CHAPTER 4: DATA ANALYSIS AND RESULTS
4.2 Descriptive Statistics
4.2.2 Summary Statistics of Foreign Ownership
70 identified in Korea, could also be justified by the agency theory view of dividends, i.e., dividends can substitute for direct monitoring of firms by large external shareholders (Rozeff, 1982;
Easterbrook, 1984; Khan, 2006).
In summary, ROE is the only performance measure that is positively correlated to all variables, whereas ROA is negatively correlated to leverage but positively correlated to all the other variables. Tobin's Q shares a positive correlation with all variables except for the leverage ratio, firm size and firm age. The leverage ratio is the only variable negatively correlated to foreign ownership.
71 Table 4-4: Summary Statistics of Foreign Ownership across Industries from 2012-2018
Notes: This table displays the summary statistics of the variation of foreign ownership across different industries for the period 2012-2018. Std. Dev. is the standard deviation, Min is minimum, and Max is maximum.
The results from table 4-4 reveal that, on average, the consumer services industry has the highest level of foreign shareholding during the seven-year period. The South African retail scene is dominated by a small number of major retail companies, which make them appealing for foreign investments and takeovers. An example of this is the high-profile acquisition of Massmart by the American MNC retail company Walmart that acquired a 51% share of the target company in 2011 (PriceWaterhouseCoopers, 2016; Omarjee, 2017). Foreign shareholders have significant stakes in almost half of the JSE top 40 companies, such as Mr. Price, Shoprite, and Woolworths (Hogg, 2015), that are from the consumer services industry. Between the period 2013 to 2019, the international holdings of Clicks and Lewis also expanded (Wasserman, 2019). Other major companies within the consumer services industry that contain significant levels of foreign ownership are Famous Brands, Spar, The Foschini Group and Truworths.
The telecommunications and basic materials industries follow the consumer services industry closely in terms of foreign shareholding, with 20.7% and 20.6%, respectively. Based on evidence from Pau (2013) and Atiyas, Levy and Walton (2017), it is deduced that South Africa’s four licensed mobile operators (i.e., Vodacom, MTN, Cell C11 and Telkom) are widely held by foreign shareholders. Vodacom’s largest shareholder is Vodafone Group plc, which is based in the UK (National Treasury, 2017). Prior to 2018, Saudi Oger, an international telecommunications holdings firm in Saudi Arabia, was the majority shareholder of Cell C. In 2015, Vodacom and MTN were among the JSE top 40 companies with a controlling share of foreign ownership (Hogg, 2015). Although foreign investors recently sold notable stakes in Vodacom and MTN, they were net buyers of Telkom (Wasserman, 2019). Naspers, a multinational internet group and a large-cap
11 Blue Label Telecoms, which owns Cell C, has a substantial level of foreign shareholding.
Industry Mean Std. Dev. Min Max
Basic Materials 0.206 0.236 0.000 0.867
Consumer Goods 0.155 0.146 0.000 0.496
Consumer Services 0.244 0.210 0.000 0.979
Health Care 0.176 0.185 0.000 0.766
Industrials 0.137 0.150 0.000 0.625
Oil and Gas 0.132 0.121 0.004 0.402
Technology 0.117 0.137 0.000 0.585
Telecommunications 0.207 0.211 0.001 0.595
72 stock, is predominantly owned by foreigners as well and known to employ most of their staff from outside South Africa (Chandler, 2016).
The basic materials industry contains the third highest percentage of foreign ownership, as South Africa is well endowed with natural resources (Asiedu, 2006), such as coal, diamonds, and gold.
Mining companies such as Anglo Gold, Anglo American and Anglo Platinum are in the group of JSE top 40 companies where foreign shareholders have the controlling share (Hogg, 2015). In addition, Gold Fields, Harmony and Anglo Gold are among the top five foreign-owned stocks in South Africa (Wasserman, 2019).
The average foreign shareholding of the consumer services, telecommunications and basic materials industry differ from the findings of Dube (2018), who observed that from 2004 to 2014, foreign shareholding was highest in the basic material industry, followed by the consumer services industry and thereafter the telecommunications industry. This implies that, during the seven-year period, the preferences of foreign investors changed from the basic material industry to the consumer services and telecommunications industries, respectively. This shift in preferences may be a consequence of the Marikana Massacre in 2012, which caused a steady decline in the production and value of the South African mining industry (Hill and Maroun, 2015).
Interestingly, figure 4-1 displays an upward trend of foreign ownership in the basic materials industry since 2016. Although the consumer services and telecommunications industries have a higher average foreign shareholding than the basic materials industry during the seven-year period, figure 4-1 reveals that in 2018, the basic materials industry received the largest share of foreign capital. This suggests that, as of 2018, the preference of foreign investors has reverted to the basic materials industry, as per Dube (2018). This is further supported by Wasserman (2019), who stated that 62% of mining shares on the JSE are currently in foreign hands. Furthermore, offshore investors increased their mining holdings over 2018, particularly in platinum and gold companies, except for Harmony.
As presented in table 4-4, the health care, consumer goods, industrials, and oil and gas industries contained moderate levels of foreign ownership, with a small variation between the industries.
Figure 4-1 shows that foreign ownership began to increase in the consumer goods industry since 2015. Hogg (2015) labelled Tiger Brands as one of the JSE top 40 companies that had a substantial level of foreign equity. Other major firms with foreign shareholding, in the consumer goods
73 industry, are Clover Industries, Illovo Sugar, RCL Foods and Bidvest. The JSE-listed firms in the health care industry, such as Netcare, Life Healthcare, Mediclinic and Aspen, are leading healthcare brands with significant levels of foreign capital. The percentage of foreign ownership across the health care industry fluctuates during the seven-year period.
The lowest level of average foreign shareholding is in the technology industry, as illustrated in table 4-4. This may be a result of South Africa not being as technologically advanced as the countries of foreign investors. This is supported by Dube (2018), who also observed the lowest portion of foreign ownership present in the technology industry. However, figure 4-1 indicates that, as of 2016, the technology industry has attracted more foreign investors than the industrials and oil and gas industries. This may suggest that South African firms are becoming more innovative. The oil and gas industry also experienced a large drop in 2017, met by a slight increase in 2018.
Overall, figure 4-1 suggests that although the preferences of foreign investors may have alternated, the three major industries responsible for the inflow of foreign capital are still the basic materials, consumer services and telecommunications industries. It is also recognized that as of 2016, the least attractive industry for foreign investors diverted from the technology industry to the oil and gas industry.
Figure 4-1: Average Level of Foreign Ownership across Industries for the period 2012-2018
74