Clem Sunter

Welcome back to Africa, America

2011-06-01 14:00

Clem Sunter

With Walmart’s acquisition of 51% of Massmart being approved by the Competition Tribunal, the Americans are back in Africa big-time. I know we have the GM car-plant in Port Elizabeth and most of the famous hi-tech American companies have offices and distributorships somewhere in South Africa; but somehow this deal represents a turning-point in America’s relationship with Africa.

As one Walmart executive remarked: “South Africa alone is attractive, but we are interested in learning more about sub-Saharan Africa.” You bet. With a billion consumers and an age profile much younger than America and Europe, the African continent has the demographics to provide Walmart with a growth market for the remainder of this century. Moreover, in the latest five-year forecast of GDP growth, seven out of the top 10 countries in the world are African countries. This is not surprising given that in the last five years Africa had half the top ten. In the first quarter of 2011, South Africa’s economy exceeded expectations at 4.8%.

We all know that Africa is growing off a low base, but economic growth is what counts in the retail market. Walmart has had a tough time in the last 10 years in America and so, like many multinationals, they are looking for new pastures. They are not geographically constrained like their own government. China and Africa seem like heaven-sent opportunities and, to put Walmart in perspective, their annual turnover of $400bn is 50% larger than South Africa’s GDP.

America has not exactly had a proud record in Africa. Liberia was set up in the first half of the nineteenth century to relocate freed slaves from America. Since its independence in 1847, it has had a turbulent history. More recently, it has survived the brutal regimes of Samuel Doe and Charles Taylor. Now at least it has a reasonable president named Ellen Johnson Sirleaf, a Harvard-trained former World Bank economist.

The other incident which America would like to forget was immortalised in a movie called Black Hawk Down when they tried to capture a rebel leader in the Somali capital of Mogadishu in 1993. They failed and lost 19 men in the skirmish.

So hopefully the advent of Walmart in Africa will allow the Stars and Stripes to turn over a new leaf and at last perform a value-adding role on the continent. After all, much of Africa is still mired in poverty and Walmart can do two major things to alleviate it. Firstly, they can provide food at cheaper prices than the competition and generally make the retailing of food a more competitive industry. The same goes for a whole range of other products.

However, it is the second area that interests me most. I am so glad that the Competition Tribunal stuck so firmly to one condition of the purchase: a R100m fund that Walmart has to establish to help local suppliers. If the Zimele project of Anglo American is anything to go by, it will be a huge success. The latter project was initiated in the 1980s to help black businesses tender for and provide goods and services to the mines. A venture capital arm was added to invest capital in these businesses so that they could scale up to meet the size of the contract. Young Anglo American executives were appointed to the boards as mentors.

The results have been astonishing. The original objective was to reach somewhere between R100m and R200m in annual contract value with black businesses. The latest figure is just shy of R25bn. The reason is that what started out as a corporate social responsibility initiative is now commercially driven by the fact that these businesses are smarter and cheaper than other contractors and in some cases the mines themselves.

Welcome back America. It has been a long time and now you can act as a counterweight to the Chinese on this continent. Actually, you have chosen the most opportune time to return, given that your leader has African credentials himself.

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