A flurry of meetings between Saudi Arabia and South Africa over the past year has culminated in discussions about or signed deals worth billions of dollars into Africa’s most industrialized country — and more corporate action is in the pipeline.

The rush of deal-making is part of a broader Gulf drive into Africa, with the United Arab Emirates and Saudi Arabia in particular investing in mining, renewable energy and agriculture.

Mineral-rich South Africa is attracting investors because it’s the continent’s most-industrialized nation, boasts developed-world infrastructure and has a bevy of well-run companies at bargain prices compared with firms in other regions.

“There is a disconnect between valuation levels in South Africa compared to other markets, so if you are a strategic investor taking a long-term view — you will see the value and opportunities,” said Ruven Naidoo, head of mergers and acquisitions at Investec Bank. “We have really high-quality management teams and intellectual property and companies that are very good at what they do, so it’s a good place to look for opportunities.”

Delegations of officials and business leaders have been visiting either country every few months since a 2022 meeting between Saudi Crown Prince Mohammed bin Salman and South African President Cyril Ramaphosa — along with hundreds of businessmen — in the kingdom. It’s resulted in about $5 billion in deal talks and investment in renewable energy, logistics, gas stations and real estate — some signed, some still in discussions.

The ten-hour journey between the capitals is becoming so popular that South African Airways is discussing a direct route between Riyadh and Johannesburg, according to people familiar with the matter. An SAA representative said no official announcement has been made.

Chrispin Phiri, spokesperson in South Africa’s international affairs ministry, said bilateral relations had “strengthened significantly over the past years,” with Saudi investment “growing exponentially.” South Africa’s trade minister will co-chair the tenth SA-Saudi Joint Economic Committee meeting next month in Riyadh, he added.

The governments are collaborating at a high level on trade and business, said Hussam Algheraimil, Saudi Arabia’s commercial attaché in Johannesburg.

But challenges remain. “We don’t have bilateral investment treaties yet,” he added. “Some government opportunities requires a lot of bureaucratic procedures and requirements for the Saudi companies.”

Meanwhile, the kingdom is also facing a fresh fiscal squeeze due to subdued oil prices that could complicate efforts to invest abroad. Saudi Arabia’s sovereign wealth fund — a key driver of investment in the local economy — is already allocating more money at home than abroad and may consider selling international assets to come up with more cash, analysts have said.

RENEWABLES, PORTS
Saudi companies including ACWA Power and ports operator Red Sea Gateway Terminal International, both backed by the kingdom’s $925-billion sovereign wealth fund, have invested in South Africa or are bidding for assets in the country. Thanks to the Public Investment Fund’s 44% stake in ACWA, the kingdom is now the largest investor in South Africa’s renewable-power sector, according to Standard Bank Group.

South Africa’s current coalition government “brings economic and policy certainty and renewed confidence,” while “high local banking capacity” makes it easier for companies to expand, said ACWA South Africa country manager Nandu Bhula. The company has invested $1.9-billion in its three plants so far, with the stabilization of power supplies also helping attract foreign investment, he said.

ACWA plans to invest as much as R7-billion rand ($378-million) in South Africa’s water and energy sectors over the next five years, according to people familiar with the matter.

Red Sea Gateway Terminal International is prepared to make a bid that may exceed $600-million for sub-Saharan Africa’s biggest port in Durban, according to people familiar with the matter. That deal is pending a legal challenge against a tender award two years ago.

“South African container terminals represent some of the most attractive investment opportunities in the sector globally,” said RSGTI director of global investments Gagan Seksaria. The group would also be interested in bidding for Cape Town’s port, should a tender come up, he said.

LOGISTICS, GAS STATIONS
Last month, the Jeddah-based Zahid Group reopened talks with Barloworld shareholders to increase its stake in the sole distributor of Caterpillar equipment on the continent, valuing the firm at $1.25-billion. The Saudi Arabian Oil Co is also competing to buy Shell’s downstream gas stations in South Africa for about $1-billion, as previously reported by Bloomberg.

Saudi billionaire Ajlan Bin Abdulaziz Al-Ajlan has plans to invest $500-million in a platinum smelter and refinery in South Africa’s Limpopo province. Saudi Telecom last year completed the acquisition 49% of CMC Networks South Africa for an undisclosed amount.

This month, the South Africa-Saudi Business Forum met the kingdom’s deputy minister of economic planning Al-Baraa Al-Iskandarani in Riyadh. That followed an earlier meeting in February, where a half dozen Saudi officials including Al-Iskandarani visited South Africa’s Johannesburg Stock Exchange, the Industrial Development Corporation and other businesses.

The group agreed to compile a new list of potential deals in South Africa, according to people familiar with the matter who asked not to be identified as the information is private.

The deals dovetail with the crown prince’s Vision 2030 plan to diversify his country’s economy away from oil.

Earlier this year, the kingdom announced $41-billion in investments across various sectors — focusing on natural resources, food security and renewable energy — in Africa until 2030, as it positions itself on the continent to compete with Middle East rivals.

WIN-WIN
The current deal-flow will boost South Africa’s finances and provide stronger links to other Gulf and Middle Eastern countries, said Saudi-South Africa Business Forum co-chairperson Stavros Nicolaou. Overall, Gulf countries have invested more than $100 billion in Africa since 2014, according to the World Economic Forum.

Plans are in place for the kingdom to partner with South African pharmaceutical companies, while talks are ongoing over exports of South African automotive, financial services, commodities and agricultural products, he said. South African exports to Saudi Arabia increased to R7.3-billion last year, from R6.6-billion the previous year.

“When you look to grow your economy, as is the case for South Africa, and you look toward high value markets — a market such as the European Union is attractive, but it’s a mature market,” said Nicolau. “With Saudi, which only started to diversify away from oil more recently, you find a big market where you have quite a bit of complementarity.”