How South Africa can do business with the rest of the continent

By Xolisa Phillip, in Johannesburg
Posted on Friday, 18 October 2019 09:54

Massmart is one of those South African companies who have little doubt their future growth is African REUTERS/Siphiwe Sibeko

Africa is the second-fastest-growing continent after Asia, and there is little doubt it is the next frontier for global growth.

The question is: how will South African business and its peers in the region ride this wave to unlock sustainable success and transform Africa into a first-world continent.

This was the central question during a panel discussion at the launch of the Africa CEO Network (ACN) Johannesburg Hub on 15 October.

South African business luminaries, including former first lady Zanele Mbeki, attended the event.

Change the language, change perceptions

Thabo Molekoa, the CEO of Thyssenkrup Sub-Saharan Africa, and Elisabeth Moreno, the vice-president and managing director (MD) of HP in Africa, are joint ambassadors of the ACN Johannesburg Hub.

For Molekoa getting the language South African business uses in reference to the rest of the continent is an essential first step.

  • “There is a notion we are going into Africa… We are not going into Africa, we are already here! I hope this network breaks [that] down and builds a different language,” says Molekoa.

South Africa is forecast to grow 0.6% this year, and maybe 1.2% next year. Kenya and Ghana’s economies are projected to grow 5.7% and 6.2% respectively. Thus, “[the rest of Africa] is a no-brainer when we look at where to go to look for new business,” according to Molekoa.

Growth can be pursued organically or acquisitively, and the Continental Free Trade Area agreement is seen as a major enabler

“The beauty about us as business leaders is we are here to solve problems. Africa is booming and everyone is trying to get their fair share. [But] no one succeeds alone in this world,” says Moreno.

Champion for women

Yves Biyah, the deputy MD of Jeune Afrique Media Group (to which The Africa Report belongs) explained they founded the Africa CEO Forum seven years ago to provide “a quality platform for African CEOs. We are the No 1 platform for business events in Africa”.

The Africa CEO Network is an extension of the forum’s vision to deepen economic integration on the continent.

The inaugural Africa CEO Network event in Johannesburg brought together investors and CEOs to share ideas.

“And we have launched powerful initiatives, including the Women in Business Initiative. Daphne Mashile-Nkosi is part of our board. We launched the initiative two years ago with a simple objective to have more women on the boards of African companies. Specifically, a 50-50 [gender split],” said Biyah.

  • “We have a gender charter with which we are going to engage African CEOs on a set of simple principles to [attain 50-50 gender parity] on boards,” Biyah told the attendees of the event.
  • One of the biggest criticism of South African companies, both listed and unlisted, is the lack of diversity in board representation in terms of race and gender. The latter is particularly a sore point, given the country has enjoyed democratic governance for 25 years.

Youth drive innovation

Kuseni Dlamini, the Massmart chairperson, says various factors underpin the company’s confidence in and optimism about the continent.

In its 2019 integrated annual report, Massmart said it added 13,000m² of trading space outside of South Africa. In addition, Massmart would open 13 new stores over the next three years in Kenya and Zambia.

  • “We are the second-fastest growing continent after Asia. That gives us room for optimism. We are starting to see the forces of urbanisation and industrialisation being deepened.
  • “There is also the demographic dividend, the youthful demographics in Africa, [where] the median age is 19.3. A youthful population means energy,” says Dlamini. “[The young people on the continent] are not part of the generation looking for a 10-year anniversary award from Anglo American or a 20-year anniversary watch from Transnet.
  • “They are entrepreneurs, innovators and go-getters, who when they speak to a company like Massmart-Walmart want partners. They are not looking for handouts. They are not asking for charity. They want to penetrate the supply chain. They want to access opportunities across the value chain,” according to Dlamini.

From a governance and law and order point of view, African markets are open for business.

“The Continental Free Trade Area agreement is going to unleash opportunities for Africa to grow. And, indeed, [for it to] become a first-world continent, as I believe it will,” said Dlamini.

Lessons from the Chinese

Lizeka Matshekga, an independent consultant, says finding the right local sponsor is key.

  • “The Industrial Development Corporation (IDC) has no offices outside of South Africa yet it is funded from Nigeria and Mali to Ethiopia. It has burnt its fingers, but that did not prevent the IDC from pursuing industrialisation of the continent.
  • “What is also important is the mindset of South Africans. We go out and think the model that has worked here will work outside. That is not the case. The jurisdictions are different,” explains Matshekga, who previously oversaw the IDC’s infrastructure division.
  • “There is a South African company that got its fingers burnt in Ghana. It is currently in liquidation. I think they thought they had done [a big-ticket project] in South Africa, so they could do it in Ghana. That project probably caused their demise,” said Matshekga.

The company in question is Group Five, which had to abandon a 300-megawatt power station construction project in Ghana.

The project is the subject of court claims and counter-claims running into millions of dollars. Analysts have pointed to it as one of the single-biggest contributing factors to Group Five’s operational woes. The project was valued at $410m.

Matshekga says South Africans tend to be risk averse, but need to increase their risk tolerance. “We have to be bullish. This is the next economic frontier of the globe,” she adds.

Also, South African business could learn a thing or two from the Chinese.

  • “They have mastered Africa [because] they hunt in packs. In South Africa, we go it alone and burn our fingers individually, and then we come back and lick our wounds,” she says.

Partnership and structural enablers

Themba Baloyi, the co-founder and director of Sithega Holdings, agrees with Matshekga that partnership is the lynchpin of doing business in the rest of the continent.

Baloyi views the Continental Free Trade Area agreement as an enabler. But there are two glaring issues he thinks warrant closer attention: the concentration of pension funds money in South Africa and the lack of sustainable business strategies.

In terms of the former, Baloyi says other regions, including the US and Europe, used pension funds money to drive major infrastructure projects. But this is not the case in Africa, and the absence of a formal pension funds structure to deal with this will see the content continue to be a laggard.

When it comes to sustainable business, creating value is important, instead of extracting value, according to Baloyi.

Junior Ngulube, the CEO of Sanlam Pan-Africa, says the insurer’s business model hinges on partnerships. Ngulube points to Sanlam’s 100% acquisition of Saham, which began in 2016. That transaction is valued at almost $2bn.

  • “The Sanlam strategy is that, wherever we go, we work with local partners. In all countries where we operate we have local partners who are shareholders in the business. We always say Sanlam is 101 years old, we know one or two things about running an insurance business, but in South Africa – not in every country.
  • “We are now in 33 countries on the continent. And there is no way to know everything in every country. We need those local partners because they understand the conditions and they are invested in the business. It is a win-win situation. When the business does well, we all do well. When the business struggles, we struggle together,” says Ngulube.

According to Stefano Niavas, the MD and partner at the Boston Consulting Group: “We remain bullish and we have expanded on the continent. It is like everywhere, you can make great business [but] you need to be prepared.”

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