As second or third generations take over the reins of family businesses, they may be more open to outside investment to grow their companies. East Africa in particular has a rich seam of such businesses, which canny private-equity investors should be exploring.
South African companies must seize FDI opportunities in Africa
Who Owns Whom ownership research shows that there are 2,599 foreign direct investments (FDI) by South African companies on the rest of the continent. The finance, insurance and business services sectors are leading, followed by wholesale and retail, and manufacturing.
The biggest FDI is by Bidvest, followed by Standard Bank, which secured 28% of its headline earnings from these investments in its last financial year. Imperial Logistics obtained 26% of its profit from Africa.
While ShopRite does not feature in the top 10, it has 22 subsidiaries operating 419 stores in 14 countries outside South Africa, making it the biggest South African player in the retail space on the continent. It derives 16% of group sales from its African footprint.
- In ShopRite’s 2018 annual report chairman Christo Wiese stated that “at the turn of the [22nd] century 40% of the world’s population or 4 billion people will live on the continent. Africa is a market you neglect at your peril.”
While the Egyptian retail market has proved difficult historically, the Who Owns Whom report on the Wholesale and Retail of Food in Egypt shows that the grocery market is still dominated by a large number of small family-run stores, creating an opportunity for retail chains which has been quickly seized on by France’s Carrefour, the United Arab Emirates’ Spinneys and LuLu and Turkey’s BIM. But modern retail channels still account for only 20% of sales.
Competition from China and India
The cover story of the 9 March edition of The Economist, titled “The new scramble for Africa – and how Africans could win it”, is in stark contrast to its article titled “Hopeless Africa”, to which it gave similar prominence in 2000.
But South Africa’s state and private sector have failed to form a cohesive approach to the African opportunity, and we are being out-manoeuvred by the likes of India and China.
The Who Owns Whom report on the Construction Industry in Ethiopia identifies no fewer than five leading Chinese state-owned corporations active in Ethiopian infrastructure development: China Civil Engineering Construction Corporation, Chinese Communications Construction Company, China Railway Engineering Corporation, China Road and Bridge Corporation and China State Construction Engineering Corporation.
In May 2018, Guinea approved the development of a bauxite mine, port, railway and power station by China’s TBEA at a cost of $2.9bn following a September 2017 agreement with Guinea to loan the country $20bn over 20 years in exchange for bauxite and alumina projects.
Chinese enthusiasm for investment in Africa does present opportunities for some South African companies, like Standard Bank, with its well-established footprint in Africa. The Industrial and Commercial Bank of China (ICBC) is a 20% shareholder, and Standard Bank is using this to “leverage the ICBC relationship to support the growth strategies of the Chinese multinationals operating in Africa”, Who Owns Whom reports.
Cheryl Buss, Absa’s managing principal of global clients Africa, said India’s trade with Africa grew from $7.2bn in 2001 to $59.9bn in 2017 to reach 8% of India’s world trade, and Indian prime minister Narendra Modi has stated that “Africa is at the top of our priorities”.
Underpinned by a bilateral trade agreement in the pharmaceutical industry, India is a major supplier of generic HIV medication to South Africa through its major manufacturers Mylan, Hetero, Aurobindo and MacLeods. It has also made a significant investment in South Africa through Cipla Medpro, which manufactures a range of medication at plants in Durban and Benoni.
The 2,599 South African FDI investments referred to earlier fall substantially short of the McKinsey estimate of 10,000 Chinese FDIs in Africa, and president Cyril Ramaphosa should consider establishing an African trade and investment directorate within the Department of Trade and Industry to maximise the continental opportunity while it still exists.