Foreign finance

by | Mar 1, 2017 | Business and Marketing

Foreign investors now have a stake in close on 100 South African wine estates. So what is the big attraction?  

Investors from as far afield as China and India have been looking at South African wine estates of late. This might be puzzling to some, given that our local wine industry (and South Africa’s economy as a whole) is facing severe challenges such as the weak rand, a devastating drought and rampant veld fires.

Fortunately there’s still plenty to smile about when it comes to our local wine business. When looking at volume of wine produced only, we’re not quite up there with top dogs Italy, France and Spain. In 2015 these three countries produced 4 950 million litres, 4 750 million litres and 3 720 million litres of wine respectively, totalling close on 50% of the world’s wine production. In comparison South Africa produced 1 120 million litres of wine in the same year. Not bad, you might say, but wait – there’s more.

The steady growth in our local wine industry over the past decade and more specifically over the past five years made a lot of people sit up and take note. South Africa’s global wine exports have increased from 151.6 to 425.5 million litres over the past five years, so this comes as no surprise. The projected 13% export increase by 2025 only sweetens the deal. Simply put, the world has developed an insatiable appetite for our wine.

Of the close to 100 South African wine estates that have seen foreign investment, most are owned by companies or families from France, the UK, America, Belgium and the Netherlands. One such example is French investor AdVini, which recently bought 51% of Ken Forrester Wines. This partnership will develop markets in new countries, Forrester says. They also want to more than double their growth within the next five years, which will give excellent exposure to not only Stellenbosch, but South Africa. AdVini also owns L’Avenir, Le Bonheur (other Lusan holdings are also up for sale) and – significantly – several wineries in Chile and France.

Max India Ltd founding chairperson Analjit Singh is another businessman who saw huge potential in our winelands, especially those in Franschhoek and the Swartland. He started off by buying three smallholdings in Franschhoek, which are collectively called Leeu Estates. In 2013 he bought a 50% share in Mullineux Wines (now called Mullineux and Leeu Family Wines) and in 2015 he bought Roundstone wine farm in Riebeek Kasteel to secure the supply of grapes.

Franschhoek is definitely the place to be. In 2014 British tycoon Richard Branson bought Mont Rochelle and California-based Jackson Family Wines bought Fijnbosch Farm near Stellenbosch in a joint venture with Graham Beck Wines. Jackson Family Wines also has vineyard holdings in Australia, Italy and France.

Asian powerhouse China also wants a piece of the action. Negotiation between William Wu and Swartland Winery for a 30% share in the business are underway and Perfect China acquired Val de Vie estate in 2014. The latter wine estate was bought through Perfect China’s 51% shareholding in Perfect Wines of South Africa, which is a joint venture with La Motte wine estate and Leopard’s Leap Wines CEO Hein Koegelenberg. Incidentally, 2015 saw a wine export hike of 40% to China and it’s predicted up to 50% of the Cape winelands will be Chinese- and Indian-owned within the next 15 years

Why are our wineries and vineyards so attractive to foreign investors?

1. Analjit Singh 2. Richard Branson
3. William Wu 4. Hein Koegelenberg 5. Chris Keet

The weak rand and our exceptional diversity of terroir are important factors, says CEO of the renowned La Motte wine estate, Hein Koegelenberg. But foreign investment in wine estates is not unique to South Africa. “Although investment might not always be from foreign sources, investment in the wine industry – especially wine tourism – is an international trend,” he says. “Added value is very important to most players in the wine industry. As the wine tourism industry grows, the rest of the economy is stimulated and other businesses and services are developed.”

Koegelenberg says property ownership by foreigners and land reform are challenging issues in South Africa. “In my opinion, it will be an oversight of the South African government if the barriers to foreign investment are too steep. Mr Singh’s recent investment in the Franschhoek Valley is a great example of how the economy can be stimulated and jobs created. He has created opportunities in agriculture, winemaking and tourism. We need this kind of financial support.” Koegelenberg also stressed the importance of local investors.

There are positive and negative aspects to foreign investment in our winelands, says Chris Keet, prominent viticulturist, oenologist and owner of Keet Wines. “The positive impact is the fact that struggling, marginal and/or run-down properties are purchased, and with new capital investment into vineyard renewal and winery process flow, fresh brand development and focused objectives these properties become premium wine producers.

“Foreign investors often introduce a different level of thinking about branding, pricing and competing on a global platform. Should the foreign owners introduce new energy, capital investment, inspire a fresh approach to branding and marketing, ensure ethical business practices and take responsibility for social issues on the property, the community and greater region, they’re adding value to our industry. The negative impact of foreign investment is more often an emotional one where we as South Africans would prefer to see our flagship properties in the hands of South Africans.”

The local wine business remains an important source of income and jobs for South Africans. By welcoming money from abroad, it will continue to grow and strengthen brand South Africa globally. Despite possible future land reform upsets, foreign investors still find South Africa an attractive market due to the weak rand, low labour costs, terroir diversity and excellent wines.

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