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Johannesburg rising amid inequality as gateway to Africa

The metropolis of more than 10 million is akin to what London is to Europe.

Trent Barcroft and his wife Cathy were headed home from grocery shopping in a Johannesburg suburb when their car was rammed from behind. Barcroft stepped out and was shot in the stomach. As he lay on the roadside three men stole the couple’s mobile phones and jewelry.

A few months after the February 2013 assault, he was back at work and still in South Africa’s commercial hub.

“This is the place to be,” said the 56-year-old chief executive officer of Fiat SpA and Chrysler Group LLC’s South African units who was first posted to the country in 1998.

The U.S. native’s determination to remain reflects the conviction among executives that tapping Africa’s emerging economies demands a presence in South Africa’s biggest city — the crime is just an occupational hazard.

“This is where things arguably happen economically on the continent but certainly in this country and in southern Africa,” said Barcroft. “If you want to participate you have to be here and if you are here, you are subject to this terrible scourge of crime. There is no way around it.”

That view has helped make the metropolis of more than 10 million a financial and business center for Africa akin to what London is to Europe, and a springboard for companies like Fiat and its Chrysler unit to expand northward. Arqaam Capital Ltd., a Dubai-based investment bank, and OAO Gazprombank, Russia’s third-largest lender, have opened offices there this year, joining Standard Chartered Plc and Barclays Plc. About three- quarters of South African companies are based in the city, as are Africa’s largest stock and bond exchanges.

Top Ranked

Johannesburg ranks as Africa’s top city for doing business, according to surveys by companies including Z/Yen Group Ltd., A.T. Kearney Inc., Citigroup Inc. and the Economist Intelligence Unit.

Its African rivals for investment include Lagos, Nigeria’s overcrowded and congested commercial capital, where on average it rains 101 days a year, the daily maximum temperature reaches 31 degrees Celsius (87 degrees Fahrenheit) and power outages are a regular occurrence. Nairobi, East Africa’s main hub, is beset by violent crime, attacks by Islamic-inspired militants and nightmarish traffic.

South Africa accounts for about 22 percent of sub-Saharan Africa’s output; together with Nigeria, they contribute 55 percent, World Bank data show. Sub-Saharan Africa will grow 5.4 percent this year, three times more than the U.S. and four times the rate of Brazil, according to International Monetary Fund forecasts.

Local Networks

“You can’t be in every single country,” said Marlon Chigwende, sub-Saharan Africa managing director for the Carlyle Group LP, the world’s second-largest private-equity firm, which opened offices in Johannesburg and Lagos in 2011 and raised $698 million for its first sub-Saharan Africa fund. “What you’ve got to try and do is build local networks. Johannesburg is one of the easier places to do business across Africa. Lagos has infrastructure challenges, they have got power issues.”

Goldman Sachs Group Inc. has more than 20 people based in Johannesburg, according to Colin Coleman, who was the New York- based bank’s sole employee in South Africa when he joined in 2000 and now heads its operations for sub-Saharan Africa.

Johannesburg is “the capital-market center for Africa,” Coleman said. “Eighty percent of all equity capital-market trading happens on the Johannesburg stock exchange. For access to management, capital and a good lifestyle, this is a great springboard. Most multinational companies are using Johannesburg as a base.”

Gold Boom

Johannesburg, founded in the 1880s when the discovery of gold sparked a mining boom, dominates the province of Gauteng, which contributes a third of national gross domestic product of $316 billion.

The population of the city of Johannesburg, the metropolis’ biggest component, rose to 4.4 million in 2011, from 2.6 million in 1996, two years after Nelson Mandela took power in the country’s first multi-racial elections, census data shows. The number of households rose to 1.43 million from 732,845 over the period, with the proportion of formal dwellings increasing to 81 percent from 72 percent during the period.

Commercial development is most evident in Sandton, the main financial district, which had a single 20-story office tower and a shopping mall in the 1970s and is now an expanse of office towers and luxury hotels. The area had 1.5 million square meters (5 million square feet) of office space at the end of June, data compiled by Jones Lang LaSalle Inc shows.

Stark Inequality

The gap between rich and poor is stark. The city comprises millionaires’ mansions as well as shantytowns, illustrating why South Africa is ranked by the World Bank as one of the world’s most unequal societies.

Those with means hire private security to keep the poverty and crime at bay. They have access to potable water, private schools, gyms, restaurants, cinemas and malls stocked with global brands.

“Johannesburg is a very livable city,” Sam Moss, the investor-relations director of financial-services company FirstRand Ltd., who moved to Johannesburg from the U.K. in 1995. “It doesn’t take two hours to commute on horrid trains. I haven’t been the victim of violent crime. I have the electric fence, the alarm systems, the killer dogs. I check my back mirror every time I turn into my driveway. I try to be sensible without being paranoid. The day you can’t live with that mindset, it’s time to leave.”

While South Africa’s murder rate has dropped by more than half to 31.1 per 100,000 people since 1995, it remains six times higher than that of the U.S. Of 16,259 homicides in the country in the year through March 2013, 1,158 were in Johannesburg, an analysis of the latest police data by the Pretoria-based Institute for Security Studies shows.

Four Airports

Ease of access is part of Johannesburg’s appeal as an African gateway. It has four airports, including the O.R. Tambo International Airport that’s used by about 45 airlines and can process 28 million passengers a year.

The Gautrain, a high-speed rail line, links the airport, Sandton, the city center and the capital Pretoria, alleviating congestion on the city’s 9,000-kilometer (5,600-mile) road network. The city plans to invest 100 billion rand ($9.1 billion) on transport links and other infrastructure over the next decade.

Johannesburg needs to constantly prove its worth as a continental stepping stone, said Patrice Motsepe, whose control of mining company African Rainbow Minerals Ltd. has made him the wealthiest black South African, with a net worth of $2.3 billion.

Burnishing Reputation

“We have to work on the issues that are tarnishing our reputation,” Motsepe said. “If you want to be a major business center you have to be able to attract people and make them excited about coming to live here.”

Top of the list for Fiat’s Barcroft, who declined to specify how he beefed up security at home and at work after the attack last year, is public safety.

“There are so many positive things, the people generally are lovely, the climate is fantastic, the outdoors, you name it,” he said. “But I have to say it again and again, crime is the scourge of this country.”

©2014 Bloomberg News

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