AFRICA IS DEFINITELY FOR PATIENT INVESTORS
The past decade has been one long rush hour for South African companies aiming to exploit the advantages of being first to arrive in markets north of the Limpopo. Expansion into the rest of Africa has become almost mandatory for local companies looking for long-term growth. Those who don’t have a strategy for sub-Saharan Africa often have to fend off criticism from the investment community that they’re still stuck in the old SA.
Yet few of these companies seem to have in-depth knowledge of the markets they’re chasing.
The experiences of Tiger Brands offer valuable lessons. Africa is a vast continent, with opportunities and an equal set of challenges.
It’s not low-hanging fruit waiting to be grabbed by companies frustrated by slow growth in the local markets.
Africa is for patient investors. This isn’t the place where deal-making bankers can simply foist mergers on CEOs under pressure to deliver double digit earnings growth.
The paucity of knowledge about Africa isn’t alleviated by the composition of the boards of firms wanting to expand throughout the continent. For instance, shouldn’t Tiger Brands have asked Aliko Dangote to sit on its board before doing a deal with him?
Companies that have been successful in Africa have taken a long-term view. Mining firms are a good case study.
Because of the sizable capital investment required upfront, miners are always in it for the long haul. For that reason, they’ve thrived where many industries have failed.
A South African company looking to expand in Africa should be looking at a 20-year plan.
This takes into consideration the fact that the road is winding and returns will take years to be made.
Perhaps for the likes of Tiger Brands a compelling case study is Coca-Cola.
The company is able to get its products to places where many others can’t go. The question is, how does it do this while its smaller rivals complain about the difficulties of trading in countries that have virtually no formal retailing or merchandising systems?
There may be many theories, but Coca-Cola’s distribution channels are really worth studying by any consumer goods firm looking to expand in Africa. Its unrivalled marketing expenditure couldn’t work if it couldn’t get the product on the shelves.
Another thing that Tiger Brands may have to reconsider is whether it wants to go slowly or big in Africa.
Despite its hiccups in Nigeria, this is one company that has realistic prospects of success in its expansion in Africa. Its ability to build brands is exceptional. It pioneered the commercialisation of bread when many thought this was impossible.
So, while a conservative approach is perhaps the best strategy considering the risk involved, that strategy will take time to realise. The group has built factories in some countries outside SA, which provide it with the base from which to launch big projects.
In the absence of big acquisitions, the group may want to replicate its successful strategy of building brands in SA elsewhere on the continent. This, of course, would require investors to be patient.
Africa is not low-hanging fruit waiting to be grabbed by companies frustrated by slow growth in the local markets