As Africa awakens from its slumber, the world has taken notice. Africa as an emerging market hold enough power to sway the pendulum in the direction it deems fit. Businesses, from Nile to Cape coast, are expanding throughout the continent; building bridges and fostering enterprise and development as capital bases swells. The scramble has begun, but this time the resources would be shared by Africans who dare to venture.
On the JSE the trend is northward. For some board admirals, networks and operations have been established in the continent for over a decade. Others are at the early stage of networking, and accelerating expansion. The trend is infectious.
Albeit, investors consider investment in businesses for their exposure beyond SA, they still need to consider other factors such as size, assets, contribution to revenues or profits and long-term prospect.
Reasons for investing and subsequent expansion includes gaining access to high growth rates in Sub-Saharan Africa and diversifying assets. For example, Retail brands and Consumer groups are selling groceries and many other products to the large and growing population in sub- Saharan Africa. And the result is quite evident in their turn over.
The South African economy is growing at a much lesser pace compared to its counterparts. According to the IMF forecast for the region, economies such as, Angola, Ghana and Nigeria are on a faster growth rate as they are expected to grow by 5.5% – as against SA’s 3% – this year and next year. And although, other economies are smaller than SA’s, the incentive to cash in on these developing economies attracts JSE’s Behemoths as the opportunities are infinite so-to-speak.
Furthermore, though the 2010 World Bank figures indicate that SA’s GDP was US$364bn, with gross national income at $10360 (Nigeria’s figures were smaller -$194bn and $2170 respectively), some admirals of SA’s domestic market fleet are repositioning themselves as emerging markets awaken.
In Addition, Goldman Sachs, which coined the term BRIC, has included Nigeria, not SA among its “next 11” group of countries. Although analysts have argued that Nigeria was not prepared to join the BRIC, the Nigerian Minister of Finance and Coordinating Minister for the Economy, Dr. Ngozi Okonjo-Iweala, thinks otherwise. She opines that the country could well be on her way to joining the BRICS if the world “looks towards the dynamics of what was happening with growth and development on the continent and not towards the statics of the past.” The JSE chieftains are indeed looking towards such stats!
An example is Tiger Brands, a South African packaged goods company, aims at raising export and international revenue to 20% in the medium term. Its objective is to become the most admired consumer goods company in emerging markets and it has put this into action by acquiring 100% of Nigerian biscuit manufacturing and marketing firm Deli Foods with effect from April for R275.8 million.
It’s mainly a domestic company for now. Last year it derived only 11.6% of its R20, 48bn revenues from exports or international activities. Operations in Africa contributed only 7.5%, but their sales grew by 75% after several acquisitions. With the acquisition of Deli Foods and East African Group of Companies of Ethiopia, which led to the formation of a new food and home and personal care joint venture that will operate in the Ethiopian market, its sales is definitely going to skyrocket as there is an anticipated turnover of about R500m in the first full year.
A striking aspect of some businesses with stocks at the JSE is the depth of African exposure in relation to total group turnover, despite years of expansion in Africa. With Shoprite, which has almost pioneered SA retailers’ move northwards, as a case study, the picture painted is of a company with only 11.5% contribution of the groups R72.3bn turnover in 2011 despite presence in 13 other African countries with over 200 stores.
However, it has established a wide retail network and gained valuable understanding of markets and logistics, as well as the hurdles posed by bureaucracy in some parts of Africa. Christo Wiese, Chairman of Shoprite stated this in his 2011 review. He said, the biggest problem of doing business in Africa was the bureaucratisation of its economies, which assumed “frightening proportions” in terms of the costs and delays for businesses wishing to invest.
Based on revenue contributions, two companies stand out as vehicles for investment exposure in Africa: MTN and Illovo sugar.
MTN last year made a third of its revenues and almost half its earnings in Nigeria and Ghana. However, that is before interest, tax, depreciation and amortisation (Ebitda). Nigeria contributes 39% of MTN’s Ebitda. Although, this is as a result of some margins.
Those margins are likely to shrink but the market potential is attractive. SA’s mobile phone market is mature, with a little over 100% subscribed according to World Bank data. Nigeria’s figure is nowhere close to that, and it has many more people. That is an open invitation to more investment in the sector.
Illovo Sugar has been expanding its production in other African countries for more than a decade. Last year alone, it produced just over two-thirds of its sugar output in Malawi, Tanzania, Zambia, Swaziland and Mozambique. But once again, it made 40% of its revenues and 17% of its operating profit in SA. However, the company is undeterred as it is planning for bigger operations in Mali, where it has invested in a multi-billion Rand Greenfield investment.
Another power broker that started moving into Africa in the early 90s was Standard Bank. Then, the bank broadened its global expansion, and it still retains its place as the largest bank on the continent, with a presence in over 14 countries, though that presence translates to only 10.5% of its total income in 2011. It however plans to sharpen its focus on investment in growth in Africa.
Overall, companies’ direct exposure to the rest of Africa is still not well-pronounced, but the lease of life for investors lies in the prospect of the opportunities emerging economies hold in decades ahead
