South Africa has become the largest investor on the continent and still has a great deal to offer the wider African economy. Peter Van der Merwe talks to Stanley Subramoney.

South Africa's economic transformation in the past 10 years has been nothing short of a miracle - but there's no time for complacency. Much work lies ahead in the next decade to deal with the triple challenges of HIV/AIDS, crime and unemployment. At the same time, the country has a critical role to play in developing Africa's economy, says Stanley Subramoney. Over the past couple of years, South Africa has become the largest investor on the continent - to the tune of some R3,5 billion, depending on whose figures you believe.

"South Africa has so much to offer the continent in terms of intellect and capital-raising abilities," says Subramoney, who is a tireless evangelist for the private sector to embrace the concept of Nepad and to be aware of the enormous opportunities that await business - and particularly South African business - in Africa.

Subramoney has a better view than most of the broader African economy. He sits on the Nepad Business Group and chairs the PWC Africa Nepad grouping, which aims to assist government and the private sector to take advantage of Nepad-related opportunities, to identify bottlenecks and to engage with role players.

The challenge for African governments, he says, is to promote good governance and sound economic management. Given that the financial infrastructure in Africa is virtually non-existent, there is also a need to look at developing financial markets.

Africa currently receives less than one per cent of global investment flows - but the hard fact is that no country has ever developed through handouts, aid or credit, but only through private capital. It is therefore vital for business to be engaged in Nepad early in its formulation. "Nepad seeks to identify where Africa's competitive advantages lie, to determine how we can create an environment conducive to attracting foreign direct investment, and how we can encourage local investors to become African investors and so encourage trade between African countries. Nepad is also about improving the dynamism of the private sector," says Subramoney.

Granted, doing business in Africa can be difficult at the best of times, with a lack of infrastructure, poor communications, cases of corruption and the lack of a strong policy framework. The bottom line, though, is that established South African businesses - like Vodacom, SA Breweries, Standard Bank, Eskom, MTN, Transnet and Telkom - are making significant progress north of the border by forming partnerships with local African businesses.

PwC itself is no slouch in this regard, with a presence in 31 African countries involving 6,500 people in some 70 offices. In the process, these hardy few are obtaining returns far in excess of what they get in South Africa. The risks are higher, to be sure, but the rewards are worth it, as growing numbers of companies are finding that African markets are offsetting the difficult, overtraded markets at home.

Subramoney believes good progress has been made with Nepad's rollout. Core Nepad objectives include reducing the dependency of African countries on aid and on single commodities, and tackling corruption.

Ironically, the perception of corruption is proving far more damaging to Africa's cause abroad than actual corruption itself, but Nepad is seeking to address those concerns through its African Peer Review Mechanism. Compliance with this mechanism will practically ensure that member states receive foreign direct investment and donor funding, with recent PWC research confirming what many have thought all along: that investors are willing to pay a premium to invest in low-risk countries on the continent.

Ultimately, though, while the major institutions of the world, like the World Economic Forum and the Global Reporting Initiative, have a significant role to play in combating corruption, much of the responsibility for rooting it out must start at home.

"For every corrupter, there's a corruptee," points out Subramoney. "The problem with bribe-paying is that it makes business more expensive. If we reduce graft, we actually make the cost of business in Africa cheap. At the moment, Africa is poor because Africa is expensive. We must aim to bring all costs down, and eliminating corruption is one aspect of that."

South Africa has much to offer the continent - and the world, for that matter - in the area of good governance. The country is widely seen as the world leader in legislation and policy around corporate governance and accountability, with the King II report standing out as a world-class example.

"There is far more responsibility on the boards of companies nowadays to ensure compliance with good codes," says Subramoney. "Shareholder activism is on the rise, and companies that fail to demonstrate good faith in adhering to a code of ethics are feeling the wrath of market forces more intensely than ever before."

However, no legislation in the world can replace an ingrained culture of good old-fashioned integrity and honesty. Name any corporation, from Enron to Arthur Anderson, that has had governance issues in the past couple of years, and you'll find a common thread: they all had policies and procedures in place, but they were overridden by sheer corporate greed.

Another lesson that South Africa can export to its African neighbours is how to transform an economy. It's been an astonishing 10 years for the world's rainbow nation, to the extent that the country now has economic policies which are fundamentally sound, foreign debt which is carefully managed, interest rates which continue to fall, and inflation at a record low. These are all the kinds of good, strong signals which attract both foreign and local investments, and African finance ministers would do well to take heed.

It is said that comparisons are odious, but in this case they are salutary. Compared to three other developing countries which have taken giant steps towards transforming their economies in the latter stages of the last century - Ireland, India and China - South Africa is ahead of the game, doing in 10 years what it took them between 20 and 30 years to achieve.

The immediate problem with the South African economy, says Subramoney, is that it's a modern economy which requires a different level of skill to a traditional resources-based economy. Unfortunately, because of the country's apartheid legacy, most of the population is unemployable - they simply do not have the skills needed for the so-called new economy, and they are unlikely to acquire them anytime soon.

There has been clear progress, however. By 2005/2006, for instance, South Africa will be earning more foreign exchange from its automotive industry than from its old mainstay, gold, as a result of the South African government's foresight with its motor industry development projects.

But it will take much creativity on the part of the private sector and government to contain what is effectively a rising tide of unemployment. Growth, for one, will have to more than double, to 6 per cent, to grow the economy fast enough to accommodate this human wave.

The African example is clear: if this growth doesn't take place, the gap between the haves and the have-nots will continue to widen, with consequences which could go as far as threatening the very sustainability of South Africa's fledgling democracy. That's the furthest thing from Subramoney's mind, though. Right now, he's more interested in sharing the vision of Nepad, and telling whoever will listen that it's more than just a dream, it's a reality - a reality for a newer, better, more competitive Africa. And with passion like that, who would doubt him.

Stanley Subramoney is Deputy CEO, PricewaterhouseCoopers, Southern Africa operations