholders are confidential and refusing to address the reports.

Shell, with over 600 forecourts across South Africa and a history spanning more than a century, holds an iconic status among motorists in the country. However, its potential withdrawal comes amidst a broader trend of global brands and companies reevaluating their investments in South Africa.

The reported exit of Shell follows other notable instances, such as mining giant BHP’s $39 billion bid for Anglo American, which raised concerns about the country’s investment viability. Although BHP’s proposal omitted assets in South Africa, the company clarified that its decision was driven by portfolio and commodity considerations rather than a reflection of South Africa’s investment climate.

Similarly, Volkswagen (VW) Passenger Cars’ CEO, Thomas Schaefer, previously expressed reservations about South Africa’s attractiveness as a manufacturing hub, citing issues like load-shedding, rising labor costs, and logistical challenges. Despite such concerns, VW recently announced a substantial R4 billion investment in its manufacturing plant in Kariega, Eastern Cape, signaling a continued commitment to the country.

While South Africa grapples with infrastructural shortcomings and policy uncertainties, research by PwC suggests that foreign investors still view the nation favorably due to its robust financial services and communication industries, deep capital markets, natural resources, and political stability to a certain extent. Despite these strengths, addressing structural challenges remains imperative to sustain and attract foreign investment in the long term.