Samsung leads the African investment charge
South Korean brands are becoming household names in Africa. “Hyundai in terms of cars, Samsung in terms of mobile phones, LG in terms of televisions and home appliances: these are well-known global brands in Africa that are reliable,” says Mthuli Ncube, professor of public policy at Oxford University’s Blavatnik School of Government.
If we take the continent back five or six years, the telecoms networks were not selling devices at all
Samsung Electronics, the largest unit of the Samsung chaebol and the world’s biggest electronics manufacturer, has carved out an enviable niche in Africa’s burgeoning economies well ahead of global competitors such as Apple, Nokia and domestic rival LG Electronics.
The company held 35% of the African smartphone market in 2014.
Samsung has been able to move with the times, unlike its more ponderous, state-owned South Korean colleagues.
It has thrown itself into sales negotiations with telecoms network operators.
“If we take the continent back five or six years, the telecoms networks were not selling devices at all,” says Thecla Mbongue, an analyst with Ovum, a telecoms research company in South Africa.
The strategy has paid off and diversified Samsung’s distribution channels.
To expand its business on the continent, the electronics giant is in discussions to start assembly plants for handsets, tablets and television sets in Ethiopia, Kenya and Angola.
Others are queuing up to attract investment. “Ghana and Côte d’Ivoire will be ideal locations if the company is to take advantage of the Economic Community of West African States no-duty law to distribute in West Africa,” says Nour Seklaoui, managing director of Electroland, the sole distributor of Samsung products in Ghana.
In July 2014, Samsung’s South African subsidiary announced plans to establish a $20m television manufacturing plant in Durban.
The Korean firm’s first manufacturing facility in the Middle East and North Africa region, the E£1.8bn ($236.8m) Beni Suef plant in Egypt started production in July 2013.
LG Electronics already has a television assembly plant in the East Rand area of Gauteng in South Africa.
South Korean corporates are strong in construction, too. Since 2011, South Korean companies have landed 308 construction contracts worth some $20.3bn in 31 African countries.
They are mainly in Algeria, Tanzania, Equatorial Guinea and Ghana, according to the International Contractors As- sociation of Korea.
In 2014, Samsung’s construction arm, Samsung C&T Corporation, won the right to build two of five power plants that were up for bids in Algeria.
The company will spend a total of $1.4bn to build a 1,450MW and a 1,163MW plant in Mostaganem and Naâma, respectively.
In August 2014, Daewoo International announced that it had won a $161m contract to build the Kazungula Bridge over the Zambezi River, which will connect Zambia and Botswana when completed in 2018.
In collaboration with its Japanese partner Zenitaka, Hyundai Engineering & Construction, the construction wing of Hyundai – which also owns a 34% stake in Kia Motors – is currently building the 525-metre New Jinja Bridge across the Nile River in Uganda.
The company is also scheduled to complete a 139MW expansion of the 288MW Azito power plant in Côte d’Ivoire by the end of 2015.
Korea’s state-owned energy companies are not mirroring this flurry of corporate activity in the consumer goods and construction sectors.
They are saddled with debt and facing an uncertain future in Africa. State-owned enterprise (SOE) debt was about 50% of the country’s $990bn in public sector debt in 2013.
Korean energy companies “have often been crowded out of the market place by deeper pockets and more experienced companies […] like BP, Chevron and Shell,” says Daragh Neville, projects assistant with the Africa programme at London-based think tank Chatham House.
The Seoul government has put heavy pressure on 18 state-run energy firms to divest overseas assets and make outstanding debt payments by 2017.
These SOEs – including the Korea Electric Power Corporation (KEPCO), Korea Gas Corporation (KOGAS) and Korea National Oil Corporation (KNOC) – are tightening spending and investment in overseas oil, gas and electricity projects.
Reining in spending
Last year, for example, KEPCO backed out of the $600m deal it had signed with Senegal’s Société Nationale d’Electricité in May 2013 for the construction of a 250MW coal-fired plant west of Dakar at Sendou.
In February of 2015, KOGAS, the world’s top corporate buyer of liquefied natural gas (LNG), announced plans to reduce staff working on its gas exploration project in the Rovuma Basin of northern Mozambique, making any near-future investments in Africa highly unlikely.
For a resource-deprived and manufacturing-oriented country – Korea is the world’s fifth-largest crude oil and second-largest LNG importer – this is surprising.
Worse still, Korean diplomats are pulling in their horns too.
The government postponed the fifth Korea-Africa Economic Cooperation ministerial conference, which was due to be held in Seoul in October 2014.
Similarly, the fourth Korea-Africa Forum was initially scheduled for late 2014 in Addis Ababa and was postponed.
Chatham House’s Neville says: “To postpone conferences such as these, which are really what the Africa-Korea relationship was built on back in the mid-2000s […] maybe doesn’t send out the best signal from Korea to Africa.”
With the public sector’s weak role in its Africa relations, the ‘Asian Tiger’ can pin its hopes on a dynamic private sector to further expand in Africa.
The government-chaebol relationship, credited with building the private firms into global giants in just a few decades, could perhaps inspire African governments to follow the same path. ●