Mike Simpson

South Africa beds down in Africa Increasingly, investing in Africa is looking like more of a solid medium-term strategy that a hopeful long shot. And Africa’s largest economy is playing a key role in this evolution, writes MIKE SIMPSON. A s the South African economy continues to slow – is thinking the same thing. For South African companies, and consumer spending remains under this leaves the market right on their doorstep: Sub- pressure, where do the country’s businesses Saharan Africa. The continent is in an unprecedented look for growth? Many of the markets traditionally on boom phase right now, with economists, management the expansion ‘hit list’ – most notably Europe, North consultancies and investment houses seemingly falling America and parts of Asia – have economic problems over themselves to extol the virtues of Africa as the of their own and the Middle East’s volatile political world’s next big economic growth story. climate means investment is tricky at present. According to McKinsey Consulting’s Rise of the African 21 China’s phenomenal growth in recent years makes it Consumer report published in late 2012, Africa’s an obvious target; but the downside is that every consumer-facing industries are expected to grow by business worth its salt – from Andorra to Azerbaijan more than $400 billion by 2020. Urbanisation – a key requirement for strong economic growth – will also increase markedly. By 2016 over 500 million Africans will live in urban centres and the number of cities with a population of more than one million people is expected to total at least 65. Tapping into Africa Gary Harwood of strategic brand consultancy HKLM offered some advice for South African businesses looking to grow into Africa during an article in Strategic Marketing. Here are some of the highlights: • Get out of the office. It is impossible to understand the market from behind a desk in First-World comfort. Getting deep into the regions – not a superficial visit to the capitals – and finding local partners to help understand “The robust growth taking place in numerous economic hubs across Africa presents very attractive opportunities for business, particularly for consumer-facing industries. Economic growth for these regions is forecast at between 6% and 8% for 2013,” says Dr Martyn Davies, CEO of Johannesburg-based emerging market consulting firm, Frontier Advisory. He adds that exploring opportunities in the rest of Africa is no longer an option, it is a vital imperative. That’s the good news. The bad news is that if you’re a South African company only now starting to look north of the Limpopo for business opportunities, you’re probably lagging behind your competitors and have almost certainly lost first-mover advantage in the most attractive economies such as Nigeria, Kenya, Tanzania and Ghana. “Your biggest competitor is probably already there – so there is no time to lose,” noted Mark Collins, CE of the nuances, complexities, local cultures and the issues affecting local consumers is vital. • Acknowledge, respect and celebrate individual cultural backgrounds, beliefs and languages. In the developed world we tend to create vanilla brands that skim across market segments and groupings. Africa is different. Broadly generic campaigns have been shown to be less effective than tailor-made ones. Businesses need to understand the different market segments, appreciate the differences and create regional campaigns in context, using local language and local models. When you consider for example, that Nigeria has 510 living languages and 250 distinct ethnic groups, the enormity of the task is clear. But experience shows that the result is always worth the effort. • Embrace formal and informal. Wear two hats. The differences that you see between urban and rural communities in South Africa are minor compared with the chasm between the cities and the hinterland in the rest of the continent. Both are equally important, and successful companies will be flexible and creative when it comes to adapting their brand applications. 22 Definition: Greenfield investing the Africa region for Barloworld Logistics, in a recent opinion piece for Moneyweb. “In fact, the expansion of South African corporates into Africa has been one of the unheralded events of the past decade. The penetration of the continent by our retailers and banks is well known, but less understood is that today virtually every sector of South African business is to be found throughout the continent. Corporate South Africa has the all-important ‘first mover’ advantage, with some “A form of foreign direct investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up. In addition to building new facilities, most parent companies also create new long-term jobs in the foreign country by hiring new employees.” Source: Investopedia companies such as Standard Bank, SABMiller and Shoprite already having almost 20 years’ experience In an interview with the newspaper, Ernst & Young’s north of the border.” Africa business centre director, Michael Lalor, noted: “The longer-term story is the contribution that South The FDI story Africa is making to the development of services sectors When it comes to foreign direct investment (FDI) into across the continent, which is helping to reduce Africa, South Africa has consistently been one of the dependence on natural resources.” top investors in recent years. According to the third Africa Attractiveness Survey by consultancy Ernst & African Development Bank economist Felisberto Mateus Young, Between 2007 and 2012 the top emerging agrees. “South African companies’ role on the African market investors in Africa were India (237 FDI projects), continent is vital due to their sophistication. African South Africa (235), the United Arab Emirates (210), economies will only benefit from South African China (152), Kenya (113), Nigeria (78), Saudi Arabia companies bringing better services, goods and (56) and South Korea (57), all of whom were among products,” he told the Mail and Guardian. the top 20 investors over that period. The movers and shakers The report singled out South Africa – the single largest Among the most prominent South Africa-based service investor in Africa by number of FDI projects in 2012 businesses operating in Africa is cellular technology – as being a key player in the growth of intra-African giant MTN, which has a near-ubiquitous presence. In trade. August it announced it had reached the 200 million subscriber mark across the 22 African countries in While the likes of China and the European Union continue which it operates. More than 50 million of these are in to be bigger investors in value terms, Business Day Nigeria and the company’s activities include a presence newspaper has pointed out that South Africa’s in the continent’s newest country, South Sudan, which multinational corporations are playing an important it entered in 2011 shortly after independence. strategic role, particularly in encouraging the 23 diversification of investment sectors. These include an “The telecoms sector has benefited a lot from South increasing emphasis on services, manufacturing and Africa, as this sector demands huge investments that infrastructure-related activities. can only be met by well-structured companies,” Mateus said. “MTN is a real example of a success story in and Zambia would continue. Africa.” Speaking at a company results presentation, Basson Vodacom also has a presence, if somewhat smaller, noted that much of Shoprite’s strong growth was with a total of nearly 74 million subscribers across being achieved outside of South Africa and these Africa. Of these, 22.3 million are outside South supermarkets were now contributing over 14% of Africa. Among the countries in which it operates total group revenue. Non-South African sales in are Lesotho, Mozambique, Tanzania and the the year to June had grown nearly 28%, which was Democratic Republic of Congo. This presence is three times the rate of growth in the South African strengthened by its Gateway subsidiary, a provider market, he said. of satellite and terrestrial network infrastructure in 14 African countries. 24 Banking is another sector where the South African TAP here to view TAP here to view fdi projects in Africa growing at compound rate of 20% African market assessment Retail giant Shoprite is another key player. Already connection is prominent. Standard Bank, for the biggest retail chain on the continent with over example, began its Africa expansion strategy as far 150 stores in 16 countries outside South Africa, back as 1998 when it started operating in Swaziland. CEO Whitey Basson said in August that he envisaged Now it operates in 17 countries on the continent 600 to 800 Shoprite outlets in Nigeria alone – and, according to an article in the Mail and Guardian, similar to the number Shoprite has in South Africa currently receives 10% of its revenue and profit – and expansion into markets like Angola, Uganda from the rest of the continent. FirstRand, Absa and Nedbank are also among Africa’s largest banks and are continuing to expand their footprint. Last year Nedbank entered into an alliance Did you know? • Between 2007 and 2011, South African companies with Togo-based Ecobank, which operates in 33 African undertook nearly 1000 new investments into 36 countries. In February 2013, Rand Merchant Bank African countries, including Nigeria, Zambia, (RMB), the investment banking division of FirstRand, Mozambique, Zimbabwe, Kenya, Botswana and launched RMB Nigeria in Lagos; after receiving the red Angola. light from the Central Bank of Nigeria in late 2012. The • move is in line with the bank’s strategy in Africa and its stated intention of becoming “the African financial In 2012, Africa accounted for some 17.6% of South Africa’s total exports. • services group of choice”. Foreign direct investment (FDI) to Africa is projected to increase by more than 10% in 2013; close to its record levels of 2008. Speaking to ABN in June 2013, FirstRand CEO Sizwe • Nxasana touched on the group’s Nigerian expansion, saying: “FirstRand adopts an organic approach to how Total African investment in other countries halved to $3.5 billion in 2012 from $7 billion in 2011. • South Africa’s importance to intra-African investment we grow in different countries, we look for different increased during the past decade and was equivalent opportunities and we are quite entrepreneurial in our to 6% of the country’s gross domestic product in approach. We want to continue to be part of the Nigerian 2011. growth story, not just setting up a merchant bank. We’ll • The value of announced intra-African greenfield be looking at opportunities in other areas, we’re involved investment* dropped significantly to $3.1 billion in in real estate, we’ve been involved in the development 2012 from an average $11 billion over the previous of shopping centres… retail banking we consider an three years. African investors represented 7.75 of important thing for the future, so we’ll continue to look total greenfield projects in Africa in 2012 (or $27.3 for opportunities in that regard.” billion). With opportunities aplenty – from infrastructure to • South Africa accounted for 45% of intra-African consumer demand, mobile uptake to property – it’s greenfield investment for-. Followed by hardly surprising that many observers stress that Africa’s Mauritius ($7.8 billion), Egypt ($7.8 billion), Kenya time is now. Certainly, for corporate South Africa, it ($6 billion) and Nigeria ($5.4 billion). seems this is the time to be looking north for growth and investment. As Ahmed Heikal, chairperson of Africa’s largest private Source: South African Revenue Service, National Treasury, African Economic Outlook, International Monetary Fund equity firm Citadel Capital, told broadcaster CNBC: “This is a great time to start investing in Africa. You have the entire continent which is open to you, very little competition, a political environment that is better than it was 20 years ago – and it will get better.” n 25 TAP here to view FirstRand CEO Sizwe Nxasana discusses the partnership between Nigeria and South Africa and the opportunities on the ground in the West African powerhouse. Inward FDI into SA 26,990 22,883 16,867 17,685 17,075 15,365 8,778 4,503 60 2003 4,3103 52 2004 5,- % 7 . 8 2 = % ) 7 1 . 13,-– = 0 ) 0 1 (2 –1 R 7 G 0 A 0 C 2 ( s t R c AG oje C r p d I te s FD 116 e v w e n i l N a t i 104 p a 7,695 c I 6,805 FD 159 12,711 5,261 58 2006 Capital invested (US$m) Source: fDi Intelligence and Ernst & Young 26 8,754 90 ,760 22,320 2007 Jobs created 2008 2009 New projects 2010 2011 Risk ranking of African countries relative to other RGMs 27 1. Chile 2. Mauritius 3. Malaysia 4. Botswana 5. Qatar 6. South Africa 7. South Korea 8. Poland 9. UAE 10. Saudi Arabia 11. Czech Republic 12. Rwanda 13. Thailand 14. Namibia 15. Ghana 16. Turkey 17. Colombia 18. Mexico 19. Tunisia 20. Zambia 21. Brazil 22. India 23. China 39. Russia