Africa offers rich rewards
ith the local economy expected to show muted growth over the next few years, it is unsurprising that a growing number of SA corporates are looking beyond our borders for earnings, writes
WExpanding into Africa is no walk in the park, and there are enough corporates with burnt fingers to attest to that, but those that are able to do so successfully tend to be richly rewarded.
The continent represents a market ripe for the picking. And by all accounts it is one area that corporates and their bankers are keen to exploit for aggressive growth.
Sasfin corporate finance head Francois Otto is excited about the growth potential. He points out that this view is based on long-term prospects — the next 20-30 years and beyond.
“I’m bullish about Africa over the long term. Right now, there is no doubt that some SA companies have had a tough time, but the case of Shoprite illustrates that if you have a little bit of guts and street smarts you can get very far because the market is so big,” he says.
“[When it comes to] structural challenges on the continent, unfortunately people do tend to tar [all of] Africa with the same brush. But people at the coalface realise that these jurisdictions are very different and that you need the right partner for the right country. And if you have the right structures, logistics and partners, there is a lot of money to be made and a lot of appetite.”
He adds that many companies that entered the market during the commodities super-cycle have been burnt, as the valuations of those assets have fallen in tandem with commodity prices. The risk inherent in such short-term opportunism is also illustrative of the approach required to succeed.
Organic, not acquisitive growth, is the route to success in Africa. Simply entering or buying into a market is no sure recipe for success. In the absence of an understanding of the business, a proper valuation and the right management and partners, “you have a good chance that the acquisition will blow up in your face,” says Otto.
With a 20% shareholding in pan-African group Ecobank, Nedbank feels it has the right ingredients, through a presence in 36 countries, to help steer clients in their African expansion.
“Numerous opportunities [remain] in the rest of Africa, but you have to be quite careful about where you operate,” says Shabbir Norath, head of the bank’s corporate & investment banking division. “The question is: where exactly in Africa do you want to operate? There are some opportunities in North Africa, but the majority are in sub-Saharan Africa, and even in that market it is mainly East or West Africa.
“East Africa is slightly easier because the language and laws are similar to [those of] SA, whereas West Africa is more challenging . . . Nigeria is not necessarily the place for the faint-hearted. The size of the market is attractive but it is also a very challenging environment.”
One of the challenges, he says, is finding deals of the right size and nature. Buying up a host of smaller players can mean a disproportionate effort is dedicated to managing or integrating these operations.
An interesting characteristic of larger groups on the continent, he says, is that they tend to be family owned. Gaining control of these is a lot more difficult.
Looking at opportunities and sectors, Otto says commercial property remains attractive, though activity levels are down as investors wait to see how JSE-listed, pure-play African property counters perform.
“The other area where I see a lot of activity is on the FMCG [fast-moving consumer goods], consumer products and food side,” he says. “Sub-Saharan Africa has 1bn consumers. In many countries, bad policy is holding those people back. But the beauty of human nature is that we are survivors and people are always trying to better their lives . . . [so] basic necessities, at a minimum, will always be required.”
It shows that if you have a little bit of guts and street smarts you can get very far
While the huge consumer market holds great promise for firms looking to expand in Africa, other opportunities, such as infrastructure or manufacturing, are enticing over the longer term.
Companies and individuals able to demonstrate the street smarts that Otto so admires are likely to find eager backers in the form of corporate SA bankers looking for sustainable growth.
Francois Otto … Bullish about Africa over the long term