AFRICA IS DEF­I­NITELY FOR PA­TIENT IN­VESTORS

Financial Mail - Investors Monthly - - Opinion -

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

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