Local firms must surf Africa’s growth wave

2011-11-19 08:53

South African companies should expand across Africa to take advantage of the Mother Continent’s growing consumer market, says global management consulting firm Accenture.

A new study compiled by the firm projects consumer spending in sub-Saharan Africa will reach $1 trillion (R8.2 trillion) by 2020 from $600 billion last year. The figure is buoyed by the increase in income levels, reduction in poverty, a stable political climate and rapid urbanisation.

“Companies are building emerging markets into growth strategies as consumer demand in more mature markets struggles to reach prerecession levels,” the study says.

“Perhaps the most promising emerging market is also one of the least understood: Africa. The continent offers the last frontier for consumer growth.”

According to the study, Africa’s population will reach 2 billion by 2050 from the current billion. In 2005, Africa’s population was estimated at 920 million.

The study reads further: “Africa’s growing, increasingly wealthy population is becoming more urbanised as well. By 2050, almost two-thirds of the population will live in cities, compared with 40% in 2010.

“Urbanisation, in turn, will lead some African consumers to purchase more goods and services, and will make it easier for companies to reach consumers with products, services and communications.”

Grant Hatch, an Accenture director who worked on the research, said the South African market was becoming saturated for many consumer-focused companies and such companies needed to look north to grow their customer base.

He said although many of the local companies that have expanded into the continent were large businesses, medium-sized companies also needed to search for new markets.

“I think consumer growth in Africa will continue until 2030, but a lot of medium-sized businesses are focusing on South Africa,” Hatch told City Press. “They feel that they have not fully exploited opportunities locally or they are not big enough to expand into Africa.”

The study warns, however, that while Africa was a treasure trove, South African companies needed to plan carefully before entering various markets to counter risks associated with corruption, poor infrastructure, excessive red tape and scarcity of skills.

Dave van Niekerk, a former chief executive of Blue Financial Services who took the microlender to 12 African nations, concurs that South African companies should be looking to expand into Africa if they want to grow their businesses significantly.

“South African companies that are not in Africa are limiting their market share.

“However, you need to choose your partners carefully,” Van Niekerk said, adding that currency and political risks were some of the toughest challenges that investors may face on the continent.

His fears about political risk are not unfounded. Last month, Zambia’s new president, Michael Sata, ordered his finance ministry to cancel the acquisition of a struggling local lender, Finance Bank, by First National Bank (FNB) of South Africa.

Finance Bank was due to be taken over by FNB for $5.4 million after it was put under administration on allegations of maladministration. President Sata has since returned the bank to controlling owner, Rajan Mahtani.

Operating in Africa has also been tough for mobile phone network operator Vodacom. The operator is now in the process of pulling out of the Democratic Republic of Congo (DRC) after it fell out with local shareholder partner Congolese Wireless Networks. Now rumour has it that MTN, Vodacom’s chief competitor, is interested in buying Vodacom’s 51% stake in the DRC operation.

Christian de Faria, MTN Group chief commercial officer, said he expected growth in consumption of telecoms services, particularly data services, to be brisk going forward as cellphone penetration was low in Africa.

Research in this field shows that penetration in some economies is still at between 40% and 60%
of the population.

However, De Faria said while the continent’s growth prospects were bright, companies needed to ensure that they properly managed risks associated with doing business on the continent.

“Every continent has its own challenges and Africa is no different from other continents.

“The cost of doing business in Africa is high because of poor infrastructure, but efforts are being made to develop the infrastructure. You also need to make sure that local enterprises participate in your investment. The investment must not be one-sided; it must be a win-win partnership,” he said.

Widespread corruption is also seen as a barrier to doing business in Africa.

Sim Tshabalala, deputy chief executive of Standard Bank, which operates in 17 African nations, says the lender has a canny strategy of dealing with corrupt officials and business people.

“There are some markets in which officials and business people frequently expect ‘facilitation fees’. We are absolutely clear that we don’t engage in corruption. Conversations that could lead to corrupt suggestions don’t get started,” says Tshabalala.

“This stance may lose us some business, but it gains us better quality, lower risk and more sustainable business from honest people and companies looking for partners of equal integrity.”

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