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Top 500 companies: How to thrive in 2016

By Martin Yeboah
Posted on Thursday, 24 March 2016 15:46

Stormy weather is on us. It may not be time to hit the life-boats, but business leaders are certainly battening down the hatches. The International Monetary Fund now sees African growth at 3.8% in 2016 – well below the growth levels required for an African transformation. The companies in our Top 500 recorded a more than 4% drop in their turnover in 2014 – from $728.7bn in 2013 to $698.2bn in 2014. The trend is likely to continue due to the 2015 drop in commodities prices, which hurt the oil and mining sectors in particular.

infrastructure should be seen as an emergency

Likewise, slower growth undermines the ‘Africa rising’ story in which Africa’s demographic dividend and expanding middle classes power private economic growth across the continent. Former Ecobank chief executive Arnold Ekpe tells The Africa Report that “infrastructure should be seen as an emergency” and that both private banks and central banks need to support its development. He adds that Africa needs the double-digit growth that China once achieved for ‘Africa rising’ to be a reality.

In the meantime, food and drink companies bemoan below- expected 2015 revenues in major markets like Nigeria, driven largely by adverse economic conditions and the impact on local spending power and proclivity. The plight of our top company Sonatrach (#1), Algeria’s national oil producer, is well understood by chief executive Amine Mazouzi, who is desperately trying to rein in costs and boost production to offset the collapse in the oil price.

Too tight to mention

Even Africa’s richest man, Aliko Dangote, is concerned that global conditions and Nigeria’s fiscal crunch will limit the ability of his new $14bn Dangote Cement (#69) project to access the necessary foreign exchange, despite assurances from the Nigerian central bank.

So how can corporates attract investment in the downturn? Improved governance would help. While Ekpe, drawing on his decades of banking and private sector experience, emphasises that in the main Africa’s companies should not be held to the same “over-flogged” corporate governance standards as their European or United States counterparts, the past year has seen more examples of scandal and missteps at major companies –and banks not in our Top 500 – that have prompted leadership changes, investigations, fines or undermined the confidence of lenders and shareholders.

These include MTN Nigeria (#27)’s multibillion-dollar fines for non-compliance with local telecoms regulations and the 2015 travails of Morocco’s Samir (#24) refinery. However, in the perception of investors such malfeasance and error (and even Ecobank’s own management scandal back in 2014 under Ekpe’s successor Thierry Tanoh) continue to be overshadowed by corruption and unreliability at the broader government and state agency level.

The need for a shake-up at the Nigerian National Petroleum Corporation (NNPC), beset by mass corruption investigations and uncertainty over Nigeria’s petroleum industry bill, is but one example, though this perhaps concerns the international oil companies more than it does home-grown companies seeking to benefit from a push towards local content.

Power up or fade away

Africa’s power shortages remained a crucial drag on companies, including the manufacturing sector that continues to suffer in major and smaller economies. Africa Finance Corporation chief executive Andrew Alli – who last year commended Côte d’Ivoire’s infrastructure efforts and currently argues governments need to “break a few eggs” and install “cost-reflective” power prices to bolster power production – points to Africa’s pension funds and insurance companies as relatively untapped sources of infrastructure funding.

Others, such as lawyer Olivier Chambord of United States- headquartered international law firm Morgan Lewis, emphasise the need for African governments to increase the relative attractiveness to investors of much-needed infrastructure projects to prevail in the “global competition for finance”. From an African perspective, this global competition continues to depend partly on reasons outside governments’ respective control, such as United States Federal Reserve action on interest rates, although long-term confidence in a specific country and its government is key for long-term infrastructure projects.

Among those sectors dependent on infrastructure are manufacturing and agriculture, both key opportunities for economic diversification in economies overly dependent on hydrocarbons and metals production.

Amidst an uncertain outlook for a number of soft commodities like maize, wheat and cocoa – in part due to reduced rainfall and even drought in affected regions – agribusiness executives like Frank Braeken, investment officer of Berlin-headquartered Amatheon Agri Holding, or Monica Musonda, chief executive of Zambia-based food-processing company Java Foods, point to the need for scale.

Musonda, who is leading a small operation rather than one of Africa’s Top 500, sees agriculture and agribusiness as a “big opportunity” at a time of low commodity prices and devalued currencies – which increase the cost of imports. She touts the need for “African champions”. Amatheon’s Braeken says there is value in “big business” transferring knowledge to local farmers. He supports import substitution in Zambia, where a subsidiary of his company operates.

While talk of champions may imply protectionism, of which Nigeria’s central bank governor Godwin Emefiele was accused last year when he restricted foreign exchange for rice and other key imports, the decimation in past years of local textiles companies in a number of countries by foreign competition appears a potential justification for strategic government intervention.

For the three textiles companies in our Top 500, there was an annual drop in turnover of approximately 18%. However, in recent years, the harshest blows have been borne by companies no longer in operation or falling outside the Top 500. The textile sector’s negative growth is also echoed in the other four components of manufacturing in our survey – paper, steelmaking, electrical equipment, the auto industry, and chemicals and plastics – each of which declined by more than 5% in 2014.

Volatility bites

The picture within agriculture and related sectors is equally disappointing. Agribusiness turnover in the Top 500 companies, excluding food and drink companies like SABMiller South Africa (#30), declined by 15%. Including food and drink the figure was 11%. This was a major reversal from the 30% rise of the previous year.

Volatility in sectoral performance is also illustrated by tourism. Its turnover rose by 24% in 2013 and shrank to a modest 4% in 2014. Moving into 2015, major reported declines in visitors to tourism hub Kenya do not bode well for a sector extremely sensitive to terrorist violence. The international reaction to the Ebola crisis in West Africa has also hurt the sector.

More significant to the economic growth of key economies are the contractions in the oil and mining sectors – more than 9% and 14% respectively among the group of companies included in our survey.

Recent events in the mining and oil sectors promise a continuation of this trend in 2015’s company results, with the path of commodity prices remaining crucial for 2016 regardless of cost-cutting, asset sales and the effect of currency fluctuations.

During a year in which overall Top 500 turnover declined more than 4%, two statistically bright peaks appear to be retail and utilities (water, electricity and gas), which rose by more than 16% and 17% respectively. The retail sector is dominated by South African players such as ShopRite (#8). Their forays outside of South Africa have upped the ante for African retailers, and they stand to benefit not just from growing African middle classes and changes in consumer demands.

The utility sector is dominated by much-criticised Eskom (#5) of South Africa, which not only recorded a drop in turnover in 2014 but during 2015 inflicted load-shedding and unreliability on households, manufacturers and mining companies alike.

So who is going take the bull by the horns, and thrive in 2016, in spite of the heavy weather? Gathering in the Ivorian economic capital of Abidjan from 21 March for the Africa CEO Forum, business leaders and politicians will try to thrash out new responses to today’s global economic context. The African opportunities of tomorrow – in finance, in clean energy and consumer goods – will be different to the commodity story of yesterday.

African CEOs will need to be agile: more selective in their risk-taking, more creative in sourcing finance. And African governments must find new partners to drive growth, and to access the untapped wealth already present in the continent. ●

Of 12,083 African companies in our database, 9,918 received a detailed questionnaire. After cross-checks and verification, we established a ranking of Africa’s top 1,995 companies. The first 500 are published. To allow for comparison, we apply the same rules to all our data:

1) All financial data must have a clearly defined source, generally communicated to us by the companies themselves, and must refer to the year 2014 (in some cases 2014/2015);

2) If presented in the local currency, we convert the data into US dollar amounts according to the rate prevailing on 31 December 2014;

3) We include all companies that fall under legal jurisdiction of at least one of the 54 countries in Africa, which is why a holding company and a subsidiary can both feature in the list; and 4) Where we cannot obtain up-to-date figures, we use those of the previous year (marked with an asterisk and italics). After two years of silence, a company is struck off the rankings. ●

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